<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997
REGISTRATION NO. 333-31611
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICAN PHYSICIAN PARTNERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8099 75-2648089
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
2301 NATIONSBANK PLAZA
901 MAIN STREET, DALLAS, TEXAS 75202-3721
(214) 761-3100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PAUL M. JOLAS, ESQ.
GENERAL COUNSEL, SENIOR VICE PRESIDENT AND SECRETARY
AMERICAN PHYSICIAN PARTNERS, INC.
2301 NATIONSBANK PLAZA
901 MAIN STREET
DALLAS, TEXAS 75202-3721
(214) 761-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C> <C>
RICHARD A. FINK, ESQ. THEODORE W. HIRSH, ESQ. ROBERT A. SHELTON, ESQ.
BROBECK, PHLEGER & HARRISON LLP LAW OFFICES OF VENABLE, BAETJIR & HOWARD LLP
4675 MACARTHUR COURT, SUITE 1000 PETER G. ANGELOS, P.C. 1800 MERCANTILE BANK &
NEWPORT BEACH, CALIFORNIA 92660 ONE CHARLES CENTER, 22ND FLOOR TRUST BLDG.
(714) 752-7535 100 NORTH CHARLES STREET 2 HOPKINS PLAZA
BALTIMORE, MARYLAND 21201 BALTIMORE, MARYLAND 21201
(410) 659-0100 (410) 244-7400
STEVEN R. GERSZ, ESQ. WILLIAM R. CREASEY, ESQ. STEVEN L. TARSHIS, ESQ.
UNDERBERG & KESSLER LLP LOOPER, REED, MARK & MCGRAW DRAKE, SOMMERS, LOEB, TARSHIS &
1800 CHASE SQUARE INCORPORATED CATANIA, P.C.
ROCHESTER, NEW YORK 14604 1601 ELM STREET, SUITE 4100 ONE CORWIN COURT
(716) 258-2800 DALLAS, TEXAS 75201 P. O. BOX 1479
(214) 954-4135 NEWBURGH, NEW YORK 12550
(914) 565-1100
WALTER R. TURNER, ESQ. JEFFREY O. ELLIS, ESQ. STEPHEN S. MCCRAY, ESQ.
WENDEL, ROSEN, BLACK & LATHROP & GAGE L.C. HOGE FENTON JONES & APPEL, INC.
DEAN, LLP 9401 INDIAN CREEK PARKWAY, 60 SOUTH MARKET STREET, #1400
1111 BROADWAY, 24TH FLOOR BLDG. #40 SAN JOSE, CALIFORNIA 95113
OAKLAND, CALIFORNIA 94607 OVERLAND PARK, KANSAS 66210 (408) 287-9501
(510) 834-6600 (913) 451-5100
KENNETH K. BEZOZO, ESQ. JEROME B. COHEN, ESQ.
RICHARD M. FIJOLEK, ESQ. OPPENHEIMER, BLEND, HARRISON &
HAYNES AND BOONE, L.L.P. TATE, INC.
3100 NATIONSBANK PLAZA 711 NAVARRO, 6TH FLOOR
901 MAIN STREET SAN ANTONIO, TEXAS 78205-1796
DALLAS, TEXAS 75202 (210) 224-2000
(214) 651-5000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
Upon consummation of the Mergers and Exchanges described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATIONS STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
AD RAD, INC.
IMPORTANT SECURITY HOLDER COMMUNICATION
October 30, 1997
Dear Security Holder:
You are cordially invited to attend the special meeting (the "Special
Meeting") of security holders of Ad Rad, Inc., a Maryland corporation
("Advanced"), to be held on November 3, 1997 at 7253 Ambassador Road, Baltimore,
Maryland 21244, commencing at 6:00 p.m., local time. At the Special Meeting,
security holders of Advanced will consider and make a fundamental determination
regarding the future direction of Advanced.
At the Special Meeting, Advanced's security holders will be asked to act
upon a proposal to approve and adopt the Agreement and Plan of Reorganization
and Merger, dated as of June 27, 1997, as amended (the "Advanced Merger
Agreement") by and between American Physician Partners, Inc., a Delaware
corporation ("APPI"), and Advanced and approve the transactions contemplated by
the Advanced Merger Agreement. Pursuant to the Advanced Merger Agreement, (1)
Advanced will merge with and into APPI and will cease to exist as a separate
entity (the "Advanced Merger") and (2) each outstanding share of Common Stock of
Advanced will be converted into the right to receive shares of Common Stock of
APPI and cash. The terms and conditions of the Advanced Merger Agreement are
described in the accompanying Notice of Special Meeting of Security Holders and
Prospectus/Joint Proxy Statement. The complete text of the Advanced Merger
Agreement is attached as Appendix A to the Prospectus/Joint Proxy Statement.
ADVANCED'S BOARD OF DIRECTORS HAS APPROVED THE ADVANCED MERGER AGREEMENT
AND THE ADVANCED MERGER AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL
AND ADOPTION OF THE ADVANCED MERGER AGREEMENT AND APPROVAL OF THE ADVANCED
MERGER AT THE SPECIAL MEETING.
Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of two-thirds of the shares of Advanced's
Common Stock entitled to vote thereon is required. Therefore, it is important
that your shares be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. You may revoke your proxy if you
decide to attend the Special Meeting and vote in person.
We look forward to seeing you at the Special Meeting on November 3, 1997.
Sincerely,
Michael L. Sherman, M.D.
President
<PAGE> 3
AD RAD, INC.
------------------------
NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS
TO BE HELD NOVEMBER 3, 1997
To the security holders of
Ad Rad, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the security holders of Ad Rad, Inc. ("Advanced") will be held on November 3,
1997 at 7253 Ambassador Road, Baltimore, Maryland 21244, commencing at 6:00
p.m., local time, for the following purposes:
1. To approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997, as amended (the "Advanced Merger
Agreement") by and between American Physician Partners, Inc., a Delaware
corporation ("APPI"), and Advanced and the transactions contemplated by the
Advanced Merger Agreement.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Pursuant to the Advanced Merger Agreement, (1) Advanced will merge with and
into APPI and will cease to exist as a separate entity (the "Advanced Merger")
and (2) each outstanding share of Common Stock of Advanced ("Advanced Common
Stock") will be converted into the right to receive shares of Common Stock of
APPI ("APPI Common Stock") and cash. The exact number of shares of APPI Common
Stock and the exact amount of cash into which each share of Advanced Common
Stock will be converted by reason of the Advanced Merger will not be determined
until the closing of the Advanced Merger. The closing will occur simultaneously
with the closing of the initial underwritten public offering of APPI Common
Stock (the "Initial Public Offering"). The number of shares of APPI Common Stock
and the amount of cash into which each share of Advanced Common Stock will be
converted will depend on the price per share of APPI Common Stock received by
APPI in connection with the Initial Public Offering, before deduction of any
underwriting commissions, discounts or fees relating thereto (the "Initial
Public Offering Price").
Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, each share of Advanced Common Stock will be converted into
7.5000 shares of APPI Common Stock and $35.0000 in cash. However, if the Initial
Public Offering Price of the APPI Common Stock is greater than $14.00 per share,
then (1) the number of shares of APPI Common Stock issued to each Advanced
security holder will not change (each will receive 7.5000 shares of APPI Common
Stock for each share of Advanced Common Stock held by such security holder), and
(2) each security holder will receive a greater amount of cash for each share of
Advanced Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
$35.0000 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
On the other hand, if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then (1) the amount of cash each Advanced
security holder will receive will not change (each will receive $35.0000 in cash
for each share of Advanced Common Stock held by such security holder), and (2)
each security holder will receive a greater number of shares of APPI Common
Stock for each share of Advanced Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
7.5000 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
Irrespective of the Initial Public Offering Price, each share of Advanced Common
Stock will, at a minimum, be converted into $35.0000 in cash and $105.0000 in
APPI Common Stock.
<PAGE> 4
Assuming an Initial Public Offering Price of $14.00 per share, if all
outstanding shares of Advanced Common Stock are converted in the Advanced
Merger, the aggregate consideration received by the Advanced security holders
will be approximately 3,562,500 shares of APPI Common Stock and $16,625,000 in
cash. However, Advanced security holders may dissent by voting against the
Advanced Merger. A dissenting Advanced security holder who complies with the
requirements of Sections 3-202 and 3-203 of the Maryland General Corporation Law
will have the right to demand payment for, and appraisal of, the value of his
shares. In the event that a security holder of Advanced exercises such
dissenters' rights, the aggregate consideration to be received by the Advanced
security holders will be reduced by the number of shares of APPI Common Stock
and amount of cash that such dissenting security holder would have received in
the Advanced Merger. Notwithstanding the foregoing, the exercise of dissenters'
rights by one or more Advanced security holders will have no effect on the
number of shares of APPI Common Stock and cash consideration to be received for
each share of Advanced Common Stock by non-dissenting security holders. See
"Approval of the Mergers, Exchanges and Related Transactions -- Dissenters'
Rights Regarding the Mergers" in the accompanying Prospectus/Joint Proxy
Statement.
Approval of the Advanced Merger Agreement and the Advanced Merger requires
the affirmative vote of the holders of two-thirds of the shares of Advanced
Common Stock entitled to vote thereon. If the security holders of Advanced fail
to approve by the requisite percentage the Advanced Merger Agreement and the
Advanced Merger, the Advanced Merger will not be consummated. In addition, the
closing of the Advanced Merger is contingent on the closing of each of the other
mergers and exchanges described in the accompanying Prospectus/Joint Proxy
Statement.
Only those security holders of record at the close of business on October
24, 1997 will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof. A list of security holders will be available commencing
October 31, 1997 and may be inspected during normal business hours prior to the
Special Meeting at the offices of Advanced at 7253 Ambassador Road, Baltimore,
Maryland 21244.
For the Board of Directors
H. Alexander Munitz, M.D.
Secretary
Baltimore, Maryland
October 30, 1997
<PAGE> 5
THE IDE GROUP, P.C.
IMPORTANT SECURITY HOLDER COMMUNICATION
October 30, 1997
Dear Security Holder:
You are cordially invited to attend the special meeting (the "Special
Meeting") of security holders of The Ide Group, P.C., a New York professional
corporation ("Ide"), to be held on November 3, 1997 at 2273 South Clinton
Avenue, Rochester, New York 14618, commencing at 5:30 p.m., local time. At the
Special Meeting, security holders of Ide will consider and make a fundamental
determination regarding the future direction of Ide.
At the Special Meeting, Ide's security holders will be asked to act upon a
proposal which contemplates the reorganization of Ide prior to the Ide Merger
(as defined below) in order to comply with the laws of the state of New York,
whereby Ide shall form a new wholly-owned subsidiary, Fideco, Inc., a New York
corporation ("Ide New Sub"). Ide shall then contribute all of its assets to Ide
New Sub in exchange for shares of stock in Ide New Sub. Thereafter, Ide shall
dissolve and distribute to each of the Ide security holders the stock in Ide New
Sub. Thereupon, the ownership of Ide New sub shall be identical to the ownership
of Ide prior to this reorganization (the "F Reorganization"). Ide's security
holders will be asked to approve and adopt the Agreement and Plan of
Reorganization and Merger, dated as of June 27, 1997, as amended (the "Ide
Merger Agreement") by and between American Physician Partners, Inc., a Delaware
corporation ("APPI"), and Ide New Sub and the transactions contemplated by the
Ide Merger Agreement. Pursuant to the Ide Merger Agreement, (1) Ide New Sub will
merge with and into APPI and will cease to exist as a separate entity (the "Ide
Merger") and (2) each outstanding share of Common Stock of Ide New Sub will be
converted into the right to receive shares of Common Stock of APPI and cash. The
terms and conditions of the Ide Merger Agreement are described in the
accompanying Notice of Special Meeting of Security Holders and Prospectus/Joint
Proxy Statement. The complete text of the Ide Merger Agreement is attached as
Appendix A to the Prospectus/Joint Proxy Statement.
IDE'S BOARD OF DIRECTORS HAS APPROVED THE IDE MERGER AGREEMENT AND THE IDE
MERGER AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE
IDE MERGER AGREEMENT AND APPROVAL OF THE IDE MERGER AT THE SPECIAL MEETING.
Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of three-quarters of the outstanding
shares of Ide's Common Stock is required. Therefore, it is important that your
shares be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING. You may revoke your proxy if you decide to attend
the Special Meeting and vote in person.
We look forward to seeing you at the Special Meeting on November 3, 1997.
Sincerely,
Derace L. Schaffer, M.D.
President
<PAGE> 6
THE IDE GROUP, P.C.
------------------------
NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS
TO BE HELD NOVEMBER 3, 1997
To the security holders of The Ide Group, P.C.:
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the security holders of The Ide Group, P.C. ("Ide") will be held on November 3,
1997 at 2273 South Clinton Avenue, Rochester, New York 14618, commencing at 5:30
p.m., local time, for the following purposes:
1. To approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997, as amended (the "Ide Merger Agreement")
by and between American Physician Partners, Inc., a Delaware corporation
("APPI"), and Fideco, Inc., a New York corporation ("Ide New Sub"), and the
transactions contemplated by the Ide Merger Agreement.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
In order to comply with the laws of the state of New York, prior to the Ide
Merger (as defined below) Ide shall form Ide New Sub as a wholly-owned
subsidiary of Ide. Ide shall then contribute all of its assets to Ide New Sub in
exchange for shares of stock in Ide New Sub. Thereafter, Ide shall dissolve and
distribute to each of the Ide security holders the stock in Ide New Sub.
Thereupon, the ownership of Ide New Sub shall be identical to the ownership of
Ide prior to this reorganization.
Pursuant to the Ide Merger Agreement, (1) Ide New Sub will merge with and
into APPI and will cease to exist as a separate entity (the "Ide Merger") and
(2) each outstanding share of Common Stock of Ide New Sub ("Ide Common Stock")
will be converted into the right to receive shares of Common Stock of APPI
("APPI Common Stock") and cash. The exact number of shares of APPI Common Stock
and the exact amount of cash into which each share of Ide Common Stock will be
converted by reason of the Ide Merger will not be determined until the closing
of the Ide Merger. The closing will occur simultaneously with the closing of the
initial underwritten public offering of APPI Common Stock (the "Initial Public
Offering"). The number of shares of APPI Common Stock and the amount of cash
into which each share of Ide Common Stock will be converted will depend on the
price per share of APPI Common Stock received by APPI in connection with the
Initial Public Offering, before deduction of any underwriting commissions,
discounts or fees relating thereto (the "Initial Public Offering Price").
Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, each share of Ide Common Stock will be converted into 942.5581
shares of APPI Common Stock and $4,398.6047 in cash. However, if the Initial
Public Offering Price of the APPI Common Stock is greater than $14.00 per share,
(1) the number of shares of APPI Common Stock issued to each Ide security holder
will not change (each will receive 942.5581 shares of APPI Common Stock for each
share of Ide Common Stock held by such security holder), and (2) each security
holder will receive a greater amount of cash for each share of Ide Common Stock,
calculated as follows:
<TABLE>
<S> <C> <C>
$4,398.6047 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
On the other hand, if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then (1) the amount of cash each Ide security
holder will receive will not change (each will receive $4,398.6047 in cash for
each share of Ide Common Stock held by such security holder), and (2) each
security
<PAGE> 7
holder will receive a greater number of shares of APPI Common Stock for each
share of Ide Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
942.5581 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
Irrespective of the Initial Public Offering Price, each share of Ide Common
Stock will, at a minimum, be converted into $4,398.6047 in cash and $13,195.8134
in APPI Common Stock.
Assuming an Initial Public Offering Price of $14.00 per share, if all
outstanding shares of Ide Common Stock are converted in the Ide Merger, the
aggregate consideration received by the Ide security holders will be
approximately 2,026,500 shares of APPI Common Stock and $9,457,000 in cash.
However, Ide security holders may dissent by voting against the Ide Merger. A
dissenting Ide security holder who complies with the requirements of Section 623
of the New York Business Corporation Law will have the right to demand payment
for, and appraisal of, the value of his shares. In the event that a security
holder of Ide exercises such dissenters' rights, the aggregate consideration to
be received by the Ide security holders will be reduced by the number of shares
of APPI Common Stock and amount of cash that such dissenting security holder
would have received in the Ide Merger. Notwithstanding the foregoing, the
exercise of dissenters' rights by one or more Ide security holders will have no
effect on the number of shares of APPI Common Stock and cash consideration to be
received for each share of Ide Common Stock by non-dissenting security holders.
See "Approval of the Mergers, Exchanges and Related Transactions -- Dissenters'
Rights Regarding the Mergers" in the accompanying Prospectus/Joint Proxy
Statement.
The approval of Ide Merger Agreement and Ide Merger requires the
affirmative vote of the holders of three-quarters of the outstanding shares of
Ide Common Stock. If the security holders of Ide fail to approve by the
requisite percentage the Ide Merger Agreement and Ide Merger, the Ide Merger
will not be consummated. In addition, the closing of the Ide Merger is
contingent on the closing of each of the other mergers and exchanges described
in the accompanying Prospectus/Joint Proxy Statement.
Only those security holders of record at the close of business on September
30, 1997 will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof. A list of security holders will be available commencing
October 15, 1997 and may be inspected during normal business hours prior to the
Special Meeting at the offices of Ide at 2273 South Clinton Avenue, Rochester,
New York 14618.
For the Board of Directors
Kenneth D. Pearsen, M.D.
Secretary
Rochester, New York
October 30, 1997
<PAGE> 8
M&S X-RAY ASSOCIATES, P.A.
SOUTH TEXAS MR, INC.
SAN ANTONIO MR, INC.
IMPORTANT SECURITY HOLDER COMMUNICATION
October 30, 1997
Dear Security Holder:
You are cordially invited to attend the joint special meeting (the "Special
Meeting") of security holders of M&S X-Ray Associates, P.A., a Texas
professional association ("M&S"), South Texas MR, Inc., a Texas corporation
("South Texas"), and San Antonio MR, Inc., a Texas corporation ("San Antonio"),
to be held on November 3, 1997 at 215 East Quincy, One Lexington Medical
Building, Second Floor Conference Room, San Antonio, Texas 78205, commencing at
5:45 p.m., local time. At the Special Meeting, security holders of each of M&S,
South Texas and San Antonio will consider and make a fundamental determination
regarding the future direction of each of M&S, South Texas and San Antonio,
respectively.
At the Special Meeting, M&S's security holders will be asked to act upon a
proposal to approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997, as amended (the "M&S Merger Agreement") by
and between American Physician Partners, Inc., a Delaware corporation ("APPI"),
and M&S and approve the transactions contemplated by the M&S Merger Agreement;
South Texas' security holders will be asked to act upon a proposal to approve
and adopt the Agreement and Plan of Reorganization and Merger, dated as of June
27, 1997, as amended (the "South Texas Merger Agreement") by and between APPI
and South Texas and approve the transactions contemplated by the South Texas
Merger Agreement; and San Antonio's security holders will be asked to act upon a
proposal to approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997, as amended (the "San Antonio Merger
Agreement") by and between APPI and San Antonio and approve the transactions
contemplated by the San Antonio Merger Agreement.
Pursuant to the M&S Merger Agreement, (1) M&S will merge with and into APPI
and will cease to exist as a separate entity (the "M&S Merger") and (2) each
outstanding share of Common Stock of M&S will be converted into the right to
receive shares of Common Stock of APPI and cash. Pursuant to the South Texas
Merger Agreement, (1) South Texas will merge with and into APPI and will cease
to exist as a separate entity (the "South Texas Merger") and (2) each
outstanding share of Common Stock of South Texas will be converted into the
right to receive shares of Common Stock of APPI and cash. Pursuant to the San
Antonio Merger Agreement, (1) San Antonio will merge with and into APPI and will
cease to exist as a separate entity (the "San Antonio Merger") and (2) each
outstanding share of Common Stock of San Antonio will be converted into the
right to receive shares of Common Stock of APPI and cash.
The terms and conditions of each of the M&S Merger Agreement, the South
Texas Merger Agreement and the San Antonio Merger Agreement are described in the
accompanying Notice of Special Meeting of Security Holders and Prospectus/Joint
Proxy Statement. The complete texts of the M&S Merger Agreement, the South Texas
Merger Agreement and the San Antonio Merger Agreement are attached as Appendix A
to the Prospectus/Joint Proxy Statement.
THE BOARD OF DIRECTORS OF EACH OF M&S, SOUTH TEXAS AND SAN ANTONIO HAS
APPROVED THE M&S MERGER AGREEMENT AND THE M&S MERGER, THE SOUTH TEXAS MERGER
AGREEMENT AND THE SOUTH TEXAS MERGER, AND THE SAN ANTONIO MERGER AGREEMENT AND
THE SAN ANTONIO MERGER, RESPECTIVELY, AND RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE APPROVAL AND ADOPTION OF THE APPLICABLE MERGER AGREEMENT AND THE APPROVAL OF
THE APPLICABLE MERGER AT THE SPECIAL MEETING.
<PAGE> 9
Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of two-thirds of the outstanding shares
of each such entity's Common Stock is required. Therefore, it is important that
your shares be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. You may revoke your proxy if you decide to
attend the Special Meeting and vote in person.
We look forward to seeing you at the Special Meeting on November 3, 1997.
Sincerely,
M&S X-Ray Associate, P.A.
A. Kenneth Trevino
Secretary
South Texas MR, Inc.
W. Gregory Wojcik
Secretary
San Antonio MR, Inc.
W. Gregory Wojcik
Secretary
<PAGE> 10
M&S X-RAY ASSOCIATES, P.A.
SOUTH TEXAS MR, INC.
SAN ANTONIO MR, INC.
------------------------
NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS
TO BE HELD NOVEMBER 3, 1997
To the security holders of
M&S X-Ray Associates, P.A.,
South Texas MR, Inc. and
San Antonio MR, Inc.:
NOTICE IS HEREBY GIVEN that a joint special meeting (the "Special Meeting")
of the security holders of M&S X-Ray Associates, P.A., a Texas professional
association ("M&S"), South Texas MR, Inc., a Texas corporation ("South Texas"),
and San Antonio MR, Inc., a Texas corporation ("San Antonio") will be held on
November 3, 1997 at 215 East Quincy, One Lexington Medical Building, Second
Floor Conference Room, San Antonio, Texas 78205, commencing at 5:45 p.m., local
time, for the following purposes:
1. With respect to the security holders of M&S, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27,
1997, as amended (the "M&S Merger Agreement") by and between American
Physician Partners, Inc., a Delaware corporation ("APPI"), and M&S and the
transactions contemplated by the M&S Merger Agreement. With respect to the
security holders of South Texas, to approve and adopt the Agreement and
Plan of Reorganization and Merger, dated as of June 27, 1997, as amended
(the "South Texas Merger Agreement") by and between APPI and South Texas
and the transactions contemplated by the South Texas Merger Agreement. With
respect to the security holders of San Antonio, to approve and adopt the
Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997,
as amended (the "San Antonio Merger Agreement") by and between APPI and San
Antonio and the transactions contemplated by the San Antonio Merger
Agreement.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Pursuant to the M&S Merger Agreement, M&S will merge with and into APPI and
will cease to exist as a separate entity (the "M&S Merger") and each outstanding
share of Common Stock of M&S ("M&S Common Stock") will be converted into the
right to receive shares of Common Stock of APPI ("APPI Common Stock") and cash.
Pursuant to the South Texas Merger Agreement, South Texas will merge with and
into APPI and will cease to exist as a separate entity (the "South Texas
Merger") and each outstanding share of Common Stock of South Texas ("South Texas
Common Stock") will be converted into the right to receive shares of APPI Common
Stock and cash. Pursuant to the San Antonio Merger Agreement, San Antonio will
merge with and into APPI and will cease to exist as a separate entity (the "San
Antonio Merger") and each outstanding share of Common Stock of San Antonio ("San
Antonio Common Stock") will be converted into the right to receive shares of
APPI Common Stock and cash.
The exact number of shares of APPI Common Stock and the exact amount of
cash into which each share of M&S Common Stock, South Texas Common Stock and San
Antonio Common Stock will be converted by reason of the mergers, will not be
determined until the closing of each of the respective mergers. The closings
will occur simultaneously with the closing of the initial underwritten public
offering of APPI Common Stock (the "Initial Public Offering"). The number of
shares of APPI Common Stock and the amount of cash into which each share of M&S
Common Stock, South Texas Common Stock and San Antonio Common Stock will be
converted will depend on the price per share of APPI Common Stock received by
APPI in connection with the Initial Public Offering, before deduction of any
underwriting commissions, discounts or fees relating thereto (the "Initial
Public Offering Price").
<PAGE> 11
Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, (1) each share of M&S Common Stock will be converted into
3,868.1289 shares of APPI Common Stock and $18,051.2684 in cash, (2) each share
of South Texas Common Stock will be converted into 21.3083 shares of APPI Common
Stock and $99.5167 in cash and (3) each share of San Antonio Common Stock will
be converted into 28.4313 shares of APPI Common Stock and $132.6792 in cash.
However, if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then:
M&S
The number of shares of APPI Common Stock issued to each M&S security
holder will not change (each will receive 3,868.1289 shares of APPI Common
Stock for each share of M&S Common Stock held by such security holder), and
each security holder will receive a greater amount of cash for each share
of M&S Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
$18,051.2684 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
South Texas
The number of shares of APPI Common Stock issued to each South Texas
security holder will not change (each will receive 21.3083 shares of APPI
Common Stock for each share of South Texas Common Stock held by such
security holder), and each security holder will receive a greater amount of
cash for each share of South Texas Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
$99.5167 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
San Antonio
The number of shares of APPI Common Stock issued to each San Antonio
security holder will not change (each will receive 28.4313 shares of APPI
Common Stock for each share of San Antonio Common Stock held by such
security holder), and each security holder will receive a greater amount of
cash for each share of San Antonio Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
$132.6792 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
On the other hand, if the Initial Public Offering Price of the APPI Common
Stock is less than $14.00 per share, then:
M&S
The amount of cash each M&S security holder will receive will not change
(each will receive $18,051.2684 in cash for each share of M&S Common Stock
held by such security holder), and each security holder will receive a
greater number of shares of APPI Common Stock for each share of M&S Common
Stock, calculated as follows:
<TABLE>
<S> <C> <C>
3,868.1289 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
<PAGE> 12
South Texas
The amount of cash each South Texas security holder will receive will not
change (each will receive $99.5167 in cash for each share of South Texas
Common Stock held by such security holder), and each security holder will
receive a greater number of shares of APPI Common Stock for each share of
South Texas Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
21.3083 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
San Antonio
The amount of cash each San Antonio security holder will receive will not
change (each will receive $132.6792 in cash for each share of San Antonio
Common Stock held by such security holder), and each security holder will
receive a greater number of shares of APPI Common Stock for each share of
San Antonio Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
28.4313 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
Irrespective of the Initial Public Offering Price, (1) each share of M&S Common
Stock will, at a minimum, be converted into $18,051.2684 in cash and
$54,153.8046 in APPI Common Stock, (2) each share of South Texas Common Stock
will, at a minimum, be converted into $99.5167 in cash and $298.3162 in APPI
Common Stock, and (3) each share of San Antonio Common Stock will, at a minimum,
be converted into $132.6729 in cash and $398.0382 in APPI Common Stock.
Assuming an Initial Public Offering Price of $14.00 per share (1) if all
outstanding shares of M&S Common Stock are converted in the M&S Merger, the
aggregate consideration received by the M&S security holders will be
approximately 734,945 shares of APPI Common Stock and $3,429,741 in cash, (2) if
all outstanding shares of South Texas Common Stock are converted in the South
Texas Merger, the aggregate consideration received by the South Texas security
holders will be approximately 2,557 shares of APPI Common Stock and $11,942 in
cash and (3) if all outstanding shares of San Antonio Common Stock are converted
in the San Antonio Merger, the aggregate consideration received by the San
Antonio security holders will be approximately 3,412 shares of APPI Common Stock
and $15,922 in cash. However, security holders of M&S, South Texas and San
Antonio may dissent by voting against the M&S Merger, South Texas Merger and San
Antonio Merger, respectively. A dissenting security holder of M&S, South Texas
or San Antonio who complies with the requirements of Articles 5.11 and 5.12 of
the Texas Business Corporation Act will have the right to demand payment for,
and appraisal of, the value of his shares. In the event that a security holder
of M&S, South Texas or San Antonio exercises such dissenters' rights, the
aggregate consideration to be received by the M&S, South Texas or San Antonio
security holders, as the case may be, will be reduced by the number of shares of
APPI Common Stock and amount of cash that such dissenting security holder would
have received in the applicable merger. Notwithstanding the foregoing, the
exercise of dissenters' rights by one or more security holders of M&S, South
Texas or San Antonio will have no effect on the number of shares of APPI Common
Stock and cash consideration to be received for each share of M&S Common Stock,
South Texas Common Stock or San Antonio Common Stock, as applicable, by
non-dissenting security holders. See "Approval of the Mergers, Exchanges and
Related Transactions -- Dissenters' Rights Regarding the Mergers" in the
accompanying Prospectus/Joint Proxy Statement.
The approval of each of the M&S Merger Agreement and M&S Merger, the South
Texas Merger Agreement and South Texas Merger and the San Antonio Merger
Agreement and San Antonio Merger requires the affirmative vote of the holders of
two-thirds of the outstanding shares of each respective entity's Common Stock.
If the security holders of M&S, South Texas or San Antonio fail to approve by
the requisite percentage the applicable merger agreement and merger, such merger
will not be consummated. In addition the closing of each of the mergers
described herein is contingent on the closing of (1) each of the other mergers
described herein and (2) each of the other mergers and exchanges described in
the accompanying Prospectus/Joint Proxy Statement.
<PAGE> 13
Only those security holders of record at the close of business on October
1, 1997 will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof. A list of security holders of each of M&S, South Texas and
San Antonio will be available commencing October 24, 1997 and may be inspected
during normal business hours prior to the Special Meeting at the offices of each
of M&S, South Texas and San Antonio at 730 North Main Avenue, Suite B109, San
Antonio, Texas 78205.
For the Board of Directors of M&S
A. Kenneth Trevino
Secretary of the Board of M&S
For the Board of Directors of
South Texas and San Antonio
W. Gregory Wojcik
Secretary of the Board of
South Texas and San Antonio
San Antonio, Texas
October 30, 1997
<PAGE> 14
LEXINGTON MR LTD.
MADISON SQUARE JOINT VENTURE
SOUTH TEXAS NO. 1 MRI LIMITED PARTNERSHIP
SAN ANTONIO MRI PARTNERSHIP NO. 2, LTD.
IMPORTANT SECURITY HOLDER COMMUNICATION
October 30, 1997
Dear Partners:
You are cordially invited to attend the joint special meeting (the "Special
Meeting") of holders of partnership interests (the "Interests") of Lexington MR
Ltd., a Texas limited partnership ("Lexington"), Madison Square Joint Venture, a
Texas general partnership ("Madison"), South Texas No. 1 MRI Limited
Partnership, a Texas limited partnership ("South Texas No. 1"), and San Antonio
MRI Partnership No. 2 Ltd., a Texas limited partnership ("San Antonio No. 2"),
to be held on November 3, 1997 at 215 East Quincy, One Lexington Medical
Building, Second Floor Conference Room, San Antonio, Texas 78205, commencing at
5:45 p.m., local time. At the Special Meeting, holders of Interests will
consider and make a fundamental determination regarding the future direction of
each of Lexington, Madison, South Texas No. 1 and San Antonio No. 2.
At the Special Meeting, holders of Interests of Lexington will be asked to
act upon a proposal to approve and adopt the Agreement and Plan of Exchange (the
"Lexington Exchange Agreement") by and among American Physician Partners, Inc.,
a Delaware corporation ("APPI"), and holders of certain Interests of Lexington
and the transactions contemplated by the Lexington Exchange Agreement; holders
of Interests of Madison will be asked to act upon a proposal to approve and
adopt the Agreement and Plan of Exchange (the "Madison Exchange Agreement") by
and among APPI and holders of certain Interests of Madison and the transactions
contemplated by the Madison Exchange Agreement; holders of Interests of South
Texas No. 1 will be asked to act upon a proposal to approve and adopt the
Agreement and Plan of Exchange (the "South Texas No. 1 Exchange Agreement") by
and among APPI and holders of certain Interests of South Texas No. 1 and the
transactions contemplated by the South Texas No. 1 Exchange Agreement; and
holders of Interests of San Antonio No. 2 will be asked to act upon a proposal
to approve and adopt the Agreement and Plan of Exchange (the "San Antonio No. 2
Exchange Agreement") by and among APPI and holders of certain Interests of San
Antonio No. 2 and the transactions contemplated by the San Antonio No. 2
Exchange Agreement. Pursuant to the Lexington Exchange Agreement, APPI shall
exchange cash and shares of Common Stock of APPI ("APPI Common Stock") for
Interests of Lexington. Pursuant to the Madison Exchange Agreement, APPI shall
exchange cash and shares of APPI Common Stock for Interests of Madison. Pursuant
to the South Texas No. 1 Exchange Agreement, APPI shall exchange cash and shares
of APPI Common Stock for Interests of South Texas No. 1. Pursuant to the San
Antonio No. 2 Exchange Agreement, APPI shall exchange cash and shares of APPI
Common Stock for Interests of San Antonio No. 2.
The terms and conditions of each of the Lexington Exchange Agreement, the
Madison Exchange Agreement, the South Texas No. 1 Exchange Agreement and the San
Antonio No. 2 Exchange Agreement are described in the accompanying Notice of
Special Meeting of Security Holders and Prospectus/Joint Proxy Statement. The
complete texts of each of the Lexington Exchange Agreement, the Madison Exchange
Agreement, the South Texas No. 1 Exchange Agreement and the San Antonio No. 2
Exchange Agreement are attached as Appendix A to the Prospectus/Joint Proxy
Statement.
Under Lexington's Amended and Restated Agreement of Limited Partnership and
Texas Law, the General Partner may not transfer its Interest as a General
Partner of Lexington without the consent of limited partners who own more than
50% of the distributive share of profits and losses of the partnership owned by
all of the limited partners and the limited partners of Lexington may not
transfer their limited partnership Interests without the General Partner's
consent.
<PAGE> 15
Under Madison's Joint Venture Agreement and Texas Law, the holders of
two-thirds of the Interests of Madison must approve the Madison Exchange
Agreement.
Under South Texas No. 1's limited partnership Agreement and Texas Law, the
approval of one or more limited partners holding in the aggregate two-thirds of
the percentage ownership Interests held by the limited partners as a class is
necessary for the transfer of the General Partner's Interests in South Texas No.
1 and the approval of one or more partners, other than the transferor partner,
holding in the aggregate two-thirds of all of the percentage ownership interests
in South Texas No. 1 is necessary for transfer of a Limited Partner's Interests
in South Texas No. 1.
Under San Antonio No. 2's limited partnership Agreement and Texas Law, the
approval of one or more limited partners holding in the aggregate two-thirds of
the percentage ownership Interests held by the limited partners as a class is
necessary for the transfer of the General Partner's Interest in San Antonio No.
2 and the approval of one or more partners, other than the transferor partner,
holding in the aggregate two-thirds of all of the percentage ownership interests
in San Antonio No. 2 is necessary for transfer of a Limited Partner's Interest
in San Antonio No. 2.
Your participation in the Special Meeting, in person or by proxy, is
important. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING. You may revoke your proxy if you decide to attend the
Special Meeting and vote in person.
In addition, if you intend to exchange your Interests in either Lexington,
Madison, South Texas No. 1 or San Antonio No. 2, as the case may be, you will be
asked to, and at such time you must, enter into the applicable Exchange
Agreement.
<PAGE> 16
We look forward to seeing you at the Special Meeting on November 3, 1997.
Sincerely,
For the General Partner of Lexington
San Antonio MRI Partnership No. 2,
Ltd.
By: San Antonio MR. Inc.
General Partner
For the general partners of Madison
Randall S. Preissig
Managing Partner
For the General Partner of South Texas
No. 1
South Texas MR, Inc.
By: Randall S. Preissig
President
For the General Partner of San Antonio
No. 2
San Antonio MR. Inc.
By: Randall S. Preissig
President
<PAGE> 17
LEXINGTON MR LTD.
MADISON SQUARE JOINT VENTURE
SOUTH TEXAS NO. 1 MRI LIMITED PARTNERSHIP
SAN ANTONIO MRI PARTNERSHIP NO. 2, LTD.
------------------------
NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS
TO BE HELD NOVEMBER 3, 1997
To the partners of
Lexington, Madison, South Texas No. 1
and San Antonio No. 2 (as defined below):
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the holders of partnership interests (the "Interests") of Lexington MR Ltd., a
Texas limited partnership ("Lexington"), Madison Square Joint Venture, a Texas
general partnership ("Madison"), South Texas No. 1 MRI Limited Partnership, a
Texas limited partnership ("South Texas No. 1"), and San Antonio MRI Partnership
No. 2 Ltd., a Texas limited partnership ("San Antonio No. 2") (collectively, the
"Exchange Entities"), will be held on November 3, 1997 at 215 East Quincy, One
Lexington Medical Building, Second Floor Conference Room, San Antonio, Texas
78205, commencing at 5:45 p.m., local time, for the following purposes:
1. With respect to the partners of Lexington, to approve and adopt the
Agreement and Plan of Exchange, (the "Lexington Exchange Agreement") by and
between American Physician Partners, Inc., a Delaware corporation ("APPI"),
and holders of certain Interests of Lexington and the transactions
contemplated by the Lexington Exchange Agreement. With respect to the
partners of Madison, to approve and adopt the Agreement and Plan of
Exchange, (the "Madison Exchange Agreement") by and between APPI and
holders of certain Interests of Madison and the transactions contemplated
by the Madison Exchange Agreement. With respect to South Texas No. 1, to
approve and adopt the Agreement and Plan of Exchange, (the "South Texas No.
1 Exchange Agreement") by and between APPI and holders of certain Interests
of South Texas No. 1 and the transactions contemplated by the South Texas
No. 1 Exchange Agreement. With respect to the partners of San Antonio No.
2, to approve and adopt the Agreement and Plan of Exchange, (the "San
Antonio No. 2 Exchange Agreement") by and between APPI and holders of
certain Interests of San Antonio No. 2 and the transactions contemplated by
the San Antonio No. 2 Exchange Agreement.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Pursuant to the Lexington Exchange Agreement, each of the partners of
Lexington, except for Baptist Memorial Hospital System and San Antonio No. 2,
will exchange his Interests in Lexington for shares of Common Stock of APPI
("APPI Common Stock") and cash. However, APPI, will also acquire San Antonio No.
2's Interest in Lexington upon the consummation of the transactions contemplated
in the San Antonio No. 2 Exchange Agreement. Accordingly, following the
consummation of the exchanges described herein, APPI will own approximately
78.9% of the Interests in Lexington and Baptist Memorial Hospital System will
own the remaining 21.1% of the Interests in Lexington. Pursuant to the Madison
Exchange Agreement, each of the partners of Madison will exchange his Interests
in Madison for shares of APPI Common Stock and cash. Pursuant to the South Texas
No. 1 Exchange Agreement, each of the partners of South Texas No. 1, except for
South Texas, will exchange his Interests in South Texas No. 1 for shares of APPI
Common Stock and cash. However, APPI will also acquire South Texas' Interest in
South Texas No. 1 upon consummation of the proposed merger of South Texas with
and into APPI described in the accompanying Prospectus/Joint Proxy Statement.
Pursuant to the San Antonio No. 2 Exchange Agreement, each of the partners of
San Antonio No. 2, except for San Antonio, will exchange his Interests in San
Antonio No. 2 for shares of APPI Common Stock and cash. However, APPI will also
acquire San Antonio's Interests in San Antonio
<PAGE> 18
No. 2 upon consummation of the proposed merger of San Antonio with and into APPI
described in the accompanying Prospectus/Joint Proxy Statement.
The exact number of shares of APPI Common Stock and the exact amount of
cash for which the Interests of each of the Exchange Entities will be converted
by reason of each respective exchange, will not be determined until the closing
of such exchanges. The closings will occur simultaneously with the closing of
the initial underwritten public offering of APPI Common Stock (the "Initial
Public Offering"). The number of shares of APPI Common Stock and the amount of
cash into which such Interests will be exchanged will depend on the price per
share of APPI Common Stock received by APPI in connection with the Initial
Public Offering, before deduction of any underwriting commission, discounts or
fees relating thereto (the "Initial Public Offering Price").
Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share: (i) the Interests of Lexington will be converted into an
aggregate of 108,092 shares of APPI Common Stock and $504,427 in cash, (ii) the
Interests of Madison will be converted into an aggregate of 123,502 shares of
APPI Common Stock and $576,342 in cash, (iii) the Interests of South Texas No. 1
will be converted into an aggregate of 253,221 shares of APPI Common Stock and
$1,181,698 in cash and (iv) the Interests of San Antonio No. 2 will be converted
into an aggregate of 337,754 shares of APPI Common Stock and $1,576,187 in cash.
However, if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then:
Lexington
The aggregate number of shares of APPI Common Stock issued to holders of
Interests in Lexington will not change (holders of Interests in Lexington
will receive an aggregate of 108,092 shares of APPI Common Stock), and such
holders of Interests in Lexington will receive a greater aggregate amount
of cash, calculated as follows:
<TABLE>
<S> <C> <C>
$504,427 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
Madison
The aggregate number of shares of APPI Common Stock issued to holders of
Interests in Madison will not change (holders of Interests in Madison will
receive an aggregate of 123,502 shares of APPI Common Stock), and such
holders of Interests in Madison will receive a greater aggregate amount of
cash, calculated as follows:
<TABLE>
<S> <C> <C>
$576,342 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
South Texas No. 1
The aggregate number of shares of APPI Common Stock issued to holders of
Interests in South Texas No. 1 will not change (holders of Interests in
South Texas No. 1 will receive an aggregate of 253,221 shares of APPI
Common Stock), and such holders of Interests in South Texas No. 1 will
receive a greater aggregate amount of cash, calculated as follows:
<TABLE>
<S> <C> <C>
$1,181,698 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
<PAGE> 19
San Antonio No. 2
The aggregate number of shares of APPI Common Stock issued to holders of
Interests in San Antonio No. 2 will not change (holders of Interests in San
Antonio No. 2 will receive an aggregate of 337,754 shares of APPI Common
Stock), and such holders of Interests in San Antonio No. 2 will receive a
greater aggregate amount of cash, calculated as follows:
<TABLE>
<S> <C> <C>
$1,576,187 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
On the other hand, if the Initial Public Offering Price of the APPI Common
Stock is less than $14.00 per share, then:
Lexington
The aggregate amount of cash received by holders of Interests in Lexington
will not change (holders of Interests in Lexington will receive an
aggregate of $504,427 in cash), and such holders of Interests in Lexington
will receive a greater aggregate number of shares of APPI Common Stock,
calculated as follows:
<TABLE>
<S> <C> <C>
108,092 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
Madison
The aggregate amount of cash received by holders of Interests in Madison
will not change (holders of Interests in Madison will receive an aggregate
of $576,342 in cash), and such holders of Interests in Madison will receive
a greater aggregate number of shares of APPI Common Stock, calculated as
follows:
<TABLE>
<S> <C> <C>
123,502 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
South Texas No. 1
The aggregate amount of cash received by holders of Interests in South
Texas No. 1 will not change (holders of Interests in South Texas No. 1 will
receive an aggregate of $1,181,698 in cash), and such holders of Interests
in South Texas No. 1 will receive a greater aggregate number of shares of
APPI Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
253,221 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
San Antonio No. 2
The aggregate amount of cash received by holders of Interests in San
Antonio No. 2 will not change (holders of Interests in San Antonio No. 2
will receive an aggregate of $1,576,187 in cash), and such holders of
Interests in San Antonio No. 2 will receive a greater aggregate number of
shares of APPI Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
337,754 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
Irrespective of the Initial Public Offering Price, (1) the Interests in
Lexington will, at a minimum, be converted into an aggregate of $504,427 in cash
and $1,513,288 in APPI Common Stock, (2) the Interests in Madison will, at a
minimum, be converted into an aggregate of $576,342 in cash and $1,729,028 in
APPI Common Stock, (3) the Interests in South Texas No. 1 will, at a minimum, be
converted into an aggregate of
<PAGE> 20
$1,181,698 in cash and $3,545,094 in APPI Common Stock and (4) the Interests in
San Antonio No. 2 will, at a minimum, be converted into $1,576,187 in cash and
$4,728,556 in APPI Common Stock.
If the partners of Lexington, Madison, South Texas No. 1 and San Antonio
No. 2 fail to approve by the requisite percentage the applicable exchange
agreement and exchange, such exchange will not be consummated. In addition, the
closing of each of the exchanges described herein is contingent on the closing
of (1) each of the other exchanges described herein and (2) each of the mergers
described in the accompanying Prospectus/Joint Proxy Statement.
Only those security holders of record at the close of business on October
1, 1997 will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof. A list of security holders of each of Lexington, Madison,
South Texas No. 1 and San Antonio No. 2 will be available commencing October 24,
1997 and may be inspected during normal business hours prior to the Special
Meeting at the offices of each of Lexington, Madison, South Texas No. 1 and San
Antonio No. 2 at 730 North Main Avenue, Suite B109, San Antonio, Texas 78205.
San Antonio, Texas
October 30, 1997
For the General Partner of Lexington
San Antonio MRI Partnership No. 2,
Ltd.
By: San Antonio MR Inc.
General Partner
For the general partners of Madison
Randall S. Preissig
Managing Partner
For the General Partner of South Texas
No. 1
South Texas MR Inc.
By: Randall S. Preissig
President
For the General Partner of San Antonio
No. 2
San Antonio MR Inc.
By: Randall S. Preissig
President
<PAGE> 21
PACIFIC IMAGING CONSULTANTS, A MEDICAL GROUP, INC.
TOTAL MEDICAL IMAGING, INC.
------------------------
IMPORTANT SECURITY HOLDER COMMUNICATION
October 30, 1997
Dear Security Holder:
You are cordially invited to attend the joint special meeting (the "Special
Meeting") of security holders of Pacific Imaging Consultants, A Medical Group,
Inc., a California corporation ("Pacific"), and Total Medical Imaging, a
California corporation ("TMI"), to be held on November 3, 1997 at 350 Hawthorne
Avenue, Oakland, California 94609, commencing at 6:00 p.m., local time. At the
Special Meeting, security holders of each of Pacific and TMI will consider and
make a fundamental determination regarding the future direction of each of
Pacific and TMI, respectively.
At the Special Meeting, Pacific's security holders will be asked to act
upon a proposal to approve and adopt the Agreement and Plan of Reorganization
and Merger, dated as of June 27, 1997, as amended (the "Pacific Merger
Agreement") by and between American Physician Partners, Inc., a Delaware
corporation ("APPI"), and Pacific and approve the transactions contemplated by
the Pacific Merger Agreement. Pursuant to the Pacific Merger Agreement, (1) a
separate subsidiary of APPI will merge with and into Pacific and such subsidiary
will cease to exist as a separate entity (the "Pacific Merger") and (2) each
outstanding share of Common Stock of Pacific will be converted into the right to
receive shares of Common Stock of APPI ("APPI Common Stock") and cash. The terms
and conditions of the Pacific Merger Agreement are described in the accompanying
Notice of Special Meeting of Security Holders and Prospectus/Joint Proxy
Statement. The complete text of the Pacific Merger Agreement is attached as
Appendix A to the Prospectus/Joint Proxy Statement.
In addition, at the Special Meeting, TMI's security holders will be asked
to act upon a proposal to approve and adopt the Agreement and Plan of
Reorganization and Merger, dated as of June 27, 1997, as amended (the "TMI
Merger Agreement") by and between APPI and TMI and approve the transactions
contemplated by the TMI Merger Agreement. Pursuant to the TMI Merger Agreement,
(1) a separate subsidiary of APPI will merge with and into TMI and such
subsidiary will cease to exist as a separate entity (the "TMI Merger") and (2)
each outstanding share of Common Stock of TMI will be converted into the right
to receive shares of APPI Common Stock and cash. The terms and conditions of the
TMI Merger Agreement are described in the accompanying Notice of Special Meeting
of Security Holders and Prospectus/Joint Proxy Statement. The complete text of
the TMI Merger Agreement is attached as Appendix A to the Prospectus/Joint Proxy
Statement.
THE BOARD OF DIRECTORS OF EACH OF PACIFIC AND TMI HAS APPROVED THE PACIFIC
MERGER AGREEMENT AND THE PACIFIC MERGER AND THE TMI MERGER AGREEMENT AND THE TMI
MERGER, RESPECTIVELY, AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND
ADOPTION OF EACH SUCH MERGER AGREEMENT AND THE APPROVAL OF THE APPLICABLE MERGER
AT THE SPECIAL MEETING.
Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of a majority of the outstanding shares
of each entity's Common Stock is required. Therefore, it is important that your
shares be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING. You may revoke your proxy if you decide to attend
the Special Meeting and vote in person.
We look forward to seeing you at the Special Meeting on November 3, 1997.
Sincerely,
Less T. Chafen, M.D.
Chairman of the Board of Pacific and TMI
<PAGE> 22
PACIFIC IMAGING CONSULTANTS, A MEDICAL GROUP, INC.
TOTAL MEDICAL IMAGING, INC.
------------------------
NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS
TO BE HELD NOVEMBER 3, 1997
To the security holders of Pacific Imaging Consultants, A Medical Group, Inc.,
and Total Medical Imaging, Inc.:
NOTICE IS HEREBY GIVEN that a joint special meeting (the "Special Meeting")
of the security holders of Pacific Imaging Consultants, A Medical Group, Inc., a
California corporation ("Pacific"), and Total Medical Imaging, a California
corporation ("TMI") will be held on November 3, 1997 at 350 Hawthorne Avenue,
Oakland, California 94609, commencing at 6:00 p.m., local time, for the
following purposes:
1. With respect to the security holders of Pacific, to approve and
adopt the Agreement and Plan of Reorganization and Merger, dated as of June
27, 1997, as amended (the "Pacific Merger Agreement") by and between
American Physician Partners, Inc., a Delaware corporation ("APPI"), and
Pacific and the transactions contemplated by the Pacific Merger Agreement.
With respect to the security holders of TMI, to approve and adopt the
Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997,
as amended (the "TMI Merger Agreement") by and between APPI and TMI and the
transactions contemplated by the TMI Merger Agreement.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Pursuant to the Pacific Merger Agreement, (1) a separate subsidiary of APPI
will merge with and into Pacific and such subsidiary will cease to exist as a
separate entity (the "Pacific Merger") and (2) each outstanding share of Common
Stock of Pacific ("Pacific Common Stock") will be converted into the right to
receive shares of Common Stock of APPI ("APPI Common Stock") and cash. Pursuant
to the TMI Merger Agreement, (1) a separate subsidiary of APPI will merge with
and into TMI and such subsidiary will cease to exist as a separate entity (the
"TMI Merger") and (2) each outstanding share of Common Stock of TMI ("TMI Common
Stock") will be converted into the right to receive shares of APPI Common Stock
and cash.
The exact number of shares of APPI Common Stock and the exact amount of
cash into which each share of Pacific Common Stock and TMI Common Stock will be
converted by reason of the Pacific Merger and TMI Merger, respectively, will not
be determined until their respective closings. The closings will occur
simultaneously with the closing of the initial underwritten public offering of
APPI Common Stock (the "Initial Public Offering"). The number of shares of APPI
Common Stock and the amount of cash into which each share of Pacific Common
Stock and TMI Common Stock will be converted will depend on the price per share
of APPI Common Stock received by APPI in connection with the Initial Public
Offering, before deduction of any underwriting commissions, discounts or fees
relating thereto (the "Initial Public Offering Price").
Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share: (1) each share of Pacific Common Stock will be converted into
41.5926 shares of APPI Common Stock and $194.0989 in cash and (2) each share of
TMI Common Stock will be converted into 2.2396 shares of APPI Common Stock and
$10.4515 in cash.
<PAGE> 23
However, if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then:
Pacific
The number of shares of APPI Common Stock issued to each Pacific security
holder will not change (each will receive 41.5926 shares of APPI common
stock for each share of Pacific Common Stock held by such security holder),
and each security holder will receive a greater amount of cash for each
share of Pacific Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
$194.0989 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
TMI
The number of shares of APPI Common Stock issued to each TMI security
holder will not change (each will receive 2.2396 shares of APPI common
stock for each share of TMI Common Stock held by such security holder), and
each security holder will receive a greater amount of cash for each share
of TMI Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
$10.4515 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
On the other hand, if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then:
Pacific
The amount of cash each Pacific security holder will receive will not
change (each will receive $194.0989 in cash for each share of Pacific
Common Stock held by such security holder), and each security holder will
receive a greater number of shares of APPI Common Stock for each share of
Pacific Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
41.5926 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
TMI
The amount of cash each TMI security holder will receive will not change
(each will receive $10.4515 in cash for each share of TMI Common Stock held
by such security holder), and each security holder will receive a greater
number of shares of APPI Common Stock for each share of TMI Common Stock,
calculated as follows:
<TABLE>
<S> <C> <C>
2.2396 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
<PAGE> 24
Irrespective of the Initial Public Offering Price, (1) each share of Pacific
Common Stock will, at a minimum, be converted into $194.0989 in cash and
$582.2964 in APPI Common Stock and (2) each share of TMI Common Stock will, at a
minimum, be converted into $10.4515 in cash and $31.3544 in APPI Common Stock.
Assuming an Initial Public Offering Price of $14.00 per share (1) if all
outstanding shares of Pacific Common Stock are converted in the Pacific Merger,
the aggregate consideration received by the Pacific security holders will be
approximately 457,519 shares of APPI Common Stock and $2,135,088 in cash and (2)
if all outstanding shares of TMI Common Stock are converted in the TMI Merger,
the aggregate consideration received by the TMI security holders will be
approximately 246,356 shares of APPI Common Stock and $1,149,663 in cash.
However, security holders of Pacific and TMI may dissent by voting against the
Pacific Merger and TMI Merger, respectively. A dissenting security holder of
Pacific or TMI who complies with the requirements of Sections 1300 through 1304
of the California Corporations Code will have the right to demand payment for,
and appraisal of, the value of his shares. In the event that a security holder
of Pacific or TMI exercises such dissenters' rights, the aggregate consideration
to be received by the Pacific or TMI security holders, as the case may be, will
be reduced by the number of shares of APPI Common Stock and amount of cash that
such dissenting security holder would have received in the applicable merger.
Notwithstanding the foregoing, the exercise of dissenters' rights by one or more
security holders of Pacific or TMI will have no effect on the number of shares
of APPI Common Stock and cash consideration to be received for each share of
Pacific Common Stock or TMI Common Stock, as applicable, by non-dissenting
security holders. See "Approval of the Mergers, Exchanges and Related
Transactions -- Dissenters' Rights Regarding the Mergers" in the accompanying
Prospectus/Joint Proxy Statement.
Approval of each of the Pacific Merger Agreement and the Pacific Merger and
the TMI Merger Agreement and the TMI Merger requires the affirmative vote of the
holders of a majority of the outstanding shares of each such entity's Common
Stock. If the security holders of Pacific or TMI fail to approve by the
requisite percentage the applicable merger agreement and merger, such merger
will not be consummated. In addition, the closing of each of the mergers
described herein is contingent on the closing of (1) the other merger described
herein and (2) each of the other mergers and exchanges described in the
accompanying Prospectus/Joint Proxy Statement.
Only those security holders of record at the close of business on October
16, 1997 will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof. A list of security holders of each of Pacific and TMI will
be available commencing October 31, 1997 and may be inspected during normal
business hours prior to the Special Meeting at the offices of each of Pacific
and TMI at 350 Hawthorne Avenue, Oakland, California 94609.
For the Board of Directors
Phillip J. Rich
Secretary of the Board of Pacific and
TMI
Oakland, California
October 30, 1997
<PAGE> 25
RADIOLOGY AND NUCLEAR MEDICINE
A PROFESSIONAL ASSOCIATION
IMPORTANT SECURITY HOLDER COMMUNICATION
October 30, 1997
Dear Security Holder:
You are cordially invited to attend the special meeting (the "Special
Meeting") of security holders of Radiology and Nuclear Medicine, a Professional
Association, a Kansas professional association ("RNM"), to be held on November
3, 1997 at 823 SW Mulvane, Suite 1, Topeka, Kansas 66606, commencing at 5:30
p.m., local time. At the Special Meeting, security holders of RNM will consider
and make a fundamental determination regarding the future direction of RNM.
At the Special Meeting, RNM's security holders will be asked to act upon a
proposal to approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997, as amended (the "RNM Merger Agreement") by
and between American Physician Partners, Inc., a Delaware corporation ("APPI"),
and RNM and approve the transactions contemplated by the RNM Merger Agreement.
Pursuant to the RNM Merger Agreement, (1) RNM will merge with and into APPI and
will cease to exist as a separate entity (the "RNM Merger") and (2) each
outstanding share of Common Stock of RNM will be converted into the right to
receive shares of Common Stock of APPI and in cash. The terms and conditions of
the RNM Merger Agreement are described in the accompanying Notice of Special
Meeting of Security Holders and Prospectus/Joint Proxy Statement. The complete
text of the RNM Merger Agreement is attached as Appendix A to the
Prospectus/Joint Proxy Statement.
RNM'S BOARD OF DIRECTORS HAS APPROVED THE RNM MERGER AGREEMENT AND RNM
MERGER AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE
RNM MERGER AGREEMENT AND APPROVAL OF THE RNM MERGER AT THE SPECIAL MEETING.
Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of a majority of the outstanding shares
of RNM's Common Stock is required. Therefore, it is important that your shares
be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING. You may revoke your proxy if you decide to attend the
Special Meeting and vote in person.
We look forward to seeing you at the Special Meeting on November 3, 1997.
Sincerely,
William J. Walls, M.D.
President
<PAGE> 26
RADIOLOGY AND NUCLEAR MEDICINE
A PROFESSIONAL ASSOCIATION
------------------------
NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS
TO BE HELD NOVEMBER 3, 1997
To the security holders of
Radiology and Nuclear Medicine, a Professional Association:
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the security holders of Radiology and Nuclear Medicine, a Professional
Association, a Kansas professional association ("RNM") will be held on November
3, 1997 at 823 SW Mulvane, Suite 1, Topeka, Kansas 66606, commencing at 5:30
p.m., local time, for the following purposes:
1. To approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997, as amended (the "RNM Merger Agreement")
by and between American Physician Partners, Inc., a Delaware corporation
("APPI"), and RNM and the transactions contemplated by the RNM Merger
Agreement.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Pursuant to the RNM Merger Agreement, (1) RNM will merge with and into APPI
and will cease to exist as a separate entity (the "RNM Merger") and (2) each
outstanding share of Common Stock of RNM ("RNM Common Stock") will be converted
into the right to receive shares of Common Stock of APPI ("APPI Common Stock")
and cash. The exact number of shares of APPI Common Stock and the exact amount
of cash into which each share of RNM Common Stock will be converted by reason of
the RNM Merger will not be determined until the closing of the RNM Merger. The
closings will occur simultaneously with the closing of the initial underwritten
public offering of APPI Common Stock (the "Initial Public Offering"). The number
of shares of APPI Common Stock and the amount of cash into which each share of
RNM Common Stock will be converted will depend on the price per share of APPI
Common Stock received by APPI in connection with the Initial Public Offering
(the "Initial Public Offering Price"), before deduction of any underwriting
commissions, discounts or fees relating thereto.
Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, each share of RNM Common Stock will be converted into 309.5930
shares of APPI Common Stock and $1,444.7674 in cash. However, if the Initial
Public Offering Price of the APPI Common Stock is greater than $14.00 per share,
then (1) the number of shares of APPI Common Stock issued to each RNM security
holder will not change (each will receive 309.5930 shares of APPI Common Stock
for each share of RNM Common Stock held by such security holder), and (2) each
security holder will receive a greater amount of cash for each share of RNM
Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
$1,444.7674 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
On the other hand, if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then (1) the amount of cash each RNM security
holder will receive will not change (each will receive $1,444.7674 in cash for
each share of RNM Common Stock held by such security holder), and (2) each
<PAGE> 27
security holder will receive a greater number of shares of APPI Common Stock for
each share of RNM Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
309.5930 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
Irrespective of the Initial Public Offering Price, each share of RNM Common
Stock will, at a minimum, be converted into $1,444.7674 in cash and $4,334.3020
in APPI Common Stock.
Assuming an Initial Public Offering Price of $14.00 per share, if all
outstanding shares of RNM Common Stock are converted in the RNM Merger, the
aggregate consideration received by the RNM security holders will be
approximately 958,500 shares of APPI Common Stock and $4,473,000 in cash.
However, RNM security holders may dissent by voting against the RNM Merger. A
dissenting RNM security holder who complies with the requirements of Section
17-6712 of the Kansas General Corporation Code will have the right to demand
payment for, and appraisal of, the value of his shares. In the event that a
security holder of RNM exercises such dissenters' rights, the aggregate
consideration to be received by the RNM security holders will be reduced by the
number of shares of APPI Common Stock and amount of cash that such dissenting
security holder would have received in the RNM Merger. Notwithstanding the
foregoing, the exercise of dissenters' rights by one or more RNM security
holders will have no effect on the number of shares of APPI Common Stock and
cash consideration to be received for each share of RNM Common Stock by
non-dissenting security holders. See "Approval of the Mergers, Exchanges and
Related Transactions -- Dissenters' Rights Regarding the Mergers" in the
accompanying Prospectus/Joint Proxy Statement.
Approval of the RNM Merger Agreement and the RNM Merger requires the
affirmative vote of the holders of a majority of the outstanding shares of RNM's
Common Stock. If security holders of RNM fail to approve by the requisite
percentage the RNM Merger Agreement and RNM Merger, such merger will not be
consummated. In addition, the closing of the RNM Merger is contingent on the
closing of each of the other mergers and exchanges described in the accompanying
Prospectus/Joint Proxy Statement.
Only those security holders of record at the close of business on October
13, 1997 will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof. A list of security holders will be available commencing
October 29, 1997 and may be inspected during normal business hours prior to the
Special Meeting at the offices of RNM at the Medical Park West Building, 823 SW
Mulvane, Suite 1, Topeka, Kansas 66606.
For the Board of Directors
William J. Walls, M.D.
Secretary
Topeka, Kansas
October 30, 1997
<PAGE> 28
ADVANCED IMAGING OF ORANGE COUNTY, P.C.
CENTRAL IMAGING ASSOCIATES, P.C.
MID ROCKLAND IMAGING ASSOCIATES, P.C.
NYACK MAGNETIC RESONANCE IMAGING, P.C.
PELHAM IMAGING ASSOCIATES, P.C.
ROCKLAND RADIOLOGICAL GROUP, P.C.
WOMEN'S IMAGING CONSULTANTS, P.C.
IMPORTANT SECURITY HOLDER COMMUNICATION
October 30, 1997
Dear Security Holder:
You are cordially invited to attend the joint special meeting (the "Special
Meeting") of security holders of Advanced Imaging of Orange County, P.C., a New
York professional corporation ("AIOC"), Central Imaging Associates, P.C., a New
York professional corporation ("CIA"), Mid Rockland Imaging Associates, P.C., a
New York professional corporation ("MRIA"), Nyack Magnetic Resonance Imaging,
P.C., a New York professional corporation ("Nyack"), Pelham Imaging Associates,
P.C., a New York professional corporation ("Pelham"), Rockland Radiological
Group, P.C., a New York professional corporation ("RRG") and Women's Imaging
Consultants, P.C., a New York professional corporation ("WIC") (collectively,
the "Rockland Entities"), to be held on November 3, 1997 at 18 Squadron
Boulevard, New City, New York 10956, commencing at 5:00 p.m., local time. At the
Special Meeting, security holders of each of AIOC, CIA, MRIA, Nyack, Pelham, RRG
and WIC will consider and make a fundamental determination regarding the future
direction of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC, respectively.
At the Special Meeting, the security holders of each Rockland Entity will
be asked to act upon a proposal which contemplates the reorganization of each
Rockland Entity prior to each respective merger in order to comply with the laws
of the state of New York, as follows:
-- AIOC shall form a new wholly-owned subsidiary, AIOC of Rockland, Inc., a
New York corporation ("AIOC New Sub"). AIOC shall then contribute all of
its assets to AIOC New Sub in exchange for shares of stock in AIOC New
Sub. Thereafter, AIOC shall dissolve and distribute to each of the AIOC
security holders the stock in AIOC New Sub. Thereupon, the ownership of
AIOC New Sub shall be identical to the ownership of AIOC prior to this
reorganization.
-- CIA shall form a new wholly-owned subsidiary, CIA of Rockland, Inc., a
New York corporation ("CIA New Sub"). CIA shall then contribute all of
its assets to CIA New Sub in exchange for shares of stock in CIA New
Sub. Thereafter, CIA shall dissolve and distribute to each of the CIA
security holders the stock in CIA New Sub. Thereupon, the ownership of
CIA New Sub shall be identical to the ownership of CIA prior to this
reorganization.
-- MRIA shall form a new wholly-owned subsidiary, MRI of Rockland, Inc., a
New York corporation ("MRIA New Sub"). MRIA shall then contribute all of
its assets to MRIA New Sub in exchange for shares of stock in MRIA New
Sub. Thereafter, MRIA shall dissolve and distribute to each of the MRIA
security holders the stock in MRIA New Sub. Thereupon, the ownership of
MRIA New Sub shall be identical to the ownership of MRIA prior to this
reorganization.
-- Nyack shall form a new wholly-owned subsidiary, NMR of Rockland, Inc., a
New York corporation ("Nyack New Sub"). Nyack shall then contribute all
of its assets to Nyack New Sub in exchange for shares of stock in Nyack
New Sub. Thereafter, Nyack shall dissolve and distribute to each of the
Nyack security holders the stock in Nyack New Sub. Thereupon, the
ownership of Nyack New Sub shall be identical to the ownership of Nyack
prior to this reorganization.
<PAGE> 29
-- Pelham shall form a new wholly-owned subsidiary, PIA, Inc., a New York
corporation ("Pelham New Sub"). Pelham shall then contribute all of its
assets to Pelham New Sub in exchange for shares of stock in Pelham New
Sub. Thereafter, Pelham shall dissolve and distribute to each of the
Pelham security holders the stock in Pelham New Sub. Thereupon, the
ownership of Pelham New Sub shall be identical to the ownership of
Pelham prior to this reorganization.
-- RRG shall form a new wholly-owned subsidiary, RRG of Rockland, Inc., a
New York corporation ("RRG New Sub"). RRG shall then contribute all of
its assets to RRG New Sub in exchange for shares of stock in RRG New
Sub. Thereafter, RRG shall dissolve and distribute to each of the RRG
security holders the stock in RRG New Sub. Thereupon, the ownership of
RRG New Sub shall be identical to the ownership of RRG prior to this
reorganization.
-- WIC shall form a new wholly-owned subsidiary, WIC of Rockland, Inc., a
New York corporation ("WIC New Sub"). WIC shall then contribute all of
its assets to WIC New Sub in exchange for shares of stock in WIC New
Sub. Thereafter, WIC shall dissolve and distribute to each of the WIC
security holders the stock in WIC New Sub. Thereupon, the ownership of
WIC New Sub shall be identical to the ownership of WIC prior to this
reorganization.
In addition, at the Special Meeting the security holders of each of the
foregoing entities will be asked to approve and adopt the Agreement and Plan of
Reorganization and Merger, dated as of June 27, 1997, as amended, by and between
American Physician Partners, Inc., a Delaware corporation ("APPI") and such
entity (the "Merger Agreement") and the transactions contemplated by each
respective Merger Agreement.
Pursuant to each Merger Agreement, each New Sub will merge with and into
APPI and will cease to exist as a separate entity (the "AIOC Merger," "CIA
Merger," "MRIA Merger," "Nyack Merger," "Pelham Merger," "RRG Merger" and "WIC
Merger," respectively) and each outstanding share of Common Stock of such New
Sub will be converted into the right to receive shares of Common Stock of APPI
and cash. The terms and conditions of each of the Merger Agreements, are
described in the accompanying Notice of Special Meeting of Security Holders and
Prospectus/Joint Proxy Statement. The complete texts of each of the Merger
Agreements are attached as Appendix A to the Prospectus/Joint Proxy Statement.
THE BOARD OF DIRECTORS OF EACH OF AIOC, CIA, MRIA, NYACK, PELHAM, RRG AND
WIC HAS APPROVED THEIR RESPECTIVE MERGER AGREEMENT AND MERGER AND RECOMMENDS
THAT A VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF SUCH MERGER AGREEMENT AND
APPROVAL OF THE APPLICABLE MERGER AT THE SPECIAL MEETING.
Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of two-thirds of the outstanding shares
of each such entity's Common Stock is required. Therefore, it is important that
your shares be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. You may revoke your proxy if you decide to
attend the Special Meeting and vote in person.
We look forward to seeing you at the Special Meeting on November 3, 1997.
Sincerely,
Herbert Z. Geller, M.D.
Chairman of the Board of AIOC, CIA,
MRIA, Nyack, Pelham, RRG and WIC
<PAGE> 30
ADVANCED IMAGING OF ORANGE COUNTY, P.C.
CENTRAL IMAGING ASSOCIATES, P.C.
MID ROCKLAND IMAGING ASSOCIATES, P.C.
NYACK MAGNETIC RESONANCE IMAGING, P.C.
PELHAM IMAGING ASSOCIATES, P.C.
ROCKLAND RADIOLOGICAL GROUP, P.C.
WOMEN'S IMAGING CONSULTANTS, P.C.
------------------------
NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS
TO BE HELD NOVEMBER 3, 1997
To the security holders of
AIOC, CIA, MRIA, Nyack, Pelham
RRG and WIC (as defined below):
NOTICE IS HEREBY GIVEN that a joint special meeting (the "Special Meeting")
of the security holders of Advanced Imaging of Orange County, P.C., a New York
professional corporation ("AIOC"), Central Imaging Associates, P.C., a New York
professional corporation ("CIA"), Mid Rockland Imaging Associates, P.C., a New
York professional corporation ("MRIA"), Nyack Magnetic Resonance Imaging, P.C.,
New York professional corporation ("Nyack"), Pelham Imaging Associates, P.C., a
New York professional corporation ("Pelham"), Rockland Radiological Group, P.C.,
a New York professional corporation ("RRG") and Women's Imaging Consultants,
P.C., a New York professional corporation ("WIC"), will be held on November 3,
1997 at 18 Squadron Boulevard, New City, New York 10956, commencing at 5:00
p.m., local time, for the following purposes:
1. With respect to the security holders of AIOC, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27,
1997, as amended (the "AIOC Merger Agreement") by and between American
Physician Partners, Inc., a Delaware corporation ("APPI"), and AIOC of
Rockland, Inc., a New York corporation ("AIOC New Sub") and the
transactions contemplated by the AIOC Merger Agreement.
2. With respect to the security holders of CIA, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27,
1997, as amended (the "CIA Merger Agreement") by and between APPI and CIA
of Rockland, Inc., a New York corporation ("CIA New Sub") and the
transactions contemplated by the CIA Merger Agreement.
3. With respect to the security holders of MRIA, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27,
1997, as amended (the "MRIA Merger Agreement") by and between APPI and MRI
of Rockland, Inc., a New York corporation ("MRIA New Sub") and the
transactions contemplated by the MRIA Merger Agreement.
4. With respect to the security holders of Nyack, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27,
1997, as amended (the "Nyack Merger Agreement") by and between APPI and NMR
of Rockland, Inc., a New York corporation ("Nyack New Sub") and the
transactions contemplated by the Nyack Merger Agreement.
5. With respect to the security holders of Pelham, to approve and
adopt the Agreement and Plan of Reorganization and Merger, dated as of June
27, 1997, as amended (the "Pelham Merger Agreement") by and between APPI
and PIA, Inc., a New York corporation ("Pelham New Sub") and the
transactions contemplated by the Pelham Merger Agreement.
6. With respect to the security holders of RRG, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27,
1997, as amended (the "RRG Merger Agreement") by
<PAGE> 31
and between APPI and RRG of Rockland, Inc., a New York corporation ("RRG
New Sub") and the transactions contemplated by the RRG Merger Agreement.
7. With respect to the security holders of WIC, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27,
1997, as amended (the "WIC Merger Agreement") by and between APPI and WIC
of Rockland, Inc., a New York corporation ("WIC New Sub") and the
transactions contemplated by the WIC Merger Agreement.
8. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
In order to comply with the laws of the state of New York, prior to the
Mergers (as defined below) each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
shall form AIOC New Sub, CIA New Sub, MRIA New Sub, Nyack New Sub, Pelham New
Sub, RRG New Sub and WIC New Sub, respectively, as a wholly-owned subsidiary of
such entity. Each entity shall then contribute all of its assets to its
respective New Sub in exchange for shares of stock in the New Sub. Thereafter,
each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC shall dissolve and
distribute to its respective security holders the stock in the respective New
Sub. Thereupon, the ownership of each respective New Sub shall be identical to
the ownership of each respective entity prior to this reorganization.
Pursuant to the AIOC Merger Agreement, AIOC New Sub will merge with and
into APPI and will cease to exist as a separate entity (the "AIOC Merger") and
each outstanding share of Common Stock of AIOC New Sub ("AIOC Common Stock")
will be converted into the right to receive shares of Common Stock of APPI
("APPI Common Stock") and cash. Pursuant to the CIA Merger Agreement, CIA New
Sub will merge with and into APPI and will cease to exist as a separate entity
(the "CIA Merger") and each outstanding share of Common Stock of CIA New Sub
("CIA Common Stock") will be converted into the right to receive shares of APPI
Common Stock and cash. Pursuant to the MRIA Merger Agreement, MRIA New Sub will
merge with and into APPI and will cease to exist as a separate entity (the "MRIA
Merger") and each outstanding share of Common Stock of MRIA New Sub ("MRIA
Common Stock") will be converted into the right to receive shares of APPI Common
Stock and cash. Pursuant to the Nyack Merger Agreement, Nyack New Sub will merge
with and into APPI and will cease to exist as a separate entity (the "Nyack
Merger") and each outstanding share of Common Stock of Nyack New Sub ("Nyack
Common Stock") will be converted into the right to receive shares of APPI Common
Stock and cash. Pursuant to the Pelham Merger Agreement, Pelham New Sub will
merge with and into APPI and will cease to exist as a separate entity (the
"Pelham Merger") and each outstanding share of Common Stock of Pelham New Sub
("Pelham Common Stock") will be converted into the right to receive shares of
APPI Common Stock and cash. Pursuant to the RRG Merger Agreement, RRG New Sub
will merge with and into APPI and will cease to exist as a separate entity (the
"RRG Merger") and each outstanding share of Common Stock of RRG New Sub ("RRG
Common Stock") will be converted into the right to receive shares of APPI Common
Stock and cash. Pursuant to the WIC Merger Agreement, WIC New Sub will merge
with and into APPI and will cease to exist as a separate entity (the "WIC
Merger") and each outstanding share of Common Stock of WIC New Sub ("WIC Common
Stock") will be converted into the right to receive shares of APPI Common Stock
and cash.
The exact number of shares of APPI Common Stock and the exact amount of
cash into which each share of common stock of each entity will be converted by
reason of each respective merger will not be determined until the closing of
each of the applicable merger. The closings will occur simultaneously with the
closing of the initial underwritten public offering of APPI Common Stock (the
"Initial Public Offering"). The number of shares of APPI Common Stock and the
amount of cash into which each share of common stock of each entity will be
converted will depend on the price per share of APPI Common Stock received by
APPI in connection with the Initial Public Offering, before deduction of any
underwriting commissions, discounts or fees relating thereto (the "Initial
Public Offering Price").
Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, each share of AIOC Common Stock, CIA Common Stock, MRIA Common
Stock, Nyack Common Stock, Pelham Common Stock, RRG Common Stock and WIC Common
Stock will be converted into 1,589.4231 shares of APPI Common Stock and
$7,417.3077 in cash. However, if the Initial Public Offering Price of the APPI
<PAGE> 32
Common Stock is greater than $14.00 per share, then (1) the number of shares of
APPI Common Stock issued to each security holder of AIOC, CIA, MRIA, Nyack,
Pelham, RRG and WIC will not change (each will receive 1,589.4231 shares of APPI
Common Stock for each share of AIOC Common Stock, CIA Common Stock, MRIA Common
Stock, Nyack Common Stock, Pelham Common Stock, RRG Common Stock and WIC Common
Stock held by such security holder), and (2) each security holder will receive a
greater amount of cash for each share of AIOC Common Stock, CIA Common Stock,
MRIA Common Stock, Nyack Common Stock, Pelham Common Stock, RRG Common Stock and
WIC Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
$7,417.3077 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
On the other hand, if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then (1) the amount of cash each security holder
of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC will receive will not change
(each will receive $7,417.3077 in cash for each share of AIOC Common Stock, CIA
Common Stock, MRIA Common Stock, Nyack Common Stock, Pelham Common Stock, RRG
Common Stock and WIC Common Stock held by such security holder), and (2) each
security holder will receive a greater number of shares of APPI Common Stock for
each share of AIOC Common Stock, CIA Common Stock, MRIA Common Stock, Nyack
Common Stock, Pelham Common Stock, RRG Common Stock and WIC Common Stock,
calculated as follows:
<TABLE>
<S> <C> <C>
1,589.4231 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
Irrespective of the Initial Public Offering Price, each share of common stock of
each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC will, at a minimum, be
converted into $7,417.3077 in cash and $22,251.9234 in APPI Common Stock.
Assuming an Initial Public Offering Price of $14.00 per share, if all
outstanding shares of AIOC Common Stock, CIA Common Stock, MRIA Common Stock,
Nyack Common Stock, Pelham Common Stock, RRG Common Stock and WIC Common Stock
are converted in their respective Merger, the aggregate consideration received
by the respective security holders of AIOC, CIA, MRIA, Nyack, Pelham, RRG and
WIC will be approximately 206,625 shares of APPI Common Stock and $964,250 in
cash. However, security holders of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
may dissent by voting against the AIOC Merger, CIA Merger, MRIA Merger, Nyack
Merger, Pelham Merger, RRG Merger and WIC Merger, respectively. A dissenting
security holder of AIOC, CIA, MRIA, Nyack, Pelham, RRG or WIC who complies with
the requirements of Section 623 of the New York Business Corporation Law will
have the right to demand payment for, and appraisal of, the value of his shares.
In the event that a security holder of AIOC, CIA, MRIA, Nyack, Pelham, RRG or
WIC exercises such dissenters' rights, the aggregate consideration to be
received by the AIOC, CIA, MRIA, Nyack, Pelham, RRG or WIC security holders, as
the case may be, will be reduced by the number of shares of APPI Common Stock
and amount of cash that such dissenting security holder would have received in
the applicable merger. Notwithstanding the foregoing, the exercise of
dissenters' rights by one or more security holders of AIOC, CIA, MRIA, Nyack,
Pelham, RRG or WIC will have no effect on the number of shares of APPI Common
Stock and cash consideration to be received for each share of AIOC Common Stock,
CIA Common Stock, MRIA Common Stock, Nyack Common Stock, Pelham Common Stock,
RRG Common Stock or WIC Common Stock, as applicable, by non-dissenting security
holders. See "Approval of the Mergers, Exchanges and Related Transactions
- -- Dissenters' Rights Regarding the Mergers" in the accompanying
Prospectus/Joint Proxy Statement.
Approval of each of the AIOC Merger Agreement and AIOC Merger, the CIA
Merger Agreement and CIA Merger, the MRIA Merger Agreement and MRIA Merger, the
Nyack Merger Agreement and Nyack Merger, the Pelham Merger Agreement and Pelham
Merger, the RRG Merger Agreement and RRG Merger and the WIC Merger Agreement and
WIC Merger requires the affirmative vote of the holders of two-thirds of the
outstanding shares of each such entity's Common Stock. If the security holders
of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC fail to approve by the requisite
percentage the applicable merger agreement and merger, such merger will not be
consummated. In addition, the closing of each of the mergers described
<PAGE> 33
herein is contingent on the closing of (1) each of the other mergers described
herein and (2) each of the other mergers and exchanges described in the
accompanying Prospectus/Joint Proxy Statement.
Only those security holders of record at the close of business on October
1, 1997 will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof. A list of security holders of each of AIOC, CIA, MRIA,
Nyack, Pelham, RRG and WIC will be available commencing October 31, 1997 and may
be inspected during normal business hours prior to the Special Meeting at the
offices of each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC at 18 Squadron
Boulevard, New City, New York 10956.
For the Board of Directors
Herbert Z. Geller, M.D.
President, AIOC, CIA, MRIA, Nyack,
Pelham, RRG and WIC
New City, New York
October 30, 1997
<PAGE> 34
VALLEY RADIOLOGISTS MEDICAL GROUP, INC.
IMPORTANT SECURITY HOLDER COMMUNICATION
October 30, 1997
Dear Security Holder:
You are cordially invited to attend the special meeting (the "Special
Meeting") of security holders of Valley Radiologists Medical Group, Inc., a
California professional medical corporation ("Valley"), to be held on November
3, 1997 at 340 Dardanelli Lane, Suite 11A, Los Gatos, California 95030,
commencing at 6:30 p.m., local time. At the Special Meeting, security holders of
Valley will consider and make a fundamental determination regarding the future
direction of Valley.
At the Special Meeting, Valley's security holders will be asked to act upon
a proposal to approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997, as amended (the "Valley Merger Agreement") by
and between American Physician Partners, Inc., a Delaware corporation ("APPI"),
and Valley and approve the transactions contemplated by the Valley Merger
Agreement. Pursuant to the Valley Merger Agreement, (1) a separate subsidiary of
APPI will merge with and into Valley and such subsidiary will cease to exist as
a separate entity (the "Valley Merger") and (2) each outstanding share of Common
Stock of Valley will be converted into the right to receive shares of Common
Stock of APPI and cash. The terms and conditions of the Valley Merger Agreement
are described in the accompanying Notice of Special Meeting of Security Holders
and Prospectus/Joint Proxy Statement. The complete text of the Valley Merger
Agreement is attached as Appendix A to the Prospectus/Joint Proxy Statement.
VALLEY'S BOARD OF DIRECTORS HAS APPROVED THE VALLEY MERGER AGREEMENT AND
THE VALLEY MERGER AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND
ADOPTION OF THE VALLEY MERGER AGREEMENT AND APPROVAL OF THE VALLEY MERGER AT THE
SPECIAL MEETING.
Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of a majority of the shares of Valley's
Common Stock entitled to vote thereon is required. Therefore, it is important
that your shares be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. You may revoke your proxy if you
decide to attend the Special Meeting and vote in person.
We look forward to seeing you at the Special Meeting on November 3, 1997.
Sincerely,
Michael Myers, M.D.
Secretary
<PAGE> 35
VALLEY RADIOLOGISTS MEDICAL GROUP, INC.
------------------------
NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS
TO BE HELD NOVEMBER 3, 1997
To the security holders of
Valley Radiologists Medical Group, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the security holders of Valley Radiologists Medical Group, Inc., a California
professional medical corporation ("Valley") will be held on November 3, 1997 at
340 Dardanelli Lane, Suite 11A, Los Gatos, California 95030, commencing at 6:30
p.m., local time, for the following purposes:
1. To approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997 (the "Valley Merger Agreement") by and
between American Physician Partners, Inc., a Delaware corporation ("APPI"),
and Valley and the transactions contemplated by the Valley Merger
Agreement.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Pursuant to the Valley Merger Agreement, (1) a separate subsidiary of APPI
will merge with and into Valley and such subsidiary will cease to exist as a
separate entity (the "Valley Merger") and (2) each outstanding share of Common
Stock of Valley ("Valley Common Stock") will be converted into the right to
receive shares of Common Stock of APPI ("APPI Common Stock") and cash. The exact
number of shares of APPI Common Stock and the exact amount of cash into which
each share of Valley Common Stock will be converted by reason of the Valley
Merger will not be determined until the closing of the Valley Merger. The
closing will occur simultaneously with the closing of the initial underwritten
public offering of APPI Common Stock (the "Initial Public Offering"). The number
of shares of APPI Common Stock and the amount of cash into which each share of
Valley Common Stock will be converted will depend on the price per share of APPI
Common Stock received by APPI in connection with the Initial Public Offering,
before deduction of any underwriting commissions, discounts or fees relating
thereto (the "Initial Public Offering Price").
Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, each share of Valley Common Stock will be converted into
29.6972 shares of APPI Common Stock and $138.5868 in cash. However, if the
Initial Public Offering Price of the APPI Common Stock is greater than $14.00
per share, then (i) the number of shares of APPI Common Stock issued to each
Valley security holder will not change (each will receive 29.6972 shares of APPI
Common Stock for each share of Valley Common Stock held by such security
holder), and (ii) each security holder will receive a greater amount of cash for
each share of Valley Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
$138.5868 x Initial Public Offering Price
------------------------------
$14.00
</TABLE>
On the other hand, if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then (i) the amount of cash each Valley security
holder will receive will not change (each will receive $138.5868 in cash for
each share of Valley Common Stock held by such security holder), and (ii) each
security holder will receive a greater number of shares of APPI Common Stock for
each share of Valley Common Stock, calculated as follows:
<TABLE>
<S> <C> <C>
29.6972 x $14.00
------------------------------
Initial Public Offering Price
</TABLE>
<PAGE> 36
Irrespective of the Initial Public Offering Price, each share of Valley Common
Stock will, at a minimum, be converted into $138.5868 in cash and $415.7608 in
APPI Common Stock.
Assuming an Initial Public Offering Price of $14.00 per share, if all
outstanding shares of Valley Common Stock are converted in the Valley Merger,
the aggregate consideration received by the Valley security holders will be
approximately 592,088 shares of APPI Common Stock and $2,763,075 in cash.
However, Valley security holders may dissent by voting against the Valley
Merger. A dissenting Valley security holder who complies with the requirements
of Sections 1300 through 1304 of the California Corporations Code will have the
right to demand payment for, and appraisal of, the value of his shares. In the
event that a security holder of Valley exercises such dissenters' rights, the
aggregate consideration to be received by the Valley security holders will be
reduced by the number of shares of APPI Common Stock and amount of cash that
such dissenting security holder would have received in the Valley Merger.
Notwithstanding the foregoing, the exercise of dissenters' rights by one or more
Valley security holders will have no effect on the number of shares of APPI
Common Stock and cash consideration to be received for each share of Valley
Common Stock by non-dissenting security holders. See "Approval of the Mergers,
Exchanges and Related Transactions -- Dissenters' Rights Regarding the Mergers"
in the accompanying Prospectus/Joint Proxy Statement.
Approval of each of the Valley Merger Agreement and Valley Merger requires
the affirmative vote of the holders of a majority of the shares of Valley's
Common Stock entitled to vote thereon. If the security holders of Valley fail to
approve the Valley Merger Agreement and Valley Merger, such merger will not be
consummated. In addition, the closing of the Valley Merger is contingent on the
closing of each of the other mergers and exchanges described in the accompanying
Prospectus/Joint Proxy Statement.
Only those security holders of record at the close of business on October
13, 1997 will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof. A list of security holders is available and may be
inspected during normal business hours prior to the Special Meeting at the
offices of Valley at 110 South Winchester Boulevard, Suite J220, San Jose,
California 95128.
For the Board of Directors
Michael Myers, M.D.
Secretary
San Jose, California
October 30, 1997
<PAGE> 37
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 30, 1997
AMERICAN PHYSICIAN PARTNERS, INC.
PROSPECTUS
FOR 12,809,907 SHARES OF COMMON STOCK
JOINT PROXY STATEMENT
FOR THE ENTITIES LISTED BELOW
This Prospectus/Joint Proxy Statement is provided in connection with the
solicitation of proxies from the security holders of 20 entities which comprise
seven Founding Affiliated Practices located in California, Kansas, Maryland, New
York and Texas as follows:
(i) Ad Rad, Inc., a Maryland corporation ("Advanced" or "Advanced
Radiology").
(ii) The Ide Group, P.C., a New York professional corporation ("Ide"
or "The Ide Group").
(iii) M&S X-Ray Practices, which includes seven related entities
("M&S X-Ray Practices"):
(a) M&S X-Ray Associates, P.A., a Texas professional association
("M&S");
(b) Lexington MR Ltd., a Texas limited partnership ("Lexington");
(c) Madison Square Joint Venture, a Texas general partnership
("Madison");
(d) South Texas MR, Inc., a Texas corporation ("South Texas");
(e) South Texas No. 1 MRI Limited Partnership, a Texas limited
partnership ("South Texas No. 1");
(f) San Antonio MR, Inc., a Texas corporation ("San Antonio");
and
(g) San Antonio MRI Partnership No. 2, Ltd., a Texas limited
partnership ("San Antonio No. 2").
(iv) Pacific Imaging Consultants, which includes two related entities
("Pacific Imaging Consultants"):
(a) Pacific Imaging Consultants, A Medical Group, Inc., a
California professional medical corporation ("Pacific"); and
(b) Total Medical Imaging, Inc., a California corporation
("TMI").
(v) Radiology and Nuclear Medicine, a Professional Association, a
Kansas professional association ("RNM" or "Radiology and Nuclear
Medicine").
(vi) Rockland Radiological Group, which includes seven related
entities ("Rockland Radiological Group"):
(a) Advanced Imaging of Orange County, P.C., a New York
professional corporation ("AIOC");
(b) Central Imaging Associates, P.C., a New York professional
corporation ("CIA");
(c) Mid Rockland Imaging Associates, P.C., a New York
professional corporation ("MRIA");
(d) Nyack Magnetic Resonance Imaging, P.C., a New York
professional corporation ("Nyack");
(e) Pelham Imaging Associates, P.C., a New York professional
corporation ("Pelham");
(f) Rockland Radiological Group, P.C., a New York professional
corporation ("RRG"); and
(g) Women's Imaging Consultants, P.C., a New York professional
corporation ("WIC").
(vii) Valley Radiologists Medical Group, Inc., a California
professional medical corporation ("Valley" or the "Valley Radiology
Group").
(Continue on following page)
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED WHEN
EVALUATING THE TRANSACTIONS CONTEMPLATED BY THIS PROSPECTUS/JOINT PROXY
STATEMENT, SEE "RISK FACTORS" ON PAGES 27 THROUGH 41 OF THIS PROSPECTUS/JOINT
PROXY STATEMENT.
NEITHER THE MERGERS OR THE SECURITIES TO BE ISSUED IN THE MERGERS NOR THE
EXCHANGES OR THE SECURITIES TO BE ISSUED IN THE EXCHANGES HAS BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/JOINT PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS/JOINT PROXY STATEMENT IS OCTOBER , 1997.
<PAGE> 38
(Continued from page one)
This Prospectus/Joint Proxy Statement also constitutes the prospectus under
the Securities Act for the issuance of APPI Common Stock (i) into which common
stock of the Merger Entities will be converted upon consummation of the Merger
Transactions and (ii) for which certain outstanding partnership interests of the
Exchange Entities will be exchanged upon consummation of the Exchange
Transactions.
If the security holders of each of the Entities approve the respective
Merger Proposal or Exchange Proposal, as the case may be, and if the other
conditions specified in each respective Merger Agreement or Exchange Agreement,
as the case may be, are satisfied or waived, (i) each of Advanced, Ide, M&S,
South Texas, San Antonio, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC will
merge with and into APPI and will cease to exist as a separate entity; (ii) a
separate subsidiary of APPI will merge with and into Pacific, TMI and Valley and
each such subsidiary will cease to exist as a separate entity; and (iii) APPI
will acquire from the partners of each of Lexington, Madison, South Texas No. 1
and San Antonio No. 2 some or all of the partnership interests in each such
Exchange Entity.
The consideration to be paid to each Merger Entity is as follows:
- Each outstanding share of Advanced Common Stock will be converted into
the right to receive 7.5000 shares of APPI Common Stock and $35.0000 in
cash. If all outstanding shares of Advanced Common Stock are converted in
the Advanced Merger Transaction, the aggregate consideration paid to
security holders of Advanced will be approximately 3,562,500 shares of
APPI Common Stock and $16,625,000 in cash.
- Each outstanding share of Ide Common Stock will be converted into the
right to receive 942.5581 shares of APPI Common Stock and $4,398.6047 in
cash. If all outstanding shares of Ide Common Stock are converted in the
Ide Merger Transaction, the aggregate consideration paid to security
holders of Ide will be approximately 2,026,500 shares of APPI Common
Stock and $9,457,000 in cash.
- Each outstanding share of M&S Common Stock will be converted into the
right to receive 3,868.1289 shares of APPI Common Stock and $18,051.2684
in cash. If all outstanding shares of M&S Common Stock are converted in
the M&S Merger Transaction, the aggregate consideration paid to security
holders of M&S will be approximately 734,945 shares of APPI Common Stock
and $3,429,741 in cash.
- Each outstanding share of South Texas Common Stock will be converted into
the right to receive 21.3083 shares of APPI Common Stock and $99.5167 in
cash. If all outstanding shares of South Texas Common Stock are converted
in the South Texas Merger Transaction, the aggregate consideration paid
to security holders of South Texas will be approximately 2,557 shares of
APPI Common Stock and $11,942 in cash.
- Each outstanding share of San Antonio Common Stock will be converted into
the right to receive 28.4313 shares of APPI Common Stock and $132.6792 in
cash. If all outstanding shares of San Antonio Common Stock are converted
in the San Antonio Merger Transaction, the aggregate consideration paid
to security holders of San Antonio will be approximately 3,412 shares of
APPI Common Stock and $15,922 in cash.
- Each outstanding share of Pacific Common Stock will be converted into the
right to receive 41.5926 shares of APPI Common Stock and $194.0989 in
cash. If all outstanding shares of Pacific Common Stock are converted in
the Pacific Merger Transaction, the aggregate consideration paid to
security holders of Pacific will be approximately 457,519 shares of APPI
Common Stock and $2,135,088 in cash.
- Each outstanding share of TMI Common Stock will be converted into the
right to receive 2.2396 shares of APPI Common Stock and $10.4515 in cash.
If all outstanding shares of TMI Common Stock are converted in the TMI
Merger Transaction, the aggregate consideration paid to security holders
of TMI will be approximately 246,356 shares of APPI Common Stock and
$1,149,663 in cash.
- Each outstanding share of RNM Common Stock will be converted into the
right to receive 309.5930 shares of APPI Common Stock and $1,444.7674 in
cash. If all outstanding shares of RNM Common Stock are converted in the
RNM Merger Transaction, the aggregate consideration paid to security
ii
<PAGE> 39
(Continued previous page)
holders of RNM will be approximately 958,500 shares of APPI Common Stock
and $4,473,000 in cash.
- Each outstanding share of AIOC Common Stock, CIA Common Stock, MRIA
Common Stock, Nyack Common Stock, Pelham Common Stock, RRG Common Stock
and WIC Common Stock will be converted into the right to receive
1,589.4231 shares of APPI Common Stock and $7,417.3077 in cash. For each
of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC, if all outstanding shares
of common stock of such entities are converted in the applicable Merger
Transaction, the aggregate consideration paid to security holders of each
of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC will be approximately
206,625 shares of APPI Common Stock and $964,250 in cash.
- Each outstanding share of Valley Common Stock will be converted into the
right to receive 29.6972 shares of APPI Common Stock and $138.5868 in
cash. If all outstanding shares of Valley Common Stock are converted in
the Valley Merger Transaction, the aggregate consideration paid to
security holders of Valley will be approximately 592,088 shares of APPI
Common Stock and $2,763,075 in cash.
The shares of APPI Common Stock and cash to be received by the security
holders of the Entities upon consummation of each Merger set forth above were
determined assuming that the Initial Public Offering Price of the APPI Common
Stock will be $14.00 per share. In the event that the Initial Public Offering
Price of the APPI Common Stock is greater than $14.00 per share, the total cash
consideration received by the security holders of each of the Entities will
increase to an amount equal to the product of (i) the amount of cash such
security holders would have received had the Initial Public Offering Price been
$14.00 per share multiplied by (ii) the quotient of the Initial Public Offering
Price divided by $14.00. In the event that the Initial Public Offering Price of
the APPI Common Stock is less than $14.00 per share, the total number of shares
of APPI Common Stock received by the security holders of each of the Entities
will increase to an amount sufficient to make the aggregate value of the shares
of APPI Common Stock received by such security holders equal to the value of the
shares of APPI Common Stock they would have received had the Initial Public
Offering Price been $14.00 per share. No fractional shares of APPI Common Stock
will be issued. Any security holder otherwise entitled to receive a fractional
share of APPI Common Stock upon consummation of a Merger will receive cash,
without interest, in lieu thereof in an amount equal to such holder's
proportionate interest in a share of APPI Common Stock multiplied by the Initial
Public Offering Price of APPI Common Stock. See "The Mergers, Exchanges and
Related Transactions -- Terms of the Mergers and Exchanges -- Conversion of
Shares and Exchange of Partnership Interests."
Upon the consummation of each Exchange, certain partners of Lexington will
exchange 18.9% of the total interests of the partners in Lexington for 108,092
shares of APPI Common Stock and $504,427 in cash; certain partners of Madison
will exchange 100% of the total interests of the partners in Madison for 123,502
shares of APPI Common Stock and $576,342 in cash; certain partners of South
Texas No. 1 will exchange 99% of the total interests of the partners in South
Texas No. 1 for 253,221 shares of APPI Common Stock and $1,181,698 in cash; and
certain partners of San Antonio No. 2 will exchange 99% of the total interests
of the partners in San Antonio No. 2 for 337,754 shares of APPI Common Stock and
$1,576,187 in cash.
The shares of APPI Common Stock and cash to be received by the partners of
the Entities upon consummation of each Exchange set forth above were determined
assuming that the Initial Public Offering Price of the APPI Common Stock will be
$14.00 per share. In the event that the Initial Public Offering Price is greater
than $14.00 per share, the total cash consideration received by the partners
participating in each Exchange will increase to an amount equal to the product
of (i) the amount of cash such security holders would have received had the
Initial Public Offering Price been $14.00 per share multiplied by (ii) the
quotient of the Initial Public Offering Price divided by $14.00. In the event
that the Initial Public Offering Price is less than $14.00 per share, the total
number of shares of APPI Common Stock received by the partners participating in
each Exchange will increase to an amount sufficient to make the aggregate value
of the shares of APPI Common Stock received by such security holders equal to
the value of the shares of APPI Common Stock they would have received had the
Initial Public Offering Price been $14.00 per share.
iii
<PAGE> 40
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. xv
SUMMARY............................................................................... 1
General............................................................................. 1
Risk Factors........................................................................ 3
American Physician Partners, Inc.................................................... 3
The Entities........................................................................ 3
Special Meetings of Security Holders of the Entities................................ 6
Record Date and Vote Required....................................................... 7
The Mergers......................................................................... 8
The Exchanges....................................................................... 11
APPI's Reasons for the Mergers and Exchanges........................................ 13
The Merger and Exchange Entities' Reasons for the Mergers and Exchanges and
Recommendations of the Boards of Directors of the Merger Entities................ 14
Conditions to the Mergers and Exchanges............................................. 15
Closing of the Mergers and Exchanges and Effective Time of the Mergers.............. 15
Termination......................................................................... 16
Expenses; Fees...................................................................... 16
Exchange/Issuance of Stock Certificates in the Mergers and Exchanges................ 16
Interests of Certain Persons in the Merger.......................................... 16
Dissenters' Rights Regarding the Mergers............................................ 17
Government and Regulatory Approvals................................................. 18
Certain Income Tax Considerations................................................... 18
Accounting Treatment................................................................ 19
Summary Historical Financial Data..................................................... 20
Equivalent Per Common Share Data...................................................... 24
RISK FACTORS.......................................................................... 27
Absence of Combined Operating History; No Prior Operating Experience................ 27
Dependence on Affiliated Radiologists; Risk of Termination of Service Agreements.... 27
Uncertainty Regarding the Enforceability of Noncompetition Provisions............... 28
Reliance on Referrals............................................................... 28
Risks Associated with Acquisitions and Expansion Strategy........................... 29
Government Regulation............................................................... 30
Reimbursement Trends and Cost Containment........................................... 32
Risks Associated with Managed Care Contracts and Capitated Fee Arrangements......... 33
Competition......................................................................... 34
Potential Liability and Insurance; Legal Proceedings................................ 34
Dependence on Information Systems................................................... 36
Dependence on Key Personnel......................................................... 36
Restrictions on Transfer of Shares of APPI Common Stock Received in the Mergers and
Exchanges........................................................................ 36
</TABLE>
iv
<PAGE> 41
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Uncertainty of Merger and Exchange Consideration...................................... 37
Dilution of Voting Power; Potential Adverse Impact of Future Sale of APPI Shares...... 37
Shares Eligible for Future Sale....................................................... 37
Control by Existing Stockholders...................................................... 38
Anti-Takeover Considerations.......................................................... 38
No Prior Market; Possible Volatility of Stock Price................................... 39
Immediate and Substantial Dilution.................................................... 39
Impact of Service Agreements on Provider Compensation; Restrictions on Autonomy of
Founding Affiliated Practices.................................................... 39
Requirement to Purchase Assets...................................................... 40
Income Tax Risks.................................................................... 40
Risks Relating to Failure to Approve the Mergers, Exchanges and Reorganizations..... 40
Interests of Certain Persons in the Mergers and Exchanges........................... 41
INTRODUCTION.......................................................................... 42
ADVANCED MEETING...................................................................... 42
Date, Time and Place of Advanced Meeting............................................ 42
Purpose............................................................................. 42
Record Date and Outstanding Shares.................................................. 42
Vote Required....................................................................... 42
Voting of Proxies................................................................... 42
Solicitation of Proxies; Expenses................................................... 43
IDE MEETING........................................................................... 43
Date, Time and Place of Ide Meeting................................................. 43
Purpose............................................................................. 43
Record Date and Outstanding Shares.................................................. 43
Vote Required....................................................................... 43
Voting of Proxies................................................................... 43
Solicitation of Proxies; Expenses................................................... 44
M&S MEETING........................................................................... 44
Date, Time and Place of M&S Meeting................................................. 44
Purpose............................................................................. 44
Record Date and Outstanding Shares.................................................. 44
Vote Required....................................................................... 44
Voting of Proxies................................................................... 45
Solicitation of Proxies; Expenses................................................... 45
LEXINGTON MEETING..................................................................... 45
Date, Time and Place of Lexington Meeting........................................... 45
Purpose............................................................................. 45
Record Date and Outstanding Partnership Interests................................... 45
Vote Required....................................................................... 45
Voting of Proxies................................................................... 46
Solicitation of Proxies; Expenses................................................... 46
</TABLE>
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<TABLE>
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MADISON MEETING....................................................................... 46
Date, Time and Place of Madison Meeting............................................. 46
Purpose............................................................................. 46
Record Date and Outstanding Partnership Interests................................... 47
Vote Required....................................................................... 47
Voting of Proxies................................................................... 47
Solicitation of Proxies; Expenses................................................... 47
SOUTH TEXAS MEETING................................................................... 48
Date, Time and Place of South Texas Meeting......................................... 48
Purpose............................................................................. 48
Record Date and Outstanding Shares.................................................. 48
Vote Required....................................................................... 48
Voting of Proxies................................................................... 48
Solicitation of Proxies; Expenses................................................... 49
SOUTH TEXAS NO. 1 MEETING............................................................. 49
Date, Time and Place of South Texas No. 1 Meeting................................... 49
Purpose............................................................................. 49
Record Date and Outstanding Partnership Interests................................... 49
Vote Required....................................................................... 49
Voting of Proxies................................................................... 49
Solicitation of Proxies; Expenses................................................... 50
SAN ANTONIO MEETING................................................................... 50
Date, Time and Place of San Antonio Meeting......................................... 50
Purpose............................................................................. 50
Record Date and Outstanding Shares.................................................. 50
Vote Required....................................................................... 50
Voting of Proxies................................................................... 51
Solicitation of Proxies; Expenses................................................... 51
SAN ANTONIO NO. 2 MEETING............................................................. 51
Date, Time and Place of San Antonio No. 2 Meeting................................... 51
Purpose............................................................................. 51
Record Date and Outstanding Partnership Interests................................... 52
Vote Required....................................................................... 52
Voting of Proxies................................................................... 52
Solicitation of Proxies; Expenses................................................... 53
PACIFIC MEETING....................................................................... 53
Date, Time and Place of Pacific Meeting............................................. 53
Purpose............................................................................. 53
Record Date and Outstanding Shares.................................................. 53
Vote Required....................................................................... 53
</TABLE>
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<TABLE>
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Voting of Proxies................................................................... 53
Solicitation of Proxies; Expenses................................................... 54
TMI MEETING........................................................................... 54
Date, Time and Place of TMI Meeting................................................. 54
Purpose............................................................................. 54
Record Date and Outstanding Shares.................................................. 54
Vote Required....................................................................... 54
Voting of Proxies................................................................... 54
Solicitation of Proxies; Expenses................................................... 55
RNM MEETING........................................................................... 55
Date, Time and Place of RNM Meeting................................................. 55
Purpose............................................................................. 55
Record Date and Outstanding Shares.................................................. 55
Vote Required....................................................................... 55
Voting of Proxies................................................................... 56
Solicitation of Proxies; Expenses................................................... 56
AIOC MEETING.......................................................................... 56
Date, Time and Place of AIOC Meeting................................................ 56
Purpose............................................................................. 56
Record Date and Outstanding Shares.................................................. 56
Vote Required....................................................................... 56
Voting of Proxies................................................................... 57
Solicitation of Proxies; Expenses................................................... 57
CIA MEETING........................................................................... 57
Date, Time and Place of CIA Meeting................................................. 57
Purpose............................................................................. 57
Record Date and Outstanding Shares.................................................. 58
Vote Required....................................................................... 58
Voting of Proxies................................................................... 58
Solicitation of Proxies; Expenses................................................... 58
MRIA MEETING.......................................................................... 59
Date, Time and Place of MRIA Meeting................................................ 59
Purpose............................................................................. 59
Record Date and Outstanding Shares.................................................. 59
Vote Required....................................................................... 59
Voting of Proxies................................................................... 59
Solicitation of Proxies; Expenses................................................... 60
NYACK MEETING......................................................................... 60
Date, Time and Place of Nyack Meeting............................................... 60
Purpose............................................................................. 60
Record Date and Outstanding Shares.................................................. 60
</TABLE>
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<TABLE>
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Vote Required....................................................................... 61
Voting of Proxies................................................................... 61
Solicitation of Proxies; Expenses................................................... 61
PELHAM MEETING........................................................................ 61
Date, Time and Place of Pelham Meeting.............................................. 61
Purpose............................................................................. 61
Record Date and Outstanding Shares.................................................. 61
Vote Required....................................................................... 61
Voting of Proxies................................................................... 61
Solicitation of Proxies; Expenses................................................... 62
RRG MEETING........................................................................... 62
Date, Time and Place of RRG Meeting................................................. 62
Purpose............................................................................. 62
Record Date and Outstanding Shares.................................................. 62
Vote Required....................................................................... 62
Voting of Proxies................................................................... 63
Solicitation of Proxies; Expenses................................................... 63
WIC MEETING........................................................................... 63
Date, Time and Place of WIC Meeting................................................. 63
Purpose............................................................................. 63
Record Date and Outstanding Shares.................................................. 63
Vote Required....................................................................... 63
Voting of Proxies................................................................... 64
Solicitation of Proxies; Expenses................................................... 64
VALLEY MEETING........................................................................ 64
Date, Time and Place of Valley Meeting.............................................. 64
Purpose............................................................................. 64
Record Date and Outstanding Shares.................................................. 64
Vote Required....................................................................... 65
Voting of Proxies................................................................... 65
Solicitation of Proxies; Expenses................................................... 65
APPROVAL OF THE MERGERS, EXCHANGES AND RELATED TRANSACTIONS........................... 65
APPI's Material Contacts and Board Deliberations.................................... 66
Advanced Radiology's Material Contacts and Management Committee Deliberations....... 67
The Ide Group's Material Contacts and Board Deliberations........................... 68
M&S X-Ray Practices' Material Contacts and Board Deliberations...................... 69
Pacific Imaging Consultants' Material Contacts and Board Deliberations.............. 70
Radiology and Nuclear Medicine's Material Contacts and Board Deliberations.......... 71
Rockland Radiological Group's Material Contacts and Board Deliberations............. 72
Valley Radiology Group's Material Contacts and Board Deliberations.................. 73
</TABLE>
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<TABLE>
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APPI's Reasons for the Mergers and Exchanges........................................ 74
The Merger and Exchange Entities' Reasons for the Mergers and Exchanges and
Recommendations of the Boards of Directors of the Merger Entities................ 74
Conversion of Shares and Exchange of Partnership Interests.......................... 77
Conditions of the Merger Agreements and Exchange Agreements......................... 90
Closing of the Mergers and Exchanges and Effective Time of the Mergers.............. 92
Conduct of the Merger Entities' Businesses Prior to the Mergers..................... 92
Conduct of Exchange Entities' Business Prior to the Exchanges....................... 93
Termination of Each Merger Agreement................................................ 94
Termination of Each Exchange Agreement.............................................. 94
Expenses; Fees...................................................................... 95
Exchange/Issuance of Stock Certificates in the Mergers and Exchanges................ 95
Payment in Lieu of Fractional Shares................................................ 95
Interests of Certain Persons in the Mergers and Exchanges........................... 95
Dissenters' Rights Regarding the Mergers............................................ 96
Government and Regulatory Approvals................................................. 103
Certain Income Tax Considerations................................................... 103
Accounting Treatment................................................................ 104
Opinions of Shattuck Hammond Partners Inc........................................... 104
UNAUDITED PRO FORMA COMBINED BALANCE SHEET............................................ 105
American Physician Partners, Inc.
Pro Forma Combined Balance Sheet................................................. 107
Notes to Pro Forma Combined Balance Sheet........................................ 109
APPI.................................................................................. 110
APPI's Operation, Management and Business Following the Mergers and Exchanges....... 110
General.......................................................................... 110
Industry Background.............................................................. 111
Radiology........................................................................ 111
Trends in Radiology.............................................................. 112
Business Strategy................................................................ 113
Emphasize Quality Service........................................................ 114
Expand Within Existing Regional Markets.......................................... 114
Improve Operating Efficiencies................................................... 114
Expand Into New Markets.......................................................... 114
Affiliation Structure............................................................ 115
Operations and Development....................................................... 116
Services......................................................................... 117
Information Management........................................................... 118
Service Agreements............................................................... 119
Sample Service Fee Calculation................................................... 119
Sample Income Statement.......................................................... 120
</TABLE>
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<TABLE>
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Practice Marketing............................................................... 121
Government Regulation and Supervision............................................ 122
Competition...................................................................... 125
Facilities and Employees......................................................... 126
Corporate Liability and Insurance................................................ 126
Legal Proceedings................................................................ 127
APPI Selected Financial Data........................................................ 128
APPI Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 129
Overview............................................................................ 129
Results of Operations............................................................... 130
Liquidity and Capital Resources..................................................... 130
APPI Management and Executive Compensation.......................................... 132
Management....................................................................... 132
Executive Compensation........................................................... 134
Summary Compensation Table....................................................... 134
Stock Option Plan................................................................ 134
Option Grants During 1996........................................................ 136
Aggregated Option Exercises During 1996 and Year-End Option Values............... 137
Cash Bonus Program............................................................... 137
Employment Agreements; Covenants-Not-To-Compete.................................. 137
APPI Principal Stockholders......................................................... 139
APPI Certain Transactions........................................................... 141
Company Policy...................................................................... 144
ADVANCED RADIOLOGY.................................................................... 145
Advanced Radiology's Operation, Management and Business............................. 145
General.......................................................................... 145
Strategy......................................................................... 145
Government Regulation............................................................ 145
Services Provided................................................................ 146
Competition...................................................................... 146
Employees........................................................................ 146
Insurance........................................................................ 146
Properties and Facilities........................................................ 147
Information Systems.............................................................. 147
Teleradiology.................................................................... 147
Legal Proceedings................................................................ 147
Advanced Radiology Selected Financial Data.......................................... 148
Advanced Radiology Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................ 149
Results of Operations............................................................ 149
Advanced Past Compensation for Continuing Directors................................. 150
</TABLE>
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Advanced Radiology Principal Stockholders........................................... 151
THE IDE GROUP......................................................................... 152
Ide's Operation, Management and Business............................................ 152
General.......................................................................... 152
Strategy......................................................................... 152
Government Regulation............................................................ 152
Services Provided................................................................ 152
Competition...................................................................... 153
Employees........................................................................ 153
Insurance........................................................................ 153
Properties and Facilities........................................................ 153
Information Systems.............................................................. 153
Legal Proceedings................................................................ 153
Ide Selected Financial Data......................................................... 154
Ide Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 155
Results of Operations............................................................ 155
Ide Past Compensation for Continuing Directors...................................... 155
Ide Principal Shareholders.......................................................... 156
M&S X-RAY PRACTICES................................................................... 157
M&S' Operation, Management and Business............................................. 157
General.......................................................................... 157
Strategy......................................................................... 157
Government Regulation............................................................ 157
Services Provided................................................................ 158
Competition...................................................................... 158
Employees........................................................................ 158
Insurance........................................................................ 158
Properties and Facilities........................................................ 158
Information Systems.............................................................. 158
Legal Proceedings................................................................ 159
M&S X-Ray Practices Selected Financial Data......................................... 159
M&S X-Ray Practices Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................ 160
Results of Operations............................................................ 160
M&S Principal Shareholders.......................................................... 161
Lexington Partnership Interest Holders.............................................. 162
Madison Partnership Interest Holders................................................ 163
South Texas No. 1 Partnership Interest Holders...................................... 163
San Antonio No. 2 Partnership Interest Holders...................................... 164
South Texas and San Antonio Principal Shareholders.................................. 165
</TABLE>
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<TABLE>
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PACIFIC IMAGING CONSULTANTS........................................................... 166
Pacific's Operation, Management and Business........................................ 166
General.......................................................................... 166
Strategy......................................................................... 166
Government Regulation............................................................ 166
Services Provided................................................................ 166
Competition...................................................................... 167
Employees........................................................................ 167
Insurance........................................................................ 167
Properties and Facilities........................................................ 167
Information Systems.............................................................. 167
Legal Proceedings................................................................ 168
Pacific Imaging Consultants Selected Financial Data................................. 168
Pacific Imaging Consultants Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................. 169
Results of Operations............................................................ 169
Pacific Imaging Consultants Principal Shareholders.................................. 170
TMI Principal Shareholders.......................................................... 171
RADIOLOGY AND NUCLEAR MEDICINE........................................................ 172
RNM's Operation, Management and Business............................................ 172
General.......................................................................... 172
Strategy......................................................................... 172
Government Regulation............................................................ 172
Services Provided................................................................ 172
Marketing and Development........................................................ 173
Competition...................................................................... 173
Employees........................................................................ 173
Insurance........................................................................ 173
Properties and Facilities........................................................ 173
Information Systems.............................................................. 173
Legal Proceedings................................................................ 174
RNM Selected Financial Data......................................................... 174
RNM Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 175
Results of Operations............................................................ 175
RNM Principal Stockholders.......................................................... 176
ROCKLAND RADIOLOGICAL GROUP........................................................... 177
Rockland Radiological Group's Operation, Management and Business.................... 177
General.......................................................................... 177
Strategy......................................................................... 177
Government Regulation............................................................ 177
Services Provided................................................................ 177
</TABLE>
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Marketing and Development........................................................ 178
Competition...................................................................... 178
Employees........................................................................ 178
Insurance........................................................................ 178
Properties and Facilities........................................................ 178
Information Systems.............................................................. 179
Legal Proceedings................................................................ 179
Rockland Radiological Group Selected Financial Data................................. 179
Rockland Radiological Group Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................. 180
Results of Operations............................................................ 180
Rockland Radiological Group Principal Shareholders.................................. 182
VALLEY RADIOLOGY GROUP................................................................ 183
Valley's Operation, Management and Business......................................... 183
General.......................................................................... 183
Strategy......................................................................... 183
Government Regulation............................................................ 183
Services Provided................................................................ 183
Marketing and Development........................................................ 184
Competition...................................................................... 184
Employees........................................................................ 184
Insurance........................................................................ 184
Properties and Facilities........................................................ 184
Legal Proceedings................................................................ 184
Valley Radiology Group Selected Financial Data...................................... 185
Valley Radiology Group Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................ 186
Results of Operations............................................................ 186
Valley Principal Shareholders....................................................... 187
COMPARISON OF CAPITAL STOCK........................................................... 188
Description of Capital Stock of APPI................................................ 188
Description of Capital Stock of Advanced............................................ 190
Description of Capital Stock of Ide................................................. 190
Description of Capital Stock of M&S, South Texas and San Antonio.................... 191
Description of Capital Stock of Pacific and TMI..................................... 191
Description of Capital Stock of RNM................................................. 192
Description of Capital Stock of AIOC, CIA, MRIA, NYACK, PELHAM, RRG and WIC......... 192
Description of Capital Stock of Valley.............................................. 193
Comparison of Rights of Security Holders of APPI and the Entities................... 193
EXPERTS............................................................................... 204
LEGAL MATTERS......................................................................... 204
GLOSSARY OF TERMS..................................................................... 205
</TABLE>
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INDEX TO FINANCIAL STATEMENTS......................................................... F-1
Appendix A.......................................................................... A-1
Appendix B.......................................................................... B-1
Appendix C.......................................................................... C-1
Appendix D.......................................................................... D-1
Appendix E.......................................................................... E-1
Appendix F.......................................................................... F-1
Appendix G.......................................................................... G-1
Appendix H.......................................................................... H-1
Appendix I.......................................................................... I-1
Appendix J.......................................................................... J-1
Appendix K.......................................................................... K-1
</TABLE>
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AVAILABLE INFORMATION
APPI has filed this Registration Statement under the Securities Act with
the SEC covering the APPI Common Stock to be issued pursuant to the Merger
Agreements and the Exchange Agreements. As permitted by the rules and
regulations of the SEC, this Prospectus/Joint Proxy Statement does not contain
all information set forth in the Registration Statement and exhibits thereto.
For further information, please refer to the Registration Statement, including
the exhibits thereto, all of which are available for inspection and copying at
prescribed rates at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W. Judiciary Plaza, Washington, D.C. 20549, and
at the regional offices of the SEC located at 5670 Wilshire Blvd., 11th Floor,
Los Angeles, California 90036; 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and 7 World Trade Center, Suite 1300, New York, New York
10048. The SEC maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. Statements contained in this
Prospectus/Joint Proxy Statement relating to the contents of any contract or
other document referred to herein are not necessarily complete, and reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
* * *
All information in this Prospectus/Joint Proxy Statement concerning
Advanced and its affiliates has been furnished by Advanced. All information in
this Prospectus/Joint Proxy Statement concerning Ide and its affiliates has been
furnished by Ide. All information in this Prospectus/Joint Proxy Statement
concerning M&S and its affiliates has been furnished by M&S. All information in
this Prospectus/Joint Proxy Statement concerning Lexington and its affiliates
has been furnished by Lexington. All information in this Prospectus/Joint Proxy
Statement concerning Madison and its affiliates has been furnished by Madison.
All information in this Prospectus/Joint Proxy Statement concerning South Texas
and its affiliates has been furnished by South Texas. All information in this
Prospectus/Joint Proxy Statement concerning South Texas No. 1 and its affiliates
has been furnished by South Texas No. 1. All information in this
Prospectus/Joint Proxy Statement concerning San Antonio and its affiliates has
been furnished by San Antonio. All information in this Prospectus/Joint Proxy
Statement concerning San Antonio No. 2 and its affiliates has been furnished by
San Antonio No. 2. All information in this Prospectus/Joint Proxy Statement
concerning Pacific and its affiliates has been furnished by Pacific. All
information in this Prospectus/Joint Proxy Statement concerning TMI and its
affiliates has been furnished by TMI. All information in this Prospectus/Joint
Proxy Statement concerning RNM and its affiliates has been furnished by RNM. All
information in this Prospectus/Joint Proxy Statement concerning AIOC and its
affiliates has been furnished by AIOC. All information in this Prospectus/Joint
Proxy Statement concerning CIA and its affiliates has been furnished by CIA. All
information in this Prospectus/Joint Proxy Statement concerning MRIA and its
affiliates has been furnished by MRIA. All information in this Prospectus/Joint
Proxy Statement concerning Nyack and its affiliates has been furnished by Nyack.
All information in this Prospectus/Joint Proxy Statement concerning Pelham and
its affiliates has been furnished by Pelham. All information in this
Prospectus/Joint Proxy Statement concerning RRG and its affiliates has been
furnished by RRG. All information in this Prospectus/Joint Proxy Statement
concerning WIC and its affiliates has been furnished by WIC. All information in
this Prospectus/Joint Proxy Statement concerning Valley and its affiliates has
been furnished by Valley.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS/JOINT PROXY STATEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS/JOINT PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO EXCHANGE OR
SELL, OR A SOLICITATION OF AN OFFER TO EXCHANGE OR PURCHASE, THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS/JOINT PROXY STATEMENT NOR ANY DISTRIBUTION OF SHARES OF APPI COMMON
STOCK MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH HEREIN OR THE AFFAIRS
OF APPI, ADVANCED, IDE, M&S, LEXINGTON, MADISON, SOUTH TEXAS, SOUTH TEXAS NO. 1,
SAN ANTONIO, SAN ANTONIO NO. 2, PACIFIC, TMI, RNM, AIOC, CIA, MRIA, NYACK,
PELHAM, RRG, WIC AND VALLEY SINCE THE DATE HEREOF.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus/Joint Proxy Statement. This summary does not contain a complete
statement of all material elements of the proposals to be voted on and is
qualified in its entirety by the more detailed information contained elsewhere
in this Prospectus/Joint Proxy Statement and the appendices hereto. A Glossary
of Terms used throughout this Prospectus/Joint Proxy Statement is provided on
pages 205-222 hereof.
GENERAL
This Prospectus/Joint Proxy Statement is provided to security holders of
Advanced, Ide, M&S, South Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA,
MRIA, Nyack, Pelham, RRG, WIC and Valley in connection with the solicitation of
proxies by their respective Boards of Directors and to the holders of
partnership interests of Lexington, Madison, South Texas No. 1 and San Antonio
No. 2 in connection with the solicitation of proxies by the general or managing
partner of each such Exchange Entity. Security holders of each of the Entities
will consider and vote on a proposal to approve the applicable Merger Agreement
or Exchange Agreement, and the transactions contemplated therein.
Reorganizations. Prior to each Merger, each of Advanced, Ide, M&S,
Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG, WIC and Valley will
perform certain steps to reorganize by (a) incorporating or organizing a NewCo,
(b) transferring to the applicable NewCo certain assets and liabilities
substantially consisting of assets and liabilities relating to the professional
medical services provided by each such medical entity, and (c) entering into a
Service Agreement with APPI. The ownership of each NewCo shall be identical to
the ownership of the applicable Merger Entity immediately prior to the Effective
Time of each respective Merger. Advanced will effectuate the Advanced
Reorganization, Ide will effectuate the Ide Reorganization, M&S will effectuate
the M&S Reorganization, Pacific will effectuate the Pacific Reorganization, TMI
will effectuate the TMI Reorganization, RNM will effectuate the RNM
Reorganization, AIOC will effectuate the AIOC Reorganization, CIA will
effectuate the CIA Reorganization, MRIA will effectuate the MRIA Reorganization,
Nyack will effectuate the Nyack Reorganization, Pelham will effectuate the
Pelham Reorganization, RRG will effectuate the RRG Reorganization, WIC will
effectuate the WIC Reorganization and Valley will effectuate the Valley
Reorganization.
F Reorganizations. With respect only to the Ide Reorganization, the AIOC
Reorganization, the CIA Reorganization, the MRIA Reorganization, the Nyack
Reorganization, the Pelham Reorganization, the RRG Reorganization and the WIC
Reorganization, each of Ide, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC shall
effectuate a F Reorganization, whereby each of Ide, AIOC, CIA, MRIA, Nyack,
Pelham, RRG and WIC shall form a New Sub. With respect to these mergers only,
the New Sub shall merge with and into APPI and the separate existence of the
professional corporation will disappear as a result of the F Reorganization.
The purpose of the Reorganizations is to comply with the requirements of
the laws of each respective state of organization of each Merger Entity which
restrict non-physician ownership or control of a medical practice. The
incorporation of each of Advanced NewCo, Ide NewCo, M&S NewCo, Pacific NewCo,
TMI NewCo, RNM NewCo, AIOC NewCo, CIA NewCo, MRIA NewCo, Nyack NewCo, Pelham
NewCo, RRG NewCo, WIC NewCo and Valley NewCo allows the respective security
holders of the Merger Entities to continue as security holders of an entity
which is capable of providing those professional medical services previously
provided by each respective Merger Entity.
Merger Transactions. Pursuant to the Merger Agreements, APPI and each of
Advanced, Ide, M&S, South Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA,
MRIA, Nyack, Pelham, RRG, WIC and Valley will merge by undertaking the following
actions: (a) Advanced, Ide, M&S, South Texas, San Antonio, RNM, AIOC, CIA, MRIA,
Nyack, Pelham, RRG and WIC will merge with and into APPI and a separate
subsidiary of APPI will merge with and into Pacific, TMI and Valley and each of
Pacific, TMI and Valley will become a wholly-owned subsidiary of APPI and (b)
each outstanding share of each of the Merger Entities, other than the shares
held by those security holders who take required actions to properly assert
their dissenters' rights under each such Merger Entity's applicable state law,
will be converted into the right to receive a specified number of shares of APPI
Common Stock and a specified amount of cash. See "Summary -- The Mergers" for
the consideration in the Mergers.
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<PAGE> 53
Exchange Transactions. Pursuant to the Exchange Agreements, APPI shall
acquire each of Lexington, Madison, South Texas No. 1 and San Antonio No. 2 (or
a controlling interest therein) by exchanging cash and shares of APPI Common
Stock for partnership interests of the Exchange Entities.
The following chart depicts APPI's organizational structure following
consummation of the Mergers and Exchanges:
CHART
[CHART INDICATES THAT FOLLOWING CONSUMMATION OF THE MERGERS AND EXCHANGES (i)
APPI WILL FORM (A) A NEW SUBSIDIARY INTO WHICH THE ASSETS OF RNM WILL BE
TRANSFERRED, (B) A NEW SUBSIDIARY INTO WHICH THE ASSETS OF ADVANCED WILL BE
TRANSFERRED, (C) A NEW SUBSIDIARY INTO WHICH THE ASSETS OF IDE WILL BE
TRANSFERRED AND (D) A NEW SUBSIDIARY INTO WHICH THE ASSETS OF AIOC, CIA, MRIA,
NYACK, PELHAM, RRG AND WIC WILL BE TRANSFERRED, (ii) PACIFIC, TMI AND VALLEY
WILL BE SUBSIDIARIES OF APPI, (iii) APPI WILL FORM AN INVESTMENT COMPANY
SUBSIDIARY AND A MANAGEMENT COMPANY SUBSIDIARY AND (iv) THE NEWCOS FORMED BY THE
FOUNDING AFFILIATED PRACTICES WILL ENTER INTO SERVICE AGREEMENTS WITH
SUBSIDIARIES OF APPI.]
The terms of the Service Agreements to which the chart depicted above refers are
described in detail under "APPI -- Operation, Management and Business Following
the Mergers and Exchanges -- Service Agreements."
2
<PAGE> 54
RISK FACTORS
A number of risk factors should be considered in evaluating the Merger
Transactions and Exchange Transactions and the receipt by the Entities' security
holders of shares of APPI Common Stock. In addition, security holders should be
aware that the obligation of APPI to consummate each Merger is subject to
certain conditions, including, without limitation, that the sum of the amount
which may become due to the security holders who have dissented to a given
Merger and have indicated their intent to seek appraisal rights plus the cash
portion of the consideration paid in the applicable Merger shall not exceed 25%
of the total consideration paid in the applicable Merger. In addition, APPI is
not obligated to consummate a given Merger or Exchange unless and until each of
the other Mergers and Exchanges has closed. See "Risk Factors" and "Approval of
the Mergers, Exchanges and Related Transactions -- The Merger and Exchange
Entities' Reasons for the Mergers and Exchanges and Recommendations of the
Boards of Directors of the Merger Exhibits."
AMERICAN PHYSICIAN PARTNERS, INC.
APPI is a radiology specific physician practice management company focused
on the development, consolidation and management of integrated radiology and
imaging center networks. Upon the consummation of the various Mergers and
Exchanges, the Company will provide practice management services to the seven
Founding Affiliated Practices consisting of 223 physicians practicing at 42
hospitals and 65 ICs in California, Kansas, Maryland, New York and Texas. The
Company will derive its revenue from the provision of management,
administrative, technical and other non-medical services to physicians of the
Affiliated Practices.
THE ENTITIES
The following chart (i) depicts the organizational structure of APPI and
each of the Entities prior to the Mergers, Exchanges and Reorganizations and
(ii) indicates whether each such Entity will be acquired by APPI in a forward
merger, reverse triangular merger or exchange transaction following the
Reorganizations.
[ORGANIZATIONAL CHART]
[CHART DEPICTS CURRENT ORGANIZATIONAL STRUCTURE OF EACH OF THE ENTITIES AND
INDICATES THAT (i) EACH OF RNM, ADVANCED, IDE, AIOC, CIA, MRIA, NYACK, PELHAM,
RRG, WIC, M&S, SOUTH TEXAS AND SAN ANTONIO WILL MERGE WITH AND INTO APPI, (ii)
SEPARATE SUBSIDIARIES OF APPI WILL MERGE WITH AND INTO PACIFIC, TMI AND VALLEY
AND (iii) APPI WILL ACQUIRE 100% OF THE PARTNERSHIP INTERESTS OF MADISON, SOUTH
TEXAS NO. 1 AND SAN ANTONIO NO. 2, AND APPROXIMATELY 79% OF THE PARTNERSHIP
INTERESTS OF LEXINGTON.]
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Advanced Radiology
Prior to the consummation of the Advanced Merger, Advanced will be
organized under the laws of the state of Maryland as a C-corporation. Advanced
will be a consolidation of seven practice groups, which collectively own all of
the membership interests of Advanced Radiology, LLC, a Maryland limited
liability company. On the Advanced Record Date, there will be 64 security
holders of record of Advanced Common Stock holding an aggregate of 475,000
shares of Advanced Common Stock. See "Advanced Principal Stockholders." Advanced
staffs the radiology departments of ten hospitals in the Baltimore metropolitan
area and has 29 offices and ICs in that area. Advanced employs 87 physicians and
approximately 565 full-time and part-time non-physician personnel. The principal
executive offices of Advanced are located at 7253 Ambassador Road, Baltimore,
Maryland 21244. The telephone number is (410) 281-9100.
The Ide Group
Ide is a New York professional corporation organized in 1980. As of the Ide
Record Date, there were 22 security holders of record of Ide Common Stock
holding an aggregate of 2,150 shares of Ide Common stock. See "Ide Principal
Shareholders." Ide staffs the radiology departments of five hospitals in upstate
New York and has eight offices and ICs extending over the greater Rochester
metropolitan area. Ide employs 28 radiologists and two radiation oncologists.
The principal executive offices of Ide are located at 2273 South Clinton Avenue,
Rochester, New York 14618. The telephone number is (716) 244-6630.
M&S X-Ray Practices
M&S is a Texas professional association organized in 1970. As of the M&S
Record Date, there were 19 security holders of record of M&S Common Stock
holding an aggregate of 190 shares of M&S Common Stock. See "M&S Principal
Shareholders." M&S is comprised of 20 board certified radiologists who provide
professional radiological services to five hospitals and seven ICs located
throughout the San Antonio metropolitan area. M&S also provides administrative
and non-medical support services to all seven IC's. The principal executive
offices of M&S are located at 730 North Main Avenue, Suite B109, San Antonio,
Texas 78205. The telephone number is (210) 351-0778.
Lexington is a Texas limited partnership founded in 1991. As of the
Lexington Record Date, there were 11 limited partners and one general partner
holding an aggregate of 100% of the partnership interests in Lexington. See
"Lexington Partnership Interest Holders." Lexington owns certain diagnostic
imaging equipment. The principal executive offices of Lexington are located at
730 North Main Avenue, Suite B109, San Antonio, Texas 78205. The telephone
number is (210) 351-0778.
Madison is a Texas general partnership founded in 1981. As of the Madison
Record Date, there were 13 general partners holding an aggregate of 100% of the
partnership interests in Madison. See "Madison Partnership Interest Holders."
Madison owns certain diagnostic imaging equipment. The principal executive
offices of Madison are located at 730 North Main Avenue, Suite B109, San
Antonio, Texas 78205. The telephone number is (210) 351-0778.
South Texas is a Texas corporation organized in 1990. As of the South Texas
Record Date, there were 12 security holders of South Texas Common Stock holding
an aggregate of 120 shares of South Texas Common Stock. See "South Texas and San
Antonio Principal Shareholders." South Texas owns a 1% partnership interest in
South Texas No. 1 and serves as the sole general partner of South Texas No. 1.
The principal executive offices of South Texas are located at 730 North Main
Avenue, Suite B109, San Antonio, Texas 78205. The telephone number is (210)
351-0778.
South Texas No. 1 is a Texas limited partnership founded in 1997. As of the
South Texas No. 1 Record Date, there were 12 limited partners and one general
partner holding an aggregate of 100% of the partnership interests in South Texas
No. 1. See "South Texas No. 1 Partnership Interest Holders." South Texas No. 1
owns a 49% general partner interest in Baptist Imaging Center, a Texas general
partnership which owns certain diagnostic imaging equipment. South Texas No. 1
also owns a 49% general partnership interest in Northeast Baptist MRI Center, a
Texas general partnership which owns certain diagnostic imaging
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<PAGE> 56
equipment. The principal executive offices of South Texas No. 1 are located at
730 North Main Avenue, Suite B109, San Antonio, Texas 78205. The telephone
number is (210) 351-0778.
San Antonio is a Texas corporation organized in 1991. As of the San Antonio
Record Date, there were 12 security holders of record of San Antonio Common
Stock holding an aggregate of 120 shares of San Antonio Common Stock. See "South
Texas and San Antonio Principal Shareholders." San Antonio owns a 1% partnership
interest in San Antonio No. 2 and serves as the sole general partner of San
Antonio No. 2. The principal executive offices of San Antonio are located at 730
North Main Avenue, Suite B109, San Antonio, Texas 78205. The telephone number is
(210) 351-0778.
San Antonio No. 2 is a Texas limited partnership founded in 1997. As of the
San Antonio No. 2 Record Date, there were 12 limited partners and one general
partner holding an aggregate of 100% of the partnership interests in San Antonio
No. 2. See "San Antonio No. 2 Partnership Interest Holders." San Antonio No. 2
owns a 60% partnership interest in Lexington and serves as the sole general
partner of Lexington. The principal executive offices of San Antonio No. 2 are
located at 730 North Main Avenue, Suite B109, San Antonio, Texas 78205. The
telephone number is (210) 351-0778.
Pacific Imaging Consultants
Pacific is a California professional medical corporation organized in 1978.
Pacific was formerly known as Peralta Radiology Medical Group, Inc. and East Bay
Medical Imaging Associates, A Medical Group, Inc. As of the Pacific Record Date,
there were 22 security holders of record of Pacific Common Stock holding an
aggregate of 11,000 shares of Pacific Common Stock. See "Pacific Principal
Shareholders." Pacific operates the professional component of radiology medical
practices in northern California, and provides professional radiology services
to the general public through individual physicians who are licensed to practice
medicine in the State of California. The principal executive offices of Pacific
are located at 350 Hawthorne Avenue, Oakland, California 94609. The telephone
number is (510) 869-6251.
TMI is a California corporation organized in 1989. As of the TMI Record
Date, there were 22 security holders of record of TMI Common Stock holding an
aggregate of 110,000 shares of TMI Common Stock. See "TMI Principal
Shareholders." TMI owns certain medical equipment and facilities utilized in
connection with the radiology practice of Pacific and provides management,
administrative and other non-medical radiological support services to the
radiology practice conducted by Pacific, including furnishing non-physician
personnel, supplies and non-physician support staff services. The principal
executive offices of TMI are located at 350 Hawthorne Avenue, Oakland,
California 94609. The telephone number is (510) 869-6251.
Radiology and Nuclear Medicine
RNM is a Kansas professional association organized in 1959 as "Radiology
and Nuclear Medicine, an association." In 1967 Radiology and Nuclear Medicine,
an association, merged with and into a Kansas professional association named
"Radiology and Nuclear Medicine, a Professional Association," to form RNM. As of
the RNM Record Date, there were 24 security holders of record of RNM Common
Stock holding an aggregate of 3,096 shares of RNM Common Stock. See "RNM
Principal Stockholders." RNM has 19 diagnostic radiologists and five radiation
oncologists and owns two ICs in Topeka, Kansas. RNM provides radiologic and
radiation oncologist coverage to over 40 locations as well as diagnostic
coverage to the two hospitals in Topeka. RNM also provides radiologic coverage
to nine hospitals outside of the Topeka area, covering a large portion of
northeast Kansas and southeast Nebraska, and to a number of other clinics and
physician offices. The principal executive offices of RNM are located at the
Medical Park West Building, 823 SW Mulvane, Suite 1, Topeka, Kansas 66606. The
telephone number is (913) 234-3451.
Rockland Radiological Group
AIOC is a New York professional corporation organized in 1995. As of the
AIOC Record Date, there were 13 security holders of record of AIOC Common Stock
holding an aggregate of 130 shares of AIOC Common Stock. See "Rockland
Radiological Group Principal Shareholders." AIOC operates two medical
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<PAGE> 57
facilities in Rockland County, New York. The principal executive offices of AIOC
are located at 18 Squadron Boulevard, New City, New York 10956. The telephone
number is (914) 637-9729.
CIA is a New York professional corporation organized in 1993. As of the CIA
Record Date, there were 13 security holders of record of CIA Common Stock
holding an aggregate of 130 shares of CIA Common Stock. See "Rockland
Radiological Group Principal Shareholders." The principal executive offices of
CIA are located at 18 Squadron Boulevard, New City, New York 10956. The
telephone number is (914) 637-9729.
MRIA is a New York professional corporation organized in 1986. As of the
MRIA Record Date, there were 13 security holders of record of MRIA Common Stock
holding an aggregate of 130 shares of MRIA Common Stock. See "Rockland
Radiological Group Principal Shareholders." The principal executive offices of
MRIA are located at 18 Squadron Boulevard, New City, New York 10956. The
telephone number is (914) 637-9729.
Nyack is a New York professional corporation organized in 1992. As of the
Nyack Record Date, there were 13 security holders of record of Nyack Common
Stock holding an aggregate of 130 shares of Nyack Common Stock. See "Rockland
Radiological Group Principal Shareholders." The principal executive offices of
Nyack are located at 18 Squadron Boulevard, New City, New York 10956. The
telephone number is (914) 637-9729.
Pelham is a New York professional corporation organized in 1995. As of the
Pelham Record Date, there were 13 security holders of record of Pelham Common
Stock holding an aggregate of 130 shares of Pelham Common Stock. See "Rockland
Radiological Group Principal Shareholders." The principal executive offices of
Pelham are located at 18 Squadron Boulevard, New City, New York 10956. The
telephone number is (914) 637-9729.
RRG is a New York professional corporation organized in 1972. As of the RRG
Record Date, there were 13 security holders of record of RRG Common Stock
holding an aggregate of 130 shares of RRG Common Stock. See "Rockland
Radiological Group Principal Shareholders." Its physicians and other medical
care providers numbering 14 and 50, respectively, as of May 1, 1997, provide a
broad range of radiological and related services. The principal executive
offices of RRG are located at 18 Squadron Boulevard, New City, New York 10956.
The telephone number is (914) 637-9729.
WIC is a New York professional corporation organized in 1995. As of the WIC
Record Date, there were 13 security holders of record of WIC Common Stock
holding an aggregate of 130 shares of WIC Common Stock. See "Rockland
Radiological Group Principal Shareholders." The principal executive offices of
WIC are located at 18 Squadron Boulevard, New City, New York 10956. The
telephone number is (914) 637-9729.
Valley Radiology Group
Valley is a California professional medical corporation organized in 1969.
As of the Valley Record Date, there were 20 security holders of record of Valley
Common Stock holding an aggregate of 19,937.50 shares of Valley Common Stock.
See "Valley Principal Shareholders." Valley operates six ICs and four MRI
centers in the San Jose/Southern San Francisco Bay Area. Valley is also
affiliated with four regional hospitals. Valley's physician radiologists and
other professional radiology staff provide radiology services over all image
modalities, including general x-ray, mammography, ultrasound, CT scanning,
nuclear medicine, interventional radiology and MRI. The principal executive
offices of Valley are located at 110 South Winchester Boulevard, Suite J220, San
Jose, California 95128. The telephone number is (408) 244-2100.
SPECIAL MEETINGS OF SECURITY HOLDERS OF THE ENTITIES
Advanced Radiology. A special meeting of Advanced security holders will be
held at the principal executive offices of Advanced located at 7253 Ambassador
Road, Baltimore, Maryland 21244 on November 3, 1997 at 6:00 p.m. The purpose of
the Advanced Meeting is to approve and adopt the Advanced Merger Proposal.
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<PAGE> 58
The Ide Group. A special meeting of Ide security holders will be held at
the principal executive offices of Ide located at 2273 South Clinton Avenue,
Rochester, New York 14618 on November 3, 1997 at 5:30 p.m. The purpose of the
Ide Meeting is to approve and adopt the Ide Merger Proposal.
M&S X-Ray Practices. A joint special meeting of the security holders of
each of M&S, Lexington, Madison, South Texas, South Texas No. 1, San Antonio and
San Antonio No. 2 will be held at 215 East Quincy, One Lexington Medical
Building, Second Floor Conference Room, San Antonio, Texas 78205 on November 3,
1997 at 5:45 p.m.. The purpose of such meeting is to approve and adopt the M&S
Merger Proposal, the Lexington Exchange Proposal, the Madison Exchange Proposal,
the South Texas Merger Proposal, the South Texas No. 1 Exchange Proposal, the
San Antonio Merger Proposal and the San Antonio No. 2 Exchange Proposal,
respectively.
Pacific Imaging Consultants. A joint special meeting of the security
holders of each of Pacific and TMI will be held at the principal executive
offices of each of Pacific and TMI located at 350 Hawthorne Avenue, Oakland,
California 94609 on November 3, 1997 at 6:00 p.m.. The purpose of such meeting
is to approve and adopt the Pacific Merger Proposal and the TMI Merger Proposal,
respectively.
Radiology and Nuclear Medicine. A special meeting of RNM security holders
will be held at the principal executive offices of RNM located at 823 SW
Mulvane, Suite I, Topeka, Kansas 66606 on November 3, 1997 at 5:30 p.m. The
purpose of the RNM Meeting is to approve and adopt the RNM Merger Proposal.
Rockland Radiological Group. A joint special meeting of the security
holders of each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC will be held at
the corporate offices of such Entities located at 18 Squadron Boulevard, New
City, New York on November 3, 1997 at 5:00 p.m. The purpose of such meeting is
to approve and adopt the AIOC Merger Proposal, the CIA Merger Proposal, the MRIA
Merger Proposal, the Nyack Merger Proposal, the Pelham Merger Proposal, the RRG
Merger Proposal and the WIC Merger Proposal, respectively.
Valley Radiology Group. A special meeting of Valley security holders will
be held at 340 Dardanelli Lane, Suite 11A, Los Gatos, California 95030 on
November 3, 1997 at 6:30 p.m. The purpose of the Valley Meeting is to approve
and adopt the Valley Merger Proposal.
RECORD DATE AND VOTE REQUIRED
The record date for security holders of each Merger Entity entitled to vote
on the Merger Entities' respective Merger Proposal is as follows: Advanced,
October 24, 1997; Ide, September 30, 1997; M&S, San Antonio, South Texas, and
the Entities comprising the Rockland Radiological Group, October 1, 1997;
Pacific and TMI, October 16, 1997; RNM, October 13, 1997; and Valley, October
20, 1997. The record date for partners of each of Lexington, Madison, South
Texas No. 1 and San Antonio No. 2 entitled to vote on the Exchange Entities'
respective Exchange Proposal is October 1, 1997.
The following sets forth the vote required to approve each of the Merger
and Exchange Proposals:
Advanced. The Advanced Merger Proposal must be approved by two-thirds of
the shares entitled to vote thereon.
Ide. The Ide Merger Proposal must be approved by holders of three-quarters
of the outstanding shares of Ide Common Stock.
M&S. The M&S Merger Proposal must be approved by two-thirds of the holders
of M&S Common Stock.
Lexington. The transfer of a limited partnership interest of Lexington
pursuant to the Lexington Exchange Proposal must be approved by the General
Partner of Lexington.
Madison. The transfer of a partnership interest of Madison pursuant to the
Madison Exchange Proposal must be approved by holders of at least two-thirds of
the outstanding partnership interests of Madison.
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South Texas. The South Texas Merger Proposal must be approved by two-thirds
of the outstanding shares of South Texas Common Stock.
South Texas No. 1. The transfer of the General Partner's interest in South
Texas No. 1 must be approved by two-thirds of the outstanding limited
partnership interests of South Texas No. 1, and the transfer of a limited
partner's interest pursuant to the South Texas No. 1 Exchange Proposal must be
approved by one or more partners, other than the transferring partner, who hold
at least two-thirds of the outstanding partnership interests of South Texas No.
1.
San Antonio. The San Antonio Merger Proposal must be approved by two-thirds
of the outstanding shares of San Antonio Common Stock.
San Antonio No. 2. The transfer of the General Partner's interest in San
Antonio No. 2 must be approved by two-thirds of the outstanding limited
partnership interests of San Antonio No. 2 and the transfer of a limited
partner's interest pursuant to the San Antonio No. 2 Exchange Proposal must be
approved by one or more partners, other than the transferring partner, who hold
at least two-thirds of the outstanding partnership interests of San Antonio No.
2.
Pacific and TMI. The Pacific Merger Proposal and the TMI Merger Proposal
must be approved by a majority of the outstanding shares of Pacific Common Stock
and TMI Common Stock, respectively.
RNM. The RNM Merger Proposal must be approved by a majority of the
outstanding shares of RNM Common Stock.
Rockland Radiological Group. The AIOC, CIA, MRIA, Nyack, Pelham, RRG and
WIC Merger Proposals must be approved by two-thirds of the outstanding shares of
AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC Common Stock.
Valley. The Valley Merger Proposal must be approved by a majority of the
outstanding shares of Valley Common Stock.
If security holders of any Merger Entity fail to approve by the requisite
percentage the Merger Entities' respective Merger Proposal, such Merger will not
be consummated. If the partners of any Exchange Entity fail to approve by the
requisite percentage any Exchange Entity's respective Exchange Proposal, APPI
shall not be obligated to consummate such Exchange. In addition, the closing of
each of the Mergers and Exchanges is contingent on the closing of each of the
other Mergers and Exchanges.
THE MERGERS
The Merger Agreements for each of Advanced, Ide, M&S, South Texas, San
Antonio, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC contemplate that each
such Merger Entity will merge with and into APPI, provided that all conditions
to the consummation of each respective Merger are satisfied or waived. The
Merger Agreements for each of Pacific, TMI and Valley contemplate that a
separate subsidiary of APPI will merge with and into Pacific, TMI and Valley,
respectively, and each of Pacific, TMI and Valley will become a wholly-owned
subsidiary of APPI, provided that all conditions to the consummation of each
respective Merger are satisfied or waived. Security holders of each Merger
Entity (other than security holders who take required actions to properly assert
their dissenters' rights under the applicable state law) will receive cash and
shares of APPI Common Stock in exchange for their respective Old Shares, as set
forth below.
Each security holder of a Merger Entity who receives shares of APPI Common
Stock and cash in each Entity's respective Merger will be required to execute
and deliver a Stockholder Representation Letter to APPI, which, among other
things, prohibits such security holder from selling any such shares for a period
of 12 months following the Effective Date, and then limits the ability of such
security holder to sell such shares to (i) up to 25% of such shares upon
expiration of the 12-month period following the Effective Date, (ii) an
additional 25% of such shares upon expiration of the 18-month period following
the Effective Date and (iii) the remaining 50% of such shares on or after the
second anniversary of the Effective Date.
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The exact number of shares of APPI Common Stock and amount of cash to be
received by the security holders of each Entity will be determined by applying a
formula which is tied to the Initial Public Offering Price of the APPI Common
Stock. As such, the security holders will not know precisely how many shares of
APPI Common Stock or how much cash they will receive at the time such security
holders are asked to vote on the applicable Merger or Exchange Transaction.
However, the security holders are assured of receiving a minimum aggregate
consideration as set forth more fully below.
The following sets forth for each Merger Entity the consideration (e.g.,
number of shares of APPI Common Stock and cash amounts) to be received by each
security holder assuming that (i) Initial Public Offering Price will be $14.00
and (ii) such security holder does not take required actions to properly assert
dissenters' rights under the applicable state law. If the Initial Public
Offering Price of the APPI Common Stock is greater than $14.00 per share, then
the total cash consideration received by the security holders of each of the
Entities will increase to an amount calculated as follows.
[Cash security
holder Initial Public Offering Price
would have received X -----------------------------
had the Initial Public $14.00
Offering Price been $14.00
per share]
However, if the Initial Public Offering Price of the APPI Common Stock is less
than $14.00 per share, the total number of shares of APPI Common Stock received
by the security holders of each of the Entities will increase to an amount,
calculated as follows, resulting in such security holders receiving shares of
APPI Common Stock having an aggregate value equal to the aggregate value of the
shares of APPI Common Stock they would have received had the Initial Public
Offering Price been $14.00 per share.
[Number of shares
security holder $14.00
would have received had X -----------------------------
the Initial Public Initial Public Offering Price
Offering Price been $14.00]
The parties to each Merger Agreement are not permitted to terminate the
respective agreement for any reason related to the price of the APPI Common
Stock. For a more detailed discussion of the foregoing, see "The Mergers,
Exchanges and Related Transactions -- Terms of the Mergers and Exchanges --
Conversion of Shares and Exchange of Partnership Interests."
Advanced Radiology
- Each outstanding share of Advanced Common Stock will be converted into
the right to receive 7.5000 shares of APPI Common Stock and $35.0000 in
cash. If all outstanding shares of Advanced Common Stock are converted in
the Advanced Merger Transactions, the aggregate consideration received by
security holders of Advanced will be approximately 3,562,500 shares of
APPI Common Stock and $16,625,000 in cash. Such security holders of
Advanced will own an aggregate of 19.48% of the total shares of APPI
Common Stock outstanding upon consummation of the Mergers and Exchanges,
the Initial Public Offering and the conversion of the Convertible Notes.
The Ide Group
- Each outstanding share of Ide Common Stock will be converted into the
right to receive 942.5581 shares of APPI Common Stock and $4,398.6047 in
cash. If all outstanding shares of Ide Common Stock are converted in the
Ide Merger Transactions, the aggregate consideration received by security
holders of Ide will be approximately 2,026,500 shares of APPI Common
Stock and $9,457,000 in cash. Such security holders of Ide will own an
aggregate of 11.08% of the total shares of APPI Common
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<PAGE> 61
Stock outstanding upon consummation of the Mergers and Exchanges, the
Initial Public Offering and the conversion of the Convertible Notes.
M&S X-Ray Practices
- Each outstanding share of M&S Common Stock will be converted into the
right to receive 3,868.1289 shares of APPI Common Stock and $18,051.2684
in cash. If all outstanding shares of M&S Common Stock are converted in
the M&S Merger Transactions, the aggregate consideration received by
security holders of M&S will be approximately 734,945 shares of APPI
Common Stock and $3,429,741 in cash. Such security holders of M&S will
own an aggregate of 4.02% of the total shares of APPI Common Stock
outstanding upon consummation of the Mergers and Exchanges, the Initial
Public Offering and the conversion of the Convertible Notes.
- Each outstanding share of South Texas Common Stock will be converted into
the right to receive 21.3083 shares of APPI Common Stock and $99.5167 in
cash. If all outstanding shares of South Texas Common Stock are converted
in the South Texas Merger Transactions, the aggregate consideration
received by security holders of South Texas will be approximately 2,557
shares of APPI Common Stock and $11,942 in cash. Such security holders of
South Texas will own an aggregate of 0.01% of the total shares of APPI
Common Stock outstanding upon consummation of the Mergers and Exchanges,
the Initial Public Offering and the conversion of the Convertible Notes.
- Each outstanding share of San Antonio Common Stock will be converted into
the right to receive 28.4313 shares of APPI Common Stock and $132.6792 in
cash. If all outstanding shares of San Antonio Common Stock are converted
in the San Antonio Merger Transactions, the aggregate consideration
received by security holders of San Antonio will be approximately 3,412
shares of APPI Common Stock and $15,922 in cash. Such security holders of
San Antonio will own an aggregate of 0.02% of the total shares of APPI
Common Stock outstanding upon consummation of the Mergers and Exchanges,
the Initial Public Offering and the conversion of the Convertible Notes.
Pacific Imaging Consultants
- Each outstanding share of Pacific Common Stock will be converted into the
right to receive 41.5926 shares of APPI Common Stock and $194.0989 in
cash. If all outstanding shares of Pacific Common Stock are converted in
the Pacific Merger Transactions, the aggregate consideration received by
security holders of Pacific will be approximately 457,519 shares of APPI
Common Stock and $2,135,088 in cash. Such security holders of Pacific
will own an aggregate of 2.50% of the total shares of APPI Common Stock
outstanding upon consummation of the Mergers and Exchanges, the Initial
Public Offering and the conversion of the Convertible Notes.
- Each outstanding share of TMI Common Stock will be converted into the
right to receive 2.2396 shares of APPI Common Stock and $10.4515 in cash.
If all outstanding shares of TMI Common Stock are converted in the TMI
Merger Transactions, the aggregate consideration received by security
holders of TMI will be approximately 246,356 shares of APPI Common Stock
and $1,149,663 in cash. Such security holders of TMI will own an
aggregate of 1.35% of the total shares of APPI Common Stock outstanding
upon consummation of the Mergers and Exchanges, the Initial Public
Offering and the conversion of the Convertible Notes.
Radiology And Nuclear Medicine
- Each outstanding share of RNM Common Stock will be converted into the
right to receive 309.5930 shares of APPI Common Stock and $1,444.7674 in
cash. If all outstanding shares of RNM Common Stock are converted in the
RNM Merger Transactions, the aggregate consideration received by security
holders of RNM will be approximately 958,500 shares of APPI Common Stock
and $4,473,000 in cash. Such security holders of RNM will own an
aggregate of 5.24% of the total shares of APPI Common Stock outstanding
upon consummation of the Mergers and Exchanges, the Initial Public
Offering and the conversion of the Convertible Notes.
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Rockland Radiological Group
- Each outstanding share of common stock of AIOC, CIA, MRIA, Nyack, Pelham,
RRG and WIC will be converted into the right to receive 1,589.4231 shares
of APPI Common Stock and $7,417.3077 in cash. For each of AIOC, CIA,
MRIA, Nyack, Pelham, RRG and WIC, if all outstanding shares of common
stock of each such entity are converted in the AIOC, CIA, MRIA, Nyack,
Pelham, RRG and WIC Merger Transactions, the aggregate consideration
received by security holders of AIOC, CIA, MRIA, Nyack, Pelham, RRG and
WIC will be approximately 206,625 shares of APPI Common Stock and
$964,250 in cash. Such security holders will own an aggregate of 1.13% of
the total shares of APPI Common Stock outstanding upon consummation of
the Mergers and Exchanges, the Initial Public Offering and the conversion
of the Convertible Notes.
Valley Radiology Group
- Each outstanding share of Valley Common Stock will be converted into the
right to receive 29.6972 shares of APPI Common Stock $138.5868 in cash.
If all outstanding shares of Valley Common Stock are converted in the
Valley Merger Transactions, the aggregate consideration received by
security holders of Valley will be approximately 592,088 shares of APPI
Common Stock and $2,763,075 in cash. Such security holders of Valley will
own an aggregate of 3.24% of the total shares of APPI Common Stock
outstanding upon consummation of the Mergers and Exchanges, the Initial
Public Offering and the conversion of the Convertible Notes.
The total consideration to be paid to each Founding Affiliated Practice and
its respective security holders in connection with the Mergers and Exchanges was
determined by valuing each of the Founding Affiliated Practices using a
consistent methodology. The audited financial statements of the Founding
Affiliated Practices were used as a basis for estimating the consideration to be
paid. Management evaluated each practice's operating cash flows taking into
account expected future trends (e.g., reimbursement trends, potential growth
opportunities and capital needs, etc.). Based on the evaluation, APPI management
created a projection to estimate the first year management fee payable to APPI.
A multiple was applied to this management fee to determine the consideration.
The merger consideration is comprised of 25% cash and 75% stock. The
consideration mix proposed by APPI management was designed to achieve several
objectives, including aligning physicians' economic interests with the Company's
managing balance sheet ratios and preserving capital for future growth
opportunities.
The complete text of a form of Merger Agreement where the entity to be
acquired by APPI shall merge with and into a subsidiary of APPI is attached as
Appendix B to this Prospectus/Joint Proxy Statement. The complete text of a form
of Merger Agreement where the entity to be acquired by APPI shall merge with and
into APPI is attached as Appendix C to this Prospectus/Joint Proxy Statement.
It is contemplated that each Merger will occur as soon as practicable after
each of the Merger Entities' security holders approve the applicable Merger
Proposal at each such Entity's respective special meeting.
In addition, the Company has entered into an agreement in principle with
LXL Group, Ltd., a California general partnership ("LXL"), to purchase
substantially all of the assets of LXL for a purchase price of approximately
$532,000.00. The Company intends to pay the entire purchase price in cash. The
closing of the LXL asset purchase transaction is expected to occur within 90
days following the consummation of the Mergers and Exchanges. Such transaction
is not a part of any Merger or Exchange. Certain shareholders of Valley,
including Peter J. Long, M.D., Cyril J. McDonald, M.D., William T. McLaughlin,
M.D., Richard Silberstein, M.D., Robert Filipi, M.D., Edward Lebowitz, M.D.,
Stephen Teng, M.D., James Vaudagna, M.D., Andrew Koo, M.D., Franklin Gee, M.D.,
Keith Fraker, M.D., John Noonan, M.D., and Bruce Hyman, M.D., collectively own
100% of the partnership interests in LXL.
THE EXCHANGES
Each of the Exchange Agreements contemplates that the partners (or some
percentage thereof) of each of the Exchange Entities will exchange such
partners' partnership interests in the respective Exchange Entity
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<PAGE> 63
for cash and shares of APPI Common Stock as set forth below, provided that all
conditions to the consummation of each Exchange are satisfied or waived.
Pursuant to the Lexington Exchange Agreement, each of the partners of Lexington
will exchange his Interests in Lexington for shares of APPI Common Stock and
cash, except for Baptist Memorial Hospital System and San Antonio No. 2.
However, APPI will also acquire San Antonio No. 2's Interest in Lexington upon
the consummation of the San Antonio No. 2 Exchange. Accordingly, following the
consummation of the Exchanges, APPI will own approximately 78.9% of the
partnership interests of Lexington and Baptist Memorial Hospital System will own
the remaining 21.1% of the partnership interests of Lexington. Pursuant to the
Madison Exchange Agreement, each of the partners of Madison will exchange his
Interests in Madison for shares of APPI Common Stock and cash. Pursuant to the
South Texas No. 1 Exchange Agreement, each of the partners of South Texas No. 1
will exchange his Interests in South Texas No. 1 for shares of APPI Common Stock
and cash, except for South Texas. However, APPI will also acquire South Texas'
Interest in South Texas No. 1 upon consummation of the South Texas Merger.
Pursuant to the San Antonio No. 2 Exchange Agreement, each of the partners of
San Antonio No. 2 will exchange his Interests in San Antonio No. 2 for shares of
APPI Common Stock and cash, except for San Antonio. However, APPI will also
acquire San Antonio's Interest in San Antonio No. 2 upon consummation of the San
Antonio Merger.
Each security holder of a Exchange Entity who receives shares of APPI
Common Stock and cash in each Entity's respective Exchange will be required to
execute and deliver a Stockholder Representation Letter to APPI, which, among
other things, prohibits such security holder from selling any such shares for a
period of 12 months following the Effective Date, and then limits the ability of
such security holder to sell such shares to (i) up to 25% of such shares upon
expiration of the 12-month period following the Effective Date, (ii) an
additional 25% of such shares upon expiration of the 18-month period following
the Effective Date and (iii) the remaining 50% of such shares on or after the
second anniversary of the Effective Date.
The exact number of shares and cash to be received by the security holders
of each Entity will be determined by applying a formula which is tied to the
Initial Public Offering Price of the APPI Common Stock. As such, the security
holders will not know precisely how many shares or how much cash they will
receive at the time such security holders are asked to vote on the applicable
Merger or Exchange Transaction.
The following sets forth for each Exchange Entity the consideration (e.g.,
number of shares of APPI Common Stock and cash amounts) to be received by each
security holder assuming that the Initial Public Offering Price will be $14.00
per share. If the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the total cash consideration received by the
security holders of each of the Entities will increase to an amount calculated
as follows:
[Cash security holder
would have received Initial Public Offering Price
had the Initial Public X -----------------------------
Offering Price been $14.00
$14.00 per share]
However, if the Initial Public Offering Price of the APPI Common Stock is less
than $14.00 per share, the total number of shares of APPI Common Stock received
by the security holders of each of the Entities will be increased to an amount,
calculated as follows, resulting in such security holders receiving shares of
APPI Common Stock having an aggregate value equal to the aggregate value of the
shares of APPI Common Stock they would have received had the Initial Public
Offering Price been $14.00 per share.
[Number of shares
security holder $14.00
would have received X -----------------------------
had the Initial Initial Public Offering Price
Public Offering Price
been $14.00]
The parties to each Exchange Agreement are not permitted to terminate the
respective agreement for any reason related to the price of the APPI Common
Stock. For a more detailed discussion of the foregoing, see
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<PAGE> 64
"Approval of The Mergers, Exchanges and Related Transactions -- Conversion of
Shares and Exchange of Partnership Interests."
M&S X-Ray Practices
- The Lexington Partners will exchange 18.98% of the total interests
of the partners in Lexington for approximately 108,092 shares of
APPI Common Stock and $504,427 in cash. Such partners of Lexington
will own an aggregate of 0.59% of the total shares of APPI Common
Stock outstanding upon consummation of the Mergers and Exchanges,
the Initial Public Offering and the conversion of the Convertible
Notes.
- The Madison Partners will exchange 100% of the total interests of
the partners in Madison for approximately 123,502 shares of APPI
Common Stock and $576,342 in cash. Such partners of Madison will own
an aggregate of 0.68% of the total shares of APPI Common Stock
outstanding upon consummation of the Mergers and Exchanges, the
Initial Public Offering and the conversion of the Convertible Notes.
- The South Texas No. 1 Partners will exchange 99% of the total
interests of the partners in South Texas No. 1 for approximately
253,221 shares of APPI Common Stock and $1,181,698 in cash. Such
partners of South Texas No. 1 will own an aggregate of 1.38% of the
total shares of APPI Common Stock outstanding upon consummation of
the Mergers and Exchanges, the Initial Public Offering and the
conversion of the Convertible Notes.
- The San Antonio No. 2 Partners will exchange 99% of the total
interests of the partners in San Antonio No. 2 for approximately
337,754 shares of APPI Common Stock and $1,576,187 in cash. Such
partners of San Antonio No. 2 will own an aggregate of 1.85% of the
total shares of APPI Common Stock outstanding upon consummation of
the Mergers and Exchanges, the Initial Public Offering and the
conversion of the Convertible Notes.
The complete text of a form of Exchange Agreement is attached as Appendix D
to this Prospectus/Joint Proxy Statement.
It is contemplated that each Exchange will occur as soon as practicable
after each of the Exchange Entities' partners approve the applicable Exchange
Proposal at each such Entity's respective Special Meeting and each of such
exchanging partners consummates the applicable Exchange. Following the
consummation of the Exchange Transactions, the Company will become a party to
the management agreements currently in effect between M&S and each of Baptist
Imaging Center and Northeast Baptist MR Center, and will assume the
responsibility for the day-to-day management of the joint ventures. Baptist
Memorial Hospital System, a limited partner of Lexington, owns 51% of the
general partner interests of each of Baptist Imaging Center and Northeast
Baptist MRI Center. Prior to the Exchange Transactions, the management fees
received by M&S from each of the joint ventures were calculated based upon
different methodologies including predetermined monthly fees and a percentage of
net revenues. However, in an effort to simplify payment of the management fees
and to develop a consistent management fee structure amongst each joint venture,
a nationally-recognized "big six" accounting firm conducted an independent
analysis of the fair market value of the management services to be rendered by
the Company to the joint ventures following the Exchange Transactions. The
analysis recommended that the joint ventures adopt a percentage of revenue fee
structure with the identical percentage being applied on a consistent basis to
each joint venture. The analysis further stated that, based upon revenue
projections contained in the analysis, the modification to the management fee
structure would not significantly increase the aggregate amount of management
fees paid by Baptist Imaging Center and Northeast Baptist MRI Center and that
such fees would likely be substantially the same in 1998 as they were in 1997.
APPI'S REASONS FOR THE MERGERS AND EXCHANGES
APPI was formed in April 1996 for the sole purpose of acquiring and
consolidating radiology practices on a national basis and forming a publicly
traded radiology practice management company. APPI and the
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<PAGE> 65
Founding Affiliated Practices recognized that increased managed care
penetration, declining reimbursements from private and governmental payors,
physician oversupply and other market forces were driving physicians, including
radiologists, into larger group practices and driving group practices to seek
corporate partners to provide management expertise, capital and sophisticated
information systems.
APPI and the Founding Affiliated Practices believed that if APPI could
provide the resources (including business and management expertise, purchasing
power and sophisticated information systems) necessary for radiology practices
to compete in the managed care dominated environment, then radiology practices
would be motivated to affiliate with APPI. APPI's strategy is to (i) emphasize
quality service, (ii) expand within its selected markets, (iii) improve
operating efficiencies within the Founding Affiliated Practices and (iv) expand
into new regional markets through acquisitions of or affiliations with
additional radiology practices and ICs. APPI believes that the Founding
Affiliated Practices form the foundation upon which APPI can attempt to
implement its strategy.
THE MERGER AND EXCHANGE ENTITIES' REASONS FOR THE MERGERS AND EXCHANGES AND
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF THE MERGER ENTITIES
The respective Boards of Directors of the Entities have identified a number
of potential benefits of the Mergers, Exchanges and an affiliation with APPI to
security holders of the Entities. The potential benefits include:
- APPI's management will offer the Founding Affiliated Practices management
resources and expertise in areas such as strategic planning, marketing,
managed care contracting, business development, purchasing, billings and
collections and dealing with hospitals and other facilities. Such
resources and expertise could offer the Founding Affiliated Practices
opportunities to enhance practice revenue and spend more time on the
professional as opposed to administrative aspects of their practice. In
addition, through access to the collective knowledge and information of
all Affiliated Practices, Affiliated Practices will be in a better
position to identify and promote best practices and operating
efficiencies in areas such as practice guidelines, equipment utilization
and resource management.
- Through APPI, the Founding Affiliated Practices will have increased
access to capital to upgrade existing imaging equipment, purchase
equipment for new imaging modalities, invest in new technologies (e.g.,
teleradiology), invest in clinical information systems to improve quality
of care, and implement financial and cost-accounting systems to optimize
resource management, facilitate managed care contracting and improve
profitability.
- As part of APPI's acquisition and expansion strategy, the Founding
Affiliated Practices will serve as a hub for future acquisitions of and
affiliations with practices and imaging centers in regions in which the
Founding Affiliated Practices are located. Through such acquisitions and
affiliations, and opportunities to invest in technologies such as
teleradiology, the Founding Affiliated Practices will be positioned to
provide greater geographic coverage and patient accessibility, improved
response time and broader subspecialty expertise, thereby improving
patient service and referring physician satisfaction.
- The Mergers, Exchanges and affiliations with APPI offer the Founding
Affiliated Practices the opportunity to participate in a larger and more
diversified physician organization which will have greater contracting
ability and bargaining leverage with managed care organizations, greater
financial strength and ability to enter into risk-sharing arrangements
with payors, and greater purchasing power with vendors.
- The consideration the security holders are receiving in the Mergers and
Exchanges is enabling them to liquidate a portion of the equity they have
in their respective Founding Affiliated Practices. In addition, a
substantial portion of the consideration to be received by security
holders of the Entities is in the form of an equity interest in a larger
and more diversified physician organization that is expected to benefit
strategically, competitively and operationally from the Mergers and
Exchanges and the affiliation with APPI. The security holders' equity
interest in APPI provides them with the potential to realize greater
long-term returns on and liquidity of the financial investment they
currently have in their respective
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<PAGE> 66
Founding Affiliated Practices. Finally, it is anticipated that the other
benefits described above could enhance the revenues of the Founding
Affiliated Practices and increase physician compensation.
The respective Board of Directors of the Entities also identified a number
of potential adverse effects of the Mergers and Exchanges on the security
holders of each Entity including (i) decreased autonomy in the management of
their respective Founding Affiliated Practices, (ii) payment of a service fee to
APPI out of practice revenues, (iii) dependence on the operating results of the
other Affiliated Practices and the continued affiliation of such Practices with
APPI, (iv) the lack of prior operating experience of APPI with the Founding
Affiliated Practices, (v) risks associated with APPI's acquisition and expansion
strategy and (vi) general risks associated with owning an equity interest in
APPI. These and other risk factors may interfere with or undermine the
realization of the potential benefits described above. See "Risk Factors."
In reaching their decisions to approve the respective Merger Proposals, the
Boards of each of the Entities were influenced by all of the potential benefits
described above. The importance of each benefit varied to some extent for each
Board; however, each Board was positively influenced by each of the benefits to
some degree.
CONDITIONS TO THE MERGERS AND EXCHANGES
Except as may be waived in writing, consummation of the Mergers and
Exchanges is subject to the satisfaction of certain conditions under applicable
laws and rules, which include, without limitation, the following: no action,
proceeding or order by any court, governmental body or agency shall have been
threatened or entered to restrain or prohibit consummation of the Mergers and
Exchanges; the Registration Statement and the Form S-1 shall have become
effective; APPI shall have received all necessary state securities and "Blue
Sky" permits; the APPI Common Stock shall have been approved for listing on the
Nasdaq National Market; the Initial Public Offering shall have closed; and each
Merger or Exchange Proposal shall have been approved by the requisite number of
security holders of each respective Entity.
In addition, the obligation of each Merger Entity to consummate each
respective Merger is subject to certain additional conditions unless waived by
the applicable Merger Entity, which include, without limitation that each Merger
Entity shall have received from Shattuck Hammond its opinion that the financial
terms of the Service Agreement are commercially reasonable. See "Approval of the
Mergers, Exchanges and Related Transactions -- Opinions of Shattuck Hammond
Partners Inc."
In addition, the obligation of APPI to consummate each Merger and Exchange
is subject to certain conditions unless waived by APPI, which include, without
limitation, the following: (i) each of the Mergers and Exchanges shall have
closed; (ii) each respective Merger Entity shall have satisfied each of its
obligations to its security holders regarding dissenters' or related rights and
the sum of the amount due to the security holders who have dissented to such
Merger plus the cash portion of the consideration paid in the applicable Merger
shall not exceed 25% of the total consideration paid in the applicable Merger;
(iii) each security holder who is a party to each respective Merger Agreement
shall have executed and delivered to APPI a Stockholder Representation Letter
and certain of such security holders shall have executed and delivered to APPI
the Indemnification Agreement; and (iv) all of the assets and properties of each
respective Merger Entity and its related entities to be transferred to each
respective NewCo pursuant to each respective Reorganization shall have been
transferred, assigned and conveyed to such NewCo.
If any material condition to consummation of the Mergers or Exchanges is
waived, the Registration Statement will be amended and the security holders of
each of the Entities will be resolicited.
For a more detailed discussion of the foregoing, see "Approval of the
Mergers, Exchanges and Related Transactions -- Conditions of the Merger
Agreements and Exchange Agreements."
CLOSING OF THE MERGERS AND EXCHANGES AND EFFECTIVE TIME OF THE MERGERS
The Mergers will become effective upon the closing of the Initial Public
Offering and upon the completion of the filing of a properly executed
Certificate of Merger with the appropriate Secretaries of State as required by
the applicable Merger Agreement reflecting such Merger, which filings will be
made after satisfaction of certain conditions set forth in the Merger
Agreements. See "Approval of the Mergers,
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<PAGE> 67
Exchanges and Related Transactions -- Closing of the Mergers and Exchanges and
Effective Time of the Mergers." In addition, the Exchanges will become effective
upon the closing of the Initial Public Offering.
TERMINATION
Each Merger Agreement and Exchange Agreement may be terminated under
certain circumstances, including, without limitation, (i) by mutual written
consent of APPI and the applicable Merger Entity or Exchange Entity and partners
thereof, (ii) by either APPI or the respective Merger or Exchange Entity if the
other party is in breach of any representation, warranty or covenant contained
in the applicable Merger Agreement or Exchange Agreement, (iii) if, as a result
of the conduct of due diligence and regulatory compliance procedures, APPI deems
termination to be advisable or (iv) if the Merger or Exchange, as the case may
be, is not consummated on or before November 30, 1997.
EXPENSES; FEES
All fees and expenses incurred in connection with the Merger Agreements and
the transactions contemplated thereby and the Exchange Agreements and the
transactions contemplated thereby will be paid by the party incurring such
expenses, whether or not the respective Merger or Exchange is consummated.
EXCHANGE/ISSUANCE OF STOCK CERTIFICATES IN THE MERGERS AND EXCHANGES
At or after the Effective Time of each Merger and on the Closing Date of
each Exchange, APPI will make available, and each holder of the Old Shares
(other than those security holders who take required actions to properly assert
their dissenters' rights under the applicable state law) or Old Partnership
Interests will be entitled to receive, upon surrender to APPI of one or more
stock certificates evidencing such Old Shares for cancellation or upon delivery
to APPI of a bill of sale evidencing the transfer of Old Partnership Interests,
certificates evidencing the number of shares of APPI Common Stock into which
such Old Shares are converted in the applicable Merger or for which such Old
Partnership Interests are exchanged in each Exchange. No fractional shares of
APPI Common Stock will be issued. Any security holder otherwise entitled to
receive a fractional share of APPI Common Stock upon consummation of a Merger or
Exchange will receive cash, without interest, in lieu thereof in an amount equal
to such holder's proportionate interest in a share of APPI Common Stock
multiplied by the Initial Public Offering Price of APPI Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Michael L. Sherman, M.D., a director nominee of APPI and a physician owner
of Advanced, entered into a consulting agreement with APPI in August 1996
pursuant to which Dr. Sherman received an option grant for 20,000 shares of APPI
Common Stock under the Automatic Option Grant Program. The Company and Dr.
Sherman have also entered into a consulting agreement which will go into effect
immediately following the Initial Public Offering for which Dr. Sherman will
receive annual compensation of $100,000. In addition, as part of the Advanced
Merger Transaction, the Company will issue 65,014 shares of APPI Common Stock
and $303,395 in cash to Dr. Sherman in exchange for his ownership interest in
Advanced, subject to the adjustments applicable to changes in the Initial Public
Offering Price as described above. The Company has also agreed to nominate Dr.
Sherman for election to the Board of Directors at the next two annual meetings
of stockholders.
Less T. Chafen, M.D., Chairman of the Board of Pacific, has been nominated
and approved to serve as a director of APPI effective upon consummation of the
Initial Public Offering. At such time, Dr. Chafen will receive an option grant
for 30,000 shares of APPI Common Stock under the Company's 1996 Stock Option
Plan Automatic Option Grant Program. In addition, as part of the Pacific and TMI
Merger Transactions, the Company will issue an aggregate of 31,994 shares of
Common Stock and $149,307 in cash to Dr. Chafen in exchange for his ownership
interest in Pacific and TMI, subject to the adjustments applicable to changes in
the Initial Public Offering Price as described above.
Derace L. Schaffer, M.D., a director of APPI since its inception and
President of Ide, purchased 1,000,000 shares of APPI Common Stock in the Company
for $125,000. Dr. Schaffer also owns $107,500 in
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<PAGE> 68
principal amount of the Convertible Notes. In addition, on July 25, 1997, Dr.
Schaffer and Mr. Pappajohn, a director of the Company, personally guaranteed a
$1,000,000 line of credit for the benefit of the Company. As a director of the
Company, Dr. Schaffer will be eligible to participate in the Automatic Option
Grant Program upon consummation of the Initial Public Offering. In addition, as
part of the Ide Merger Transaction, APPI will issue 94,256 shares of Common
Stock and $439,860.00 in cash to Dr. Schaffer in exchange for his ownership
interest in Ide, subject to the adjustments applicable to changes in the Initial
Public Offering Price as described above.
Due to the benefits to be received by Drs. Sherman, Chafen and Schaffer in
connection with the Mergers, as described herein, the interests of these
individuals may be different from the interests of security holders of the
Entities generally. Security holders should consider such persons' interests in
the applicable Merger in connection with any such person's recommendation of
such Merger. See "Approval of the Mergers, Exchanges and Related
Transactions -- Interests of Certain Persons in the Mergers and Exchanges."
In addition, the following table provides certain information concerning
certain of the security holders of the Founding Affiliated Practices, including
cash distributions to be paid in connection with the Mergers and Exchanges. Each
of the below listed security holders of the Founding Affiliated Practices is or
will be a Director of the Company and is deemed to be a promoter of the Initial
Public Offering.
<TABLE>
<CAPTION>
CONSIDERATION TO BE
RECEIVED
--------------------------
ASSETS TO BE NUMBER OF CASH
SECURITY HOLDER CONTRIBUTED(1) SHARES DISTRIBUTION
--------------------------------------- -------------- --------- ------------
<S> <C> <C> <C>
Michael L. Sherman, M.D................ $ 612,139 65,014 $325,068
Derace L. Schaffer, M.D................ 326,461 94,256 471,279
Less T. Chafen, M.D.................... 188,642 31,994 159,972
---------- ------- --------
Total........................ $1,127,242 191,264 $956,319
========== ======= ========
</TABLE>
- ---------------
(1) Assets to Be Contributed reflects the historical book value of the assets of
each Founding Affiliated Practice, including their patient receivable
balance. The non-monetary assets are reflected at historical cost in
accordance with SAB 48. All monetary assets are recorded at fair value,
which is approximated by the historical costs recorded by the Founding
Affiliated Practices.
DISSENTERS' RIGHTS REGARDING THE MERGERS
Under California State Law
Holders of record of Pacific Common Stock, TMI Common Stock and Valley
Common Stock who do not vote in favor of the applicable Merger Proposal and who
comply with the applicable procedures under Sections 1300 through 1304 of the
CCC will be entitled to receive the fair market value of shares held by such
Dissenting Security Holders. The CCC defines the term "fair market value" as the
value of the shares as of the day before the first announcement of the terms of
the applicable Merger Proposal, excluding any appreciation or depreciation
resulting from the proposed transaction. Dissenting security holders have
certain rights of appraisal under California law. A Dissenting Security Holder
must properly follow the steps specified by California law and take required
actions to assert such Dissenting Security Holder's dissenters' rights.
Dissenting Security Holders are urged to consult legal counsel with respect to
dissenters' rights under the CCC. See "Approval of the Mergers, Exchanges and
Related Transactions -- Dissenters' Rights Regarding the Mergers."
Under Kansas State Law.
Holders of record of RNM Common Stock who do not vote in favor of the RNM
Merger Proposal and who comply with the applicable procedures under Section
17-6712 of the KGCC will be entitled to receive the value of the shares held by
such Dissenting Security Holders as of the Effective Time of the RNM Merger,
exclusive of any element of value arising from the expectation or accomplishment
of the RNM Merger. Dissenting Security Holders have certain rights of appraisal
under Kansas law. A Dissenting Security Holder must properly follow the steps
specified by Kansas law and take required actions to assert such Dissenting
Security Holder's dissenters' rights. Dissenting Security Holders are urged to
consult legal counsel with respect to dissenters' rights under the KGCC. See
"Approval of the Mergers, Exchanges and Related Transactions -- Dissenters'
Rights Regarding the Merger."
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<PAGE> 69
Under Maryland State Law
Holders of record of Advanced Common Stock who do not vote in favor of the
Advanced Merger Proposal and who comply with the applicable procedures under
Section 3-202 of the MGCL will be entitled to receive the fair value of shares
held by such Dissenting Security Holders. The MGCL defines the term "fair value"
as the value of the shares as of the close of business of the date upon which
the Advanced Merger Proposal is approved, excluding any appreciation or
depreciation in anticipation of the proposed merger. Dissenting Security Holders
have certain rights of appraisal under Maryland law. A dissenting security
holder must properly follow the steps specified by Maryland law and take
required actions to assert such Dissenting Security Holder's dissenters' rights.
Dissenting Security Holders are urged to consult legal counsel with respect to
dissenters' rights under the MGCL. See "Approval of the Mergers, Exchanges and
Related Transactions -- Dissenter's Rights Regarding the Merger."
Under New York State Law
Holders of record of Ide Common Stock, AIOC Common Stock, CIA Common Stock,
MRIA Common Stock, Nyack Common Stock, Pelham Common Stock, RRG Common Stock and
WIC Common Stock who do not vote in favor of the applicable Merger Proposal and
who comply with the applicable procedures under Section 623 of the NYBCL will be
entitled to receive the value, as agreed upon by the applicable Entity and such
Dissenting Security Holders or as judicially determined, of the shares held by
such Dissenting Security Holders. Dissenting Security Holders have certain
rights of appraisal under New York law. A Dissenting Security Holder must
properly follow the steps specified by New York law and take required actions to
assert such Dissenting Security Holder's dissenters' rights. Dissenting Security
Holders are urged to consult legal counsel with respect to dissenters' rights
under the NYBCL. See "Approval of the Mergers, Exchanges and Related
Transactions -- Dissenters' Rights Regarding the Merger."
Under Texas State Law
Holders of record of M&S Common Stock, South Texas Common Stock and San
Antonio Common Stock who do not vote in favor of the applicable Merger Proposal
and who comply with the applicable procedures under Articles 5.11 and 5.12 of
the TBCA will be entitled to receive the fair value of shares held by such
Dissenting Security Holders. The value of Dissenting Security Holders' shares
will be calculated as of the day that the action authorizing the applicable
Entity's Merger Proposal was approved by the requisite holders of shares needed
to effect such Merger, excluding any appreciation or depreciation in
anticipation of such Merger. Dissenting Security Holders have certain rights of
appraisal under Texas law. A Dissenting Security Holder must properly follow the
steps specified by Texas law and take required actions to assert such Dissenting
Security Holder's dissenters' rights. Dissenting Security Holders are urged to
consult legal counsel with respect to dissenters' rights under the TBCA. See
"Approval of the Mergers, Exchanges and Related Transactions -- Dissenter's
Rights Regarding the Merger."
GOVERNMENT AND REGULATORY APPROVALS
Except as otherwise set forth herein, APPI and the Entities are aware of no
governmental or regulatory approvals required for consummation of the Mergers
and Exchanges, other than compliance with the federal securities laws and
applicable laws of the various states. See "Approval of the Mergers, Exchanges
and Related Transactions -- Government and Regulatory Approvals."
CERTAIN INCOME TAX CONSIDERATIONS
Each Merger and Exchange is intended to qualify as a reorganization under
either Section 351 or Section 368(a) of the Internal Revenue Code. In that case,
no gain or loss generally should be recognized (except to the extent that a
security holder receives, or is deemed to receive, cash or property other than
APPI Common Stock) by the holders of shares of Advanced Common Stock, Ide Common
Stock, M&S Common Stock, South Texas Common Stock, San Antonio Common Stock,
Pacific Common Stock, TMI Common Stock, RNM Common Stock, AIOC Common Stock, CIA
Common Stock, MRIA Common Stock, Nyack Common Stock, Pelham Common Stock, RRG
Common Stock, WIC Common Stock or Valley Common Stock or the holders of
partnership interests in Lexington, Madison, South Texas No. 1 or San Antonio
No. 2 on the exchange of such shares or partnership interests, as the case may
be, for APPI Common Stock.
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<PAGE> 70
Security holders will recognize income and/or gain upon the Mergers and
Exchanges to the extent they receive (or are deemed to receive) cash or property
other than APPI Common Stock. Haynes and Boone, L.L.P. special counsel to APPI,
has rendered an opinion, based on certain assumptions and representations
described therein, that, in summary, provides (i) the respective Merger or
Exchange will constitute a tax-free reorganization under either Section 351 or
Section 368(a) of the Internal Revenue Code, (ii) except as set forth below, no
gain or loss will be recognized by the security holders of any of the Entities
who exchange their Old Shares or Old Partnership Interests for APPI Common Stock
pursuant to the Merger or Exchange, as the case may be, (iii) the aggregate tax
basis of APPI Common Stock received in the Merger or Exchange, as the case may
be, will equal the aggregate tax basis of the Old Shares or Old Partnership
Interests, as the case may be, exchanged therefor, and, in the case of the Old
Partnership Interests, reduced by the partners' shares of partnership
liabilities assumed by APPI, (iv) no gain or loss will be recognized by each of
the Entities in connection with the Merger or Exchange, as the case may be, (v)
provided that the Old Shares or Old Partnership Interests are held as a capital
asset at the Effective Time of a given Merger or the closing date of a given
Exchange, the holding period of APPI Common Stock will include the holding
period of such Old Shares or Old Partnership Interests, except, in the case of
the Old Partnership Interests, to the extent that the APPI Common Stock is
deemed to be received in exchange for assets described in Section 751 of the
Code, the holding period of such APPI Common Stock will commence on the day
following the date of the Exchange, and (vi) security holders of any of the
Entities will recognize income and/or gain only to the extent that they receive
(or are deemed to receive) cash or property other than APPI Common Stock. An
opinion of counsel is not binding on the Internal Revenue Service or the courts.
No assurance can be given that the tax-deferred characterization of the Mergers
and Exchanges will not be challenged or, if challenged, will be defended
successfully. If the tax characterization of the Mergers and Exchanges is
successfully challenged, there may be significant adverse tax consequences to
the Entities and their respective security holders. However, all security
holders and partners of the Entities are urged to consult their own tax
advisors. See "Approval of the Mergers, Exchanges and Related
Transactions -- Certain Income Tax Considerations."
ACCOUNTING TREATMENT
SAB 48 states that when a company acquires assets from promoters and
security holders in exchange for stock just prior to or at the time of an
initial public offering, such assets should be recorded at the historical cost
to any such promoter or security holder. Each of the security holders is
involved as a promoter of the Mergers or the Exchanges, as the case may be, and
the related Initial Public Offering. Accordingly, the assets and liabilities to
be acquired by APPI or a subsidiary thereof in the Merger Transactions and the
Exchange Transactions will be recorded on the balance sheet of APPI in the same
amounts as reflected in the balance sheets of the Entities at the Effective Time
of the applicable Merger or Closing Date of the applicable Exchange. See
"Approval of the Mergers, Exchanges and Related Transactions -- Interests of
Certain Persons in the Mergers and Exchanges" and "-- Accounting Treatment."
19
<PAGE> 71
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
The following summary historical information for APPI and each of the
Founding Affiliated Practices (Advanced Radiology; The Ide Group, M&S X-Ray
Practices, Pacific Imaging Consultants, Radiology and Nuclear Medicine, Rockland
Radiological Group and Valley Radiology Group) has been derived from the
unaudited financial statements. In the opinion of management, such information
includes all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the information included therein. APPI was
incorporated in April 1996 and has conducted no significant operations and
generated no revenue to date other than in connection with the Initial Public
Offering and the pending Mergers and Exchanges. Results for the six months ended
June 30, 1997 are not necessarily indicative of those to be expected for a full
fiscal year. The selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for APPI and each of the Entities and the audited financial
statements of APPI and each of the Founding Affiliated Practices and notes
thereto included elsewhere in this Prospectus/Joint Proxy Statement.
AMERICAN PHYSICIAN PARTNERS, INC.
<TABLE>
<CAPTION>
FROM INCEPTION
(APRIL 30, 1996)
THROUGH
DECEMBER 31, SIX MONTHS ENDED
1996 JUNE 30, 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
SUMMARY OF OPERATIONS DATA:
Total revenue........................................ $ -- $ --
Total expenses....................................... 1,650 1,699
------- -------
Net loss............................................. $ (1,650) $ (1,699)
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 2,486
Total debt.............................................................. 3,500
Stockholders' deficit................................................... (3,099)
</TABLE>
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................... $22,451 $38,833 $52,882 $23,766 $31,560
Total expenses................... 22,717 36,485 51,402 23,510 31,720
Equity in earnings of
investments.................... 762 635 1,207 680 642
Minority interests in income of
consolidated subsidiaries...... -- -- (18) 9 (26)
------- ------- ------- ------- -------
Income before income taxes....... $ 496 $ 2,983 $ 2,669 $ 945 $ 456
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $39,297
Total debt.............................................................. 11,622
Stockholders' equity.................................................... 21,853
</TABLE>
20
<PAGE> 72
THE IDE GROUP
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue....................................... $25,534 $26,020 26,903
Total expense....................................... 23,514 24,115 27,550
Equity in earnings of investments................... -- -- --
Minority interests in income of consolidated
subsidiaries...................................... -- -- --
------- ------- -------
Income before income taxes.......................... $ 2,020 $ 1,905 (647)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 7,019
Total debt.............................................................. 1,858
Stockholders' equity.................................................... 1,535
</TABLE>
M&S X-RAY PRACTICES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- -----------------
1994 1995 1996 1996 1997
----------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................... $17,341 $15,068 $15,198 $7,712 $7,220
Total expenses................... 15,045 13,834 13,178 6,409 5,729
Equity in earnings of
investments.................... 98 213 605 273 427
Minority interests in income of
consolidated subsidiaries...... (220) (216) (249) (122) (160)
------- ------- ------- ------ -------
Income before income taxes....... $ 2,174 $ 1,231 $ 2,376 $1,454 $1,758
======= ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 7,628
Total debt.............................................................. 459
Stockholders' equity.................................................... 4,825
</TABLE>
21
<PAGE> 73
PACIFIC IMAGING CONSULTANTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- -----------------
1994 1995 1996 1996 1997
----------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................... $ 8,806 $11,448 $13,295 $5,634 $7,052
Total expenses................... 9,347 11,552 13,240 5,669 7,092
Equity in earnings of
investments.................... -- -- -- -- --
Minority interests in income of
consolidated subsidiaries...... -- -- -- -- --
------ ------- ------- ------ ------
Income (loss) before income
taxes.......................... $ (541) $ (104) $ 55 $ (35) $ (40)
====== ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 6,332
Total debt.............................................................. 3,645
Stockholders' equity.................................................... 255
</TABLE>
RADIOLOGY AND NUCLEAR MEDICINE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- ----------------------
1994 1995 1996 1996 1997
----------- ------- ------- ----------- ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................. $13,379 $13,849 $13,572 $ 6,620 $6,961
Total expenses................ 13,434 14,225 13,670 5,471 5,672
Equity in earnings of
investments................. 273 311 292 190 192
Minority interests in income
of consolidated
subsidiaries................ -- -- -- -- --
------ ------- ------- ------ ------
Income before income taxes.... $ 218 $ (65) $ 194 $ 1,334 $1,481
====== ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 5,202
Total debt.............................................................. 1,119
Stockholders' equity.................................................... 2,449
</TABLE>
22
<PAGE> 74
ROCKLAND RADIOLOGICAL GROUP
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................... $15,080 $17,824 $17,333 $11,764 $13,667
Total expenses................... 14,635 18,870 17,070 12,118 13,775
Equity in earnings of
investments.................... -- -- -- -- --
Minority interests in income of
consolidated subsidiaries...... -- -- -- -- --
------- ------- ------- ------- -------
Income before income taxes....... $ 445 $(1,046) $ 263 $ 354 $ (108)
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total assets........................................................... $ 12,237
Total debt............................................................. 9,162
Stockholders' equity................................................... (1,827)
</TABLE>
VALLEY RADIOLOGY GROUP
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- -----------------
1994 1995 1996 1996 1997
----------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................... $13,557 $10,507 $11,174 $5,570 $5,954
Total expenses................... 13,169 10,050 10,349 4,952 5,293
Equity (loss) in earnings of
investments.................... 84 14 (19) -- --
Minority interests in income of
consolidated subsidiaries...... -- -- -- -- --
------- ------- ------- ------- -------
Income before income taxes....... $ 472 $ 471 $ 806 $ 618 $ 661
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 4,155
Total debt.............................................................. 1,406
Stockholders' equity.................................................... 1,987
</TABLE>
23
<PAGE> 75
EQUIVALENT PER COMMON SHARE DATA
The following tables set forth certain historical per common share data for
APPI and pro forma equivalent data per share for each of the Founding Affiliated
Practices (Advanced Radiology, The Ide Group, M&S X-Ray Practices, Pacific
Imaging Consultants, Radiology and Nuclear Medicine, Rockland Radiological Group
and Valley Radiology Group). The pro forma equivalent data per share is based on
the historical amounts per share divided by the shares to be issued to the
respective Founding Affiliated Practice. The data should be read in conjunction
with the financial statements and notes thereto of the respective entities set
forth elsewhere in this Prospectus/Joint Proxy Statement, and such data is
qualified in its entirety by reference thereto.
AMERICAN PHYSICIAN PARTNERS, INC.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- --------------
1994 1995 1996(1) 1996 1997
---- ---- ------- ---- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical.................................. -- -- --(2) -- --(2)
Pro forma equivalent (unaudited)............ -- -- (0.11) -- (0.12)
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Book value per share at period end:
Historical.......................................................... --(2)
Pro forma equivalent (unaudited).................................... (0.16)
</TABLE>
ADVANCED RADIOLOGY(2)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER ENDED
31, JUNE 30,
---------------------- -------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical.................................. -- -- -- -- --
Pro forma equivalent (unaudited)............ 0.14 4.37 6.59 2.71 3.59
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Book value per share at period end:
Historical............................................................ --
Pro forma equivalent (unaudited)...................................... 4.58
</TABLE>
24
<PAGE> 76
THE IDE GROUP(3)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes per share:
Historical................................................... -- -- --
Pro forma equivalent (unaudited)............................. 1.00 0.94 0.21
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
Book value per share at period end:
Historical............................................................ --
Pro forma equivalent (unaudited)...................................... 1.38
</TABLE>
M&S X-RAY PRACTICES(3)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ --------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical................................ -- -- -- -- --
Pro forma equivalent (unaudited).......... 1.39 0.79 1.52 0.93 1.12
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Book value per share at period end:
Historical............................................................ --
Pro forma equivalent (unaudited)...................................... 3.09
</TABLE>
PACIFIC IMAGING CONSULTANTS(3)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ---- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical............................ -- -- -- -- --
Pro forma equivalent (unaudited)...... (0.77) (0.15) 0.08 (0.05) (0.06)
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Book value per share at period end:
Historical............................................................ --
Pro forma equivalent (unaudited)...................................... 0.36
</TABLE>
25
<PAGE> 77
RADIOLOGY AND NUCLEAR MEDICINE(3)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical.......................... -- -- -- -- --
Pro forma equivalent (unaudited).... 0.23 (0.07) 0.20 1.40 1.55
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Book value per share at period end:
Historical........................................................ --
Pro forma equivalent (unaudited).................................. 2.56
</TABLE>
ROCKLAND RADIOLOGICAL GROUP(3)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------- -----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical......................... -- -- -- -- --
Pro forma equivalent (unaudited)... 0.31 (0.72) 0.18 (0.24) (0.07)
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Book value per share at period end:
Historical........................................................ --
Pro forma equivalent(unaudited)................................... 1.26
</TABLE>
VALLEY RADIOLOGY GROUP(3)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical............................ -- -- -- -- --
Pro forma equivalent (unaudited)...... 0.80 0.80 1.36 1.04 1.12
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Book value per share at period end:
Historical.......................................................... --
Pro forma equivalent (unaudited).................................... 3.36
</TABLE>
- ---------------
(1) The 1996 Net Loss per share for American Physician Partners, Inc. is for the
period from inception (April 1, 1996) to December 31, 1996.
(2) Historical net loss per share data has not been presented as the historical
information does not reflect the distribution to the Founding Affiliated
Practices.
(3) The legal structure of the Founding Affiliated Practices includes
partnerships, corporations and limited liability companies and, accordingly,
the financial statements of each such Founding Affiliated Practice is
presented on a combined basis. Therefore, historical data is not available
so as to compute net income/loss and book value per share for each Entity.
26
<PAGE> 78
RISK FACTORS
An investment in the APPI Common Stock being offered pursuant to the Merger
Agreements and Exchange Agreements involves a high degree of risk. In addition
to the other information contained and incorporated by reference in this
Prospectus/Joint Proxy Statement, prospective investors should consider
carefully the factors listed below before approving and consenting to the
applicable Merger Agreement, Merger and the transactions contemplated thereby or
the applicable Exchange Agreement, Exchange and the transactions contemplated
thereby, as the case may be, or purchasing the APPI Common Stock offered
thereby.
ABSENCE OF COMBINED OPERATING HISTORY; NO PRIOR OPERATING EXPERIENCE
APPI was incorporated in April 1996, has generated no revenue to date and
has conducted no significant operations other than in connection with the
Initial Public Offering and the pending Mergers and Exchanges. The Company will
derive a substantial portion of its revenue from service fees it receives from
the Affiliated Practices for managing certain non-medical aspects of their
operations. The service fees paid to the Company generally will be based on the
revenue of the Affiliated Practices. The Company's success will depend in large
part on its ability to apply its management experience and implement practices,
systems and marketing plans to enhance the revenue and profitability of the
Affiliated Practices. To date, the Founding Affiliated Practices have been
operated as independent entities without common management. Moreover, the
Company has no preexisting relationship with any of the Founding Affiliated
Practices and has not managed any physician groups in the past. Due to this lack
of prior operating experience, there can be no assurance that the Company will
be able to integrate successfully the assets and personnel of the Founding
Affiliated Practices or to successfully implement its operating strategies with,
and profitably provide management and administrative services to, the Founding
Affiliated Practices or any other Affiliated Practices. There can be no
assurance that the Company will be profitable on a quarterly or annual basis in
the future.
DEPENDENCE ON AFFILIATED RADIOLOGISTS; RISK OF TERMINATION OF SERVICE AGREEMENTS
The Company's operations are entirely dependent on its continued
affiliation through Service Agreements with the Founding Affiliated Practices
and any other practices with which it may affiliate in the future. There can be
no assurance that the Founding Affiliated Practices or any other Affiliated
Practices will operate profitably or that the Service Agreements will not be
terminated. Two of the Founding Affiliated Practices (Advanced Radiology, LLC
and The Ide Group, P.C.) are expected to contribute in the aggregate
approximately 50% of the service fees to be paid to the Company by the Founding
Affiliated Practices, based on their historical net patient revenue and
expenses. The Service Agreements with the Founding Affiliated Practices will
have terms of 40 years, but may be terminated by either party if (i) the other
party (a) files a petition in bankruptcy or other similar events occur or (b)
defaults in the performance of a material duty or obligation, which default
continues for a specified period after notice or (ii) an opinion is rendered by
a law firm of nationally-recognized expertise in health care law that a material
term of the Service Agreement is in violation of applicable law (or a court or
regulatory agency finds as such) and such violation cannot be cured. The Company
generates its revenue through the service fees it receives pursuant to the
Service Agreements. The termination of any of the Founding Affiliated Practices'
Service Agreements could have a material adverse effect on the Company's
business, financial condition and results of operations. See "APPI -- APPI's
Operation, Management and Business Following the Mergers and
Exchanges -- Service Agreements." The Company anticipates that, to the extent
that it enters into management relationships with additional practices, the
Service Agreements entered into with such Affiliated Practices will have
provisions providing for the terms, termination and repurchase of assets similar
to those contained in the Service Agreements with the Founding Affiliated
Practices. Any termination of the Service Agreements with such Affiliated
Practices could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company has
executed a $115 million Credit Facility with GECC and other lenders and granted
a security interest in the Service Agreements to the lenders to secure the
Company's payment and performance obligations under the Credit Facility. The
Credit Facility is expected to become effective upon completion of the Initial
Public Offering and consummation of the Mergers and Exchanges. See "APPI
27
<PAGE> 79
- -- APPI Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" and "-- APPI's Operation,
Management and Business Following the Mergers and Exchanges -- Service
Agreements."
Each Founding Affiliated Practice will enter into employment agreements
with the key radiologists associated with each such Founding Affiliated
Practice. The employment agreements generally will be for a term of five years.
Although the Company, in conjunction with the Founding Affiliated Practices,
will endeavor to maintain and review such contracts, in the event a significant
number of such radiologists terminate their relationships with the Company, the
Company's business could be adversely affected. The Company anticipates that, to
the extent it enters into Service Agreements with other Affiliated Practices,
similar employment agreements will be entered into between such Affiliated
Practices and the key radiologists associated with their respective practices;
as such, the Company will face similar risks if a significant number of such
radiologists terminate their relationships with the Affiliated Practices.
Further, if a significant number of radiologists or other medical service
providers become unable or unwilling to continue in their roles, the Company's
business could be adversely affected. Neither the Company nor the Founding
Affiliated Practices maintains insurance on the lives of any affiliated
physician for the benefit of the Company. See "APPI -- APPI's Operation,
Management and Business Following the Mergers and Exchanges -- Affiliation
Structure."
UNCERTAINTY REGARDING THE ENFORCEABILITY OF NONCOMPETITION PROVISIONS
The Service Agreements require the Founding Affiliated Practices to enter
into and enforce agreements with the stockholders and full-time radiologists at
each Founding Affiliated Practice (subject to certain exceptions) that include
covenants not to compete with the Company for a period of two years after
termination of employment. See "APPI -- APPI's Operation, Management and
Business Following the Mergers and Exchanges -- Service Agreements." The Company
anticipates that Service Agreements that may be entered into with Affiliated
Practices in the future will also contain similar covenants requiring such
Affiliated Practices to restrict the ability of the stockholders and full-time
radiologists of such Affiliated Practices to compete with the Company. In most
states, a covenant not to compete will be enforced only to the extent it is
necessary to protect a legitimate business interest of the party seeking
enforcement, does not unreasonably restrain the party against whom enforcement
is sought and is not contrary to public interest. This determination is made
based on all of the facts and circumstances of the specific case at the time
enforcement is sought. For this reason, it is not possible to predict with
certainty whether a court will enforce such a covenant in a given situation. In
addition, the Company is not aware of any judicial precedents which have
addressed whether a management company's interest under a management agreement
will be viewed as the type of protectable business interest that would permit it
to enforce such a covenant. The inability of the Company to enforce such
anti-competition covenants could have a material adverse effect on the Company's
business, financial condition and results of operations.
RELIANCE ON REFERRALS
The Company is dependent on referrals from third parties to its owned,
operated or managed ICs and to other ICs or hospitals to which the Affiliated
Practices provide professional services in each of the markets where the Company
conducts business. A substantial portion of these referrals are made by
physicians who have no contractual obligation or economic incentive to refer
patients to those ICs or hospitals. The Company's owned, operated or managed ICs
and the Founding Affiliated Practices compete with local radiologists and
technical imaging service providers including non-profit and for profit
hospitals and health systems. The Company generates revenue from fees charged
for technical services provided at its owned, operated or managed ICs and from
service fees that it receives from the Affiliated Practices. Neither the Company
nor any Founding Affiliated Practice is dependent on any single referral source
for a material portion of its revenue. If a sufficiently large number of
physicians elected at any time to discontinue referring patients to the ICs
affiliated with the Company, the Company's business, financial condition and
results of operations would be materially adversely affected. In addition, there
is potential for disruption of relationships in connection with the acquisition
or assumption of control of a particular IC by the Company, and there can be
28
<PAGE> 80
no assurance that the Company will retain all of the business conducted by that
IC at the time of acquisition or assumption of control by the Company.
Further, in an effort to control costs, non-governmental health care payors
have implemented cost containment programs which could limit the ability of
physicians to refer patients to the Company's owned, operated or managed ICs.
For example, persons enrolled in prepaid health care plans, such as HMOs, often
are not free to choose where they obtain diagnostic imaging, interventional
radiology or radiation oncology services. Rather, the health plan provides these
services directly or contracts with providers and requires its enrollees to
obtain such services only from such providers. Some insurance companies and
self-insured employers also limit such services to contracted providers. Such
"closed panel" systems are now common in the managed care environment. Other
systems create an economic disincentive for referrals to providers outside of
the plan's designated panel of providers. Although the Company intends to seek
managed care contracts for its owned, operated or managed ICs and to assist the
Affiliated Practices to obtain contracts to provide professional and technical
radiology services, there can be no assurance that the Company will be able to
compete successfully for managed care contracts against larger companies with
greater resources.
RISKS ASSOCIATED WITH ACQUISITIONS AND EXPANSION STRATEGY
General
The Company's business strategy includes growth through the acquisition of
radiology practice assets, MSOs, ICs and related businesses and entry into and
maintenance of agreements to provide management and administrative services to
radiology practices, including services designed to improve operating
efficiencies. There can be no assurance that the Company will be able to acquire
and retain the assets of, or provide management and administrative services to,
additional radiology practices, MSOs or ICs, profitably provide such services or
successfully integrate such additional relationships, or successfully improve
operating efficiencies of the Affiliated Practices. In addition, there can be no
assurance that the assets of radiology practices acquired in the future, or the
relationships entered into in the future, will be beneficial to the successful
implementation of the Company's overall strategy or that such assets and
relationships will ultimately produce returns that justify their related
investment or implementation by the Company. See "APPI -- APPI's Operation,
Management and Business Following the Mergers and Exchanges -- Business
Strategy." Affiliated Practices acquired in the future may have disparate
cultures, operating and information systems and organizational structures.
Failure of the Company to acquire additional practices and to successfully
integrate and profitably manage or improve the operating efficiencies of the
Founding Affiliated Practices could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's ability to expand its operations is dependent upon factors
such as its ability to (i) identify attractive and willing candidates for
acquisition, (ii) adapt or amend the Company's structure to comply with present
or future federal and state legal requirements affecting the Company's
arrangements with physician practice groups, including state prohibitions on
fee-splitting, corporate practice of medicine and referrals to facilities in
which physicians have a financial interest, (iii) obtain regulatory approvals
and certificates of need, where necessary, and comply with licensing
requirements applicable to the Company, the Affiliated Practices and the
physicians associated with the Affiliated Practices, including their respective
facilities, and (iv) expand the Company's infrastructure and management to
accommodate expansion. There can be no assurance that the Company will be able
to achieve these objectives or its planned growth, that the assets of radiology
practices, MSOs or ICs will continue to be available for acquisition by the
Company or that the addition of such assets or management relationships will be
profitable. Further, acquisitions involve a number of special risks, including
possible adverse effects on the Company's operating results, diversion of
management's attention and resources, failure to retain key acquired personnel,
amortization or write-off of acquired intangible assets and risks associated
with unanticipated events or liabilities, some or all of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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Potential Need for Additional Capital
The Company intends to finance future acquisitions by using shares of the
Common Stock for all or a portion of the consideration to be paid. In the event
that the Common Stock does not maintain a sufficient valuation, or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of the assets of their businesses, the Company
may be required to utilize more of its cash resources in order to pursue its
acquisition program. The Company may also incur indebtedness to fund future
acquisitions. The Company has executed the Credit Facility, however, the
availability of the Credit Facility is subject to a number of closing
conditions, including the consummation of the Initial Public Offering and the
Mergers and Exchanges as well as other customary closing and borrowing
conditions. The Company's growth could be limited and its existing operations
impaired unless it is able to obtain additional capital through subsequent debt
or equity financings. There can be no assurance that borrowing capacity under
the Credit Facility will be available to the Company when needed, that the
Company will be able to obtain such additional financing or that, if available,
such financing will be on terms acceptable to the Company. See "APPI -- APPI
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." As a result, there can be no
assurance that the Company will be able to implement its acquisition strategy
successfully.
Risks Relating to Antitrust Laws
The Company intends to expand both in areas where the Founding Affiliated
Practices currently operate as well as in new markets. Although the Company will
continue to structure its operations in an effort to comply with applicable
antitrust laws, there can be no assurance that federal or state governmental
authorities would not view the Company as being dominant in a particular market
and, therefore, cause the Company to divest itself of any particular Affiliated
Practice or related assets. In addition, these laws could prevent acquisitions
of practices that would be integrated into existing Affiliated Practices if such
acquisitions substantially lessen competition or tend to create a monopoly.
GOVERNMENT REGULATION
State and Federal Fraud and Abuse, Anti-Kickback and Anti-Referral Laws
Various federal and state laws regulate the relationships between providers
of health care services, physicians and other clinicians. See
"APPI -- Operation, Management and Business Following the Mergers and
Exchanges -- Government Regulation and Supervision." These laws include the
fraud and abuse provisions of the Social Security Act, which include the federal
"anti-kickback" and Stark or anti-referral laws. The "anti-kickback" laws
prohibit the offering, payment, solicitation or receipt of any direct or
indirect remuneration for the referral of Medicare, Medicaid or other
governmental program patients or for the recommendation, leasing, arranging,
purchasing, ordering or providing of Medicare or Medicaid covered services,
items or equipment. Violations of the "anti-kickback" laws may result in
substantial civil or criminal penalties for individuals or entities, including
large civil monetary penalties and exclusion from participation in Medicare,
Medicaid and other governmental programs. BBA97 contains certain reform
provisions relating to Medicare, Medicaid and other governmental programs, that
are intended to assist the government in its efforts to enforce the
"anti-kickback" laws, including adding a civil money penalty and broadening the
scope of circumstances under which mandatory or permissive exclusion from the
programs may apply. Such exclusion and penalties, if applied to the Company's
owned, operated or managed ICs, the Affiliated Practices or physicians
affiliated with the Affiliated Practices, could result in significant loss of
reimbursement to the affected individuals and entities. A determination of
liability under any such laws could have a material adverse effect on the
Company's business, financial condition and results of operations.
Certain provisions contained in Stark I and Stark II, and subsequent
amendments, prohibit physician referrals for certain "designated health
services," including, without limitation, radiology services to entities with
which a physician or an immediate family member has a financial relationship.
The Stark Law also prohibits entities from presenting or causing to be presented
a claim or bill to any individual, third-party payor, or other entity for
designated health services furnished under a prohibited referral. A violation of
the Stark
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Law by the Company, an Affiliated Practice or physicians affiliated with the
Affiliated Practices, may result in significant civil penalties, which may
include exclusion or suspension of the physician or entity from future
participation in Medicare and Medicaid programs and substantial fines. A
determination of violation under such law by any of these persons or entities
could have a material adverse effect on the Company's business, financial
condition and results of operation.
Several states have adopted laws similar to the federal "anti-kickback" and
Stark Law that cover patients in private programs as well as government
programs. All of the states in which the Founding Affiliated Practices are
located have adopted a form of "anti-kickback" law and almost all of those
states (California, Kansas, Maryland and New York) have also adopted a form of
anti-referral law. These laws and the interpretations thereof vary from state to
state and are enforced by the courts and regulatory authorities, each with broad
discretion. A determination of liability under any such laws could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Corporate Practice of Medicare; Fee-Splitting
The laws of many states, including the states in which the Founding
Affiliated Practices are located, also prohibit business corporations, such as
the Company, from exercising control over the medical judgments or decisions of
physicians and from engaging in certain financial arrangements, such as
fee-splitting, with physicians. These laws and their interpretations vary from
state to state and are enforced by both the courts and regulatory authorities,
each with broad discretion. The Company's strategy is to acquire certain assets
and assume certain liabilities of, and to enter into Service Agreements with,
Affiliated Practices. Pursuant to the Service Agreements, the Company will
provide management, administrative, technical and other non-medical services to
the Affiliated Practices in exchange for a service fee. The Company intends to
structure its relationships with the Affiliated Practices (including the
purchase of assets and the provision of services under the Service Agreements)
to keep the Company from engaging in the practice of medicine or exercising
control over the medical judgments or decisions of the Affiliated Practices or
their physicians. There can be no assurance that regulatory authorities or other
parties will not assert that the Company is engaged in the corporate practice of
medicine in such states or that the payment of service fees to the Company by
the Affiliated Practices pursuant to the Service Agreements constitutes
fee-splitting or the corporate practice of medicine. If such a claim was
successfully asserted, the Company could be subject to civil and criminal
penalties and could be required to restructure or terminate its contractual
arrangements. Such results or the inability of the Company to successfully
restructure its relationships to comply with such statutes could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "APPI -- APPI's Operation, Management and Business Following the
Mergers and Exchanges -- Service Agreements."
Licensing and Certification Laws
The ownership, construction, operation, expansion and acquisition of ICs
are subject to various federal and state laws, regulations and approvals
concerning the licensing of facilities, personnel, certificates of need and
other required certificates for certain types of health care facilities and
major medical equipment. Although the laws of the five states in which the
Founding Affiliated Practices are located do not subject ICs to certificate of
need or separate licensing requirements as stand-alone imaging centers, the laws
of other states could limit the Company's ability to acquire new imaging
equipment or expand or replace its equipment at ICs in other states. No
assurances can be given that the required regulatory approvals for any future
acquisitions, expansions or replacements will be granted to the Company, and the
failure to obtain such approvals could materially and adversely affect the
Company's business, financial condition and results of operations. See
"APPI -- APPI's Operation, Management and Business Following the Mergers and
Exchanges -- Government Regulation and Supervision."
Compliance
Although the Company intends to structure and conduct its proposed
operation so as to comply with applicable federal and state laws, neither the
Company's current or anticipated business operations nor the operations of the
Founding Affiliated Practices have been the subject of judicial or regulatory
interpretation.
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There can be no assurance that a review of the Company's business by courts or
regulatory authorities will not result in determinations that could adversely
affect the operations of the Company or that the health care regulatory
environment will not change so as to restrict the Company's operations. In
addition, the regulatory framework of certain jurisdictions may limit the
Company's expansion into or ability to continue operations within such
jurisdictions, unless the Company is able to modify its operational structure to
conform with such regulatory framework. Any limitation on the Company's ability
to expand could have a material adverse effect on the Company's business,
financial condition and results of operations.
Reform Initiatives; Increased Enforcement
In addition to existing government health care regulations, there have been
numerous initiatives at the federal and state levels for comprehensive reforms
affecting the payment for and availability of health care services. The Company
believes that such initiatives will continue for the foreseeable future. Certain
aspects of these reforms as proposed in the past, such as further reductions in
Medicare and Medicaid payments, if adopted, could materially and adversely
affect the Company's business, financial condition and results of operations.
Federal regulatory and law enforcement authorities have recently increased
enforcement activities with respect to Medicare and Medicaid fraud and abuse
regulations and other reimbursement laws and rules, including laws and
regulations that govern the Company's activities. There can be no assurance that
the Company's activities will not be investigated, that claims will not be made
against the Company or that increased enforcement activities will not directly
or indirectly have an adverse effect on the Company's business, financial
condition and results of operations or the market price of the Common Stock.
Insurance Laws and Regulations
Certain states have enacted statutes or adopted regulations affecting risk
assumption in the health care industry, including statutes and regulations that
subject any physician or physician network engaged in risk-based contracting to
applicable insurance laws and regulations, which may include, among other
things, laws and regulations providing for minimum capital requirements and
other safety and soundness requirements. Failure to comply with these statutes
and regulations could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, implementation of
additional regulations or compliance requirements could result in substantial
costs to the Company and the Affiliated Practices. The inability to enter into
capitated or other risk-sharing arrangements or the cost of complying with
certain applicable laws that would permit expansion of the Company's risk-based
contracting activities could have a material adverse effect on the Company's
business, financial condition and results of operations.
REIMBURSEMENT TRENDS AND COST CONTAINMENT
The Company's revenue will be derived from service fees paid to the Company
by the Affiliated Practices pursuant to the Service Agreements and through its
ownership, operation and management of ICs. Substantially all of the revenue of
the Affiliated Practices and such ICs is currently derived from government
sponsored health care programs (principally, Medicare and Medicaid) and private
third-party payors. During the six month period ended June 30, 1997,
approximately 21% of the combined medical service revenues, net of the Founding
Affiliated Practices was derived from government approved health care programs
and approximately 79% of the combined medical service revenues, net of the
Founding Affiliated Practices was derived from private third-party payors. The
health care industry is experiencing a trend toward cost containment as
government and private third-party payors seek to impose lower reimbursement and
utilization rates and negotiate reduced payment schedules with service
providers. The Company believes that these trends will continue to result in a
reduction from historical levels in per-patient revenue for its Affiliated
Practices and ICs and that the results of operations of the Affiliated Practices
are likely to continue to be affected by lower reimbursement levels. Further
reductions in payments or other changes in reimbursement for health care
services could have a material adverse effect on the Company's business,
financial condition and results of operations unless the Company is otherwise
able to offset such payment reductions.
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Rates paid by private third-party payors are based on established physician
and hospital charges and are generally higher than Medicare reimbursement rates.
Any decrease in the relative number of patients covered by private insurance
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The federal government has implemented, through the Medicare program, a
RBRVS payment methodology for physician services. The RBRVS is a fee schedule
that, except for certain geographical and other adjustments, pays
similarly-situated physicians the same amount for the same services. The RBRVS
is adjusted each year and is subject to increases or decreases at the discretion
of Congress. To date, the implementation of the RBRVS has reduced payment rates
for certain of the procedures historically provided by the Affiliated Practices.
BBA 97 provides for reductions in the rate of growth of payments for physician
services, including services historically provided by the Affiliated Practices,
in the amount of $5.3 billion over a five-year period ending in 2002. In
addition, BBA 97 provides for the implementation of a resource-based methodology
for payment of physician practice expenses under the physician fee schedule over
a four-year period beginning in fiscal year 1999. Adoption of this methodology
is expected to reduce payments for services historically provided by the
Affiliated Practices.
RBRVS-type payment systems also have been adopted by certain private
third-party payors and the Company believes that it is likely that other private
third-party payors will adopt this payment methodology in the future.
Wider-spread implementation of such programs could reduce payments by private
third-party payors and could indirectly reduce the Company's operating margins
to the extent that the costs of providing management, administrative, technical
and non-medical services related to such procedures could not be proportionately
reduced. There can be no assurance that such cost reduction efforts by
governmental or private third-party payors will not have a material adverse
effect on the Company's business, financial condition and results of operations.
See "APPI -- APPI's Operation, Management and Business Following the Mergers and
Exchanges -- Government Regulation and Supervision."
Private third-party payors and Medicare and Medicaid have increased their
use of managed care as a means of cost containment. Increasingly, private
third-party payors negotiate discounts from established physician and hospital
charges or require capitation or other risk sharing arrangements as a condition
of patient referral to physician groups such as the Affiliated Practices. BBA 97
also includes provisions designed to increase the enrollment of Medicare and
Medicaid participants in managed care programs. The inability of the Company to
negotiate satisfactory arrangements with managed care companies could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS AND CAPITATED FEE ARRANGEMENTS
During the six month period ended June 30, 1997, approximately 94% of the
combined medical service revenues, net of the Founding Affiliated Practices was
derived from payments made on a fee-for-service basis by patients and
third-party payors (including government programs) and approximately 6% of the
combined medical service revenues, net of the Founding Affiliated Practices was
derived from capitated arrangements. Under capitated or other risk-sharing
arrangements, the health care provider typically is paid a pre-determined amount
per-patient per-month from the payor in exchange for providing all necessary
covered services to patients covered under the arrangement. Such contracts pass
much of the financial risk of providing care, including the risk of
over-utilization, from the payor to the provider. The Company believes that its
success will, in part, depend on the Company's ability to negotiate, on behalf
of the Affiliated Practices and the Company's owned, operated or managed ICs,
contracts with HMOs, employer groups and other third-party payors pursuant to
which services will be provided on a risk-sharing or capitated basis by some or
all of such Affiliated Practices or ICs. Risk-sharing arrangements result in
greater predictability of revenue but greater unpredictability of expenses and,
consequently, profitability. There can be no assurance that the Company will be
able to negotiate, on behalf of its Affiliated Practices or the Company's owned,
operated or managed ICs, satisfactory arrangements on a capitated or other
risk-sharing basis. In addition, to the extent that patients or enrollees
covered by such contracts require more frequent or extensive care than is
anticipated, the Company would incur unanticipated costs not offset by
additional revenue, which would reduce operating margins. In the worst case, the
revenue derived from such contracts may be insufficient to cover the costs of
the services
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provided. Any such reduction or elimination of earnings could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Furthermore, various quality assurance programs and organizations have been
created to scrutinize managed care organizations and their providers. In
response to such programs, managed care organizations and providers have
developed their own quality assurance programs to address a variety of areas,
including patient access to services, patient satisfaction, outcomes and
performance measures and utilization of services. These quality assurance
measures involve various costs associated with their implementation and
operation and depend, in part, upon the sophistication and compatibility of
existing systems and operations of the Affiliated Practices as well as the
Company's ability to integrate those systems and operations. The Company's
inability to develop strong quality assurance measures in conjunction with its
Affiliated Practices could place the Company and its Affiliated Practices at a
competitive disadvantage and have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The Company is under competitive pressure to acquire and retain the assets
of, and to provide management and administrative services to, additional
radiology practices, MSOs and ICs. There are a number of publicly-traded
companies focused on owning or managing ICs, including U.S. Diagnostic, Inc.,
Medical Resources, Inc., TeamHealth (a subsidiary of MedPartners, Inc.), and
Health Images (a division of HEALTHSOUTH Corporation). The Company is aware of
at least two privately-held physician practice management companies focused on
professional and technical radiology services. Several companies, both publicly
and privately held, that have established operating histories and, in some
instances, greater resources than the Company are pursuing the acquisition of
general and specialty physician practices (including radiology in the case of
TeamHealth) and the management of such practices. Additionally, some hospitals,
clinics, health care companies, HMOs and insurance companies engage in
activities similar to those of the Company. There can be no assurance that the
Company will be able to compete effectively for the acquisition of, or
affiliation with, radiology practices, that additional competitors will not
enter the market, that such competition will not make it more difficult or
expensive to acquire the assets of, and provide management and administrative
services to, radiology practices on terms beneficial to the Company, or that
competitive pressures will not otherwise adversely affect the Company. See
"APPI -- APPI's Operation, Management and Business Following the Mergers and
Exchanges -- Competition."
The Affiliated Practices and the Company's owned, operated or managed ICs
compete with numerous local radiology and imaging service providers. The Company
believes that changes in governmental and private reimbursement policies and
other factors have resulted in increased competition among providers for the
provision of medical services to consumers. There can be no assurance that the
Affiliated Practices and the Company's owned, operated or managed ICs will be
able to compete effectively in the markets they serve, which inability to
compete could materially and adversely affect the Company's business, financial
condition and results of operations.
Further, the Affiliated Practices will compete with other providers for
managed care contracts. The Company believes that trends toward managed care
have resulted, and will continue to result, in increased competition for such
contracts. Other radiology practices and MSOs may have more experience than the
Affiliated Practices and the Company in obtaining such contracts. There can be
no assurance that the Affiliated Practices and the Company will be able to
obtain future business from managed care entities which will allow the Company
to compete effectively in the markets they serve, which inability to compete
could materially and adversely affect the Company's business, financial
condition and results of operations.
POTENTIAL LIABILITY AND INSURANCE; LEGAL PROCEEDINGS
The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. Although the Company intends to structure
its relationships with the Affiliated Practices under the Service Agreements in
a manner that will not constitute the practice of medicine, there can be no
assurance that claims, suits or complaints relating to services and products
provided by Affiliated Practices will not be
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asserted against the Company in the future. Additionally, the Company owns,
operates and manages ICs, which expose the Company to professional liability
claims. The Company maintains insurance policies with coverages that it believes
are appropriate in light of the risks attendant to its business. In addition,
pursuant to the Service Agreements, the Affiliated Practices are required to
maintain professional liability insurance. Nevertheless, there can be no
assurance that successful malpractice or other claims will not be asserted
against the Affiliated Practices or the Company that exceed the scope of
coverage or applicable policy limits or which could otherwise have a material
adverse effect on the Company's business, financial condition and results of
operations.
The availability and cost of professional liability insurance has been
affected by various factors, many of which are beyond the control of the Company
and the Affiliated Practices. There can be no assurance that adequate liability
insurance will be available to the Company and the Affiliated Practices in the
future at acceptable costs or that the future cost of such insurance to the
Company and the Affiliated Practices will not have a material adverse effect on
the Company's business, financial condition and results of operations. See
"APPI -- APPI's Operation, Management and Business Following the Mergers and
Exchanges -- Corporate Liability and Insurance."
In connection with the Mergers and Exchanges, the Company will assume and
succeed to substantially all of the obligations of each Founding Affiliated
Practice. Further, in connection with the acquisition of the assets of other
Affiliated Practices in the future, the Company anticipates that it will
typically succeed to some or all of the liabilities of such Affiliated
Practices. Therefore, claims may be asserted against the Company for events that
occurred prior to the acquisition of the assets of the Affiliated Practices.
The physicians employed by the Founding Affiliated Practices are from time
to time subject to malpractice claims. Such malpractice claims, if successful,
could result in damages which may exceed applicable insurance coverage for such
malpractice claims. While each Founding Affiliated Practice and the Company
maintain insurance consistent with industry practice, there can be no assurance
that the amount of insurance currently maintained by them will satisfy all
claims made against them or that a Founding Affiliated Practice or the Company
will be able to obtain insurance in the future at satisfactory rates or in
adequate amounts. Further, there are certain claims against the Founding
Affiliated Practices which are not covered by insurance (see note 11 to the
Consolidated Financial Statements of Advanced Radiology, LLC and Subsidiary).
The Company cannot predict the effect that any such claims, regardless of their
outcome, might have on its business or reputation.
The Company has not been named in any of the lawsuits against a Founding
Affiliated Practice; however, there can be no assurance that the Company will
not subsequently be named as a defendant in one or more of these lawsuits
following consummation of the Reorganizations. Each Founding Affiliated Practice
has retained responsibility for, and agreed to indemnify the Company in full
against, the liabilities associated with these lawsuits. In the event the
Company is subsequently added as a party in any of these lawsuits, or a monetary
judgment is entered against the Company and a Founding Affiliated Practice is
not required or is unable to satisfy its indemnification obligations to the
Company, the Company's business, financial condition and results of operations
could be materially adversely affected.
On September 1, 1997, a new law became effective in the state of Texas that
permits injured patients to sue health insurance carriers, HMOs and other
managed care entities for medical malpractice. There can be no assurance that
this law will not increase the cost of liability insurance to the Company for
services provided in Texas or any other states in which the Company does
business if similar legislation is adopted in those states.
In connection with the Mergers and Exchanges, the security holders of the
Founding Affiliated Practices have agreed to indemnify the Company for certain
claims. There can be no assurance that the Company will be able to recover
payment under any such indemnity agreements or that the failure to fully recover
such amounts will not have a material adverse effect on the Company's business,
financial condition and results of operations.
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DEPENDENCE ON INFORMATION SYSTEMS
The current information systems of the Founding Affiliated Practices
consist of disparate, non-integrated accounting, practice management and other
information systems. In order to facilitate the extensive information management
requirements necessary to effectively manage operations, compete for managed
care contracts and achieve standardization and economies of scale, the Company
intends to create a network infrastructure and deploy two company-wide
information systems. The design, selection and implementation of the various
components of these systems and the integration throughout the Company and the
Affiliated Practices will entail an aggregate estimated expenditure of
approximately $3.0 million and significant management resources. The Company
intends to implement such systems within the first 12 months following the
Initial Public Offering, but may experience unanticipated delays, complications
and expenses in implementing, integrating and operating such systems.
Furthermore, such systems may require modifications, improvements or
replacements as the Company expands or if new technologies become available.
Such modifications, improvements or replacements may require substantial
expenditures and may require interruptions in operations during periods of
implementation. There can be no assurance that the Company will be able to
implement and operate these information systems effectively or that these
systems will produce the expected benefits. The failure to successfully
implement and maintain operational and financial information systems could
prevent the Company from efficiently accumulating data from disparate systems
maintained by the Affiliated Practices and generating operational data necessary
to more effectively manage the Affiliated Practices which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "APPI -- APPI's Operation, Management and Business Following the
Mergers and Exchanges -- Operations and Development -- Information Management."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the ability and experience of its executive
officers and key personnel for the management of the Company and the
implementation of its business strategy. The Company currently has employment
contracts with four of its executive officers and a consulting agreement (which
will become effective immediately following the Initial Public Offering) with
one other executive officer. Because of the difficulty in finding adequate
replacements for such personnel, the loss of the services of any such personnel
or the Company's inability in the future to attract and retain management and
other key personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company does not
maintain key man insurance for any of its executive officers. See "APPI -- APPI
Management and Executive Compensation -- Employment Agreements;
Covenants-Not-To-Compete" and "-- Certain Transactions."
RESTRICTIONS ON TRANSFER OF SHARES OF APPI COMMON STOCK RECEIVED IN THE MERGERS
AND EXCHANGES
Each security holder of a Merger or Exchange Entity who receives shares of
APPI Common Stock and cash in each Entity's respective Merger or Exchange will
be required to execute and deliver a Stockholder Representation Letter to APPI,
which, among other things, prohibits such security holder from selling any such
shares for a period of 12 months following the Effective Date and then limits
the ability of such security holder to sell shares to (i) up to 25% of such
shares upon expiration of the 12-month period following the Effective Date, (ii)
an additional 25% of such shares upon expiration of the 18-month period
following the Effective Date and (iii) the remaining 50% of such shares on or
after the second anniversary of the Effective Date. The Company has agreed not
to waive the restrictive provisions of the Stockholder Representation Letters
for a period of 180 days following the consummation of the Initial Public
Offering without the prior written consent of Smith Barney Inc. Accordingly, the
shares of APPI Common Stock issued to security holders of the Merger and
Exchange Entities will not be freely transferable upon consummation of the
Mergers and Exchanges and such security holders will be bearing the risk of an
investment in such shares for at least the periods during which they are
prohibited or restricted from selling such shares. See "Approval of the Mergers,
Exchanges and Related Transactions -- Conversion of Shares and Exchange of
Partnership Interests."
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UNCERTAINTY OF MERGER AND EXCHANGE CONSIDERATION
The exact number of shares of APPI Common Stock and amount of cash to be
received by the security holders of each Merger and Exchange Entity will be
determined using a formula which is tied to the Initial Public Offering Price of
the APPI Common Stock. As such, the security holders of each Entity will not
know precisely the number of shares of APPI Common Stock or the amount of cash
that such security holders will receive at the time such security holders are
asked to vote on the applicable Merger or Exchange Transactions. However,
irrespective of the Initial Public Offering Price of the APPI Common Stock,
security holders of each of the Entities will receive, at a minimum, (i) the
amount of cash such security holders would have received had the Initial Public
Offering Price of the APPI Common Stock been $14.00 per share and (ii) that
number of shares of APPI Common Stock that is sufficient to make the aggregate
value of shares of APPI Common Stock received by such security holders equal to
the aggregate value of the shares of APPI Common Stock such security holders
would have received had the Initial Public Offering Price of the APPI Common
stock been $14.00 per share.
The parties to each Merger and Exchange Agreement are not permitted to
terminate the applicable agreement for any reason related to the price of the
APPI Common Stock. See "Approval of the Mergers, Exchanges and Related
Transactions -- Termination of Each Merger Agreement" and "-- Termination of
Each Exchange Agreement."
DILUTION OF VOTING POWER; POTENTIAL ADVERSE IMPACT OF FUTURE SALE OF APPI SHARES
Upon the consummation of the Mergers and Exchanges, based upon the number
of outstanding shares of the Entities as of October 1, 1997 and assuming the
Initial Public Offering Price of the APPI Common Stock is $14.00 per share and
that no security holders of the Merger Entities exercise their right to dissent,
approximately 18,290,820 shares of APPI Common Stock will be outstanding, of
which (1) approximately 3,562,500 shares, representing approximately 19.48% of
the total, will be held by the Advanced security holders, (2) approximately
2,026,500 shares, representing approximately 11.08% of the total, will be held
by the Ide security holders, (3) approximately 734,945 shares, representing
approximately 4.02% of the total, will be held by the M&S security holders, (4)
approximately 108,092 shares, representing approximately 0.59% of the total,
will be held by the Lexington security holders, (5) approximately 123,502
shares, representing approximately 0.68% of the total, will be held by the
Madison security holders, (6) approximately 2,557 shares, representing
approximately 0.01% of the total, will be held by the South Texas security
holders, (7) approximately 253,221 shares, representing approximately 1.38% of
the total, will be held by the South Texas No. 1 security holders, (8)
approximately 3,412 shares, representing approximately 0.02% of the total, will
be held by the San Antonio security holders, (9) approximately 337,754 shares,
representing approximately 1.85% of the total, will be held by the San Antonio
No. 2 security holders, (10) approximately 457,519 shares, representing
approximately 2.50% of the total, will be held by the Pacific security holders,
(11) approximately 246,356 shares, representing approximately 1.35% of the
total, will be held by the TMI security holders, (12) approximately 958,500
shares, representing approximately 5.24% of the total, will be held by the RNM
security holders, (13) approximately 206,625 shares, representing approximately
1.13% of the total, will be held by the AIOC security holders, (14)
approximately 206,625 shares, representing approximately 1.13% of the total,
will be held by the CIA security holders, (15) approximately 206,625 shares,
representing approximately 1.13% of the total, will be held by the MRIA security
holders, (16) approximately 206,625 shares, representing approximately 1.13% of
the total, will be held by the Nyack security holders, (17) approximately
206,625 shares, representing approximately 1.13% of the total, will be held by
the Pelham security holders, (18) approximately 206,625 shares, representing
approximately 1.13% of the total, will be held by the RRG security holders, (19)
approximately 206,625 shares, representing approximately 1.13% of the total,
will be held by the WIC security holders, and (20) approximately 592,088 shares,
representing approximately 3.24% of the total, will be held by the Valley
security holders. As a result, the security holders of the Entities will
experience immediate and substantial voting dilution upon consummation of the
Mergers and Exchanges.
SHARES ELIGIBLE FOR FUTURE SALES
The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market following the
Initial Public Offering. Upon the completion of the Mergers and Exchanges, the
conversion of the Convertible Notes and completion of the Initial Public
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Offering, the Company will have outstanding 18,290,820 shares of Common Stock,
assuming an Initial Public Offering price of $15.00 per share. The 5,000,000
shares of Common Stock to be sold in the Initial Public Offering will be freely
tradable without restriction under the Securities Act, unless acquired by
"affiliates" of the Company, as that term is defined under the Securities Act or
contractually restricted.
Simultaneously with the closing of the Initial Public Offering, security
holders of the Founding Affiliated Practices will receive, in the aggregate,
10,853,320 shares of APPI Common Stock as a portion of the consideration for
their practices, which shares will have been registered under the Securities
Act. Certain other stockholders of the Company will hold, in the aggregate, an
additional 2,000,000 shares of APPI Common Stock, none of which are being
offered by the Prospectus for the Initial Public Offering and none of which were
acquired in transactions registered under the Securities Act. These 2,000,000
shares of Common Stock may not be sold except in transactions registered under
the Securities Act or pursuant to an exemption from registration. Further, each
of the holders of the Convertible Notes have entered into agreements with the
Company pursuant to which each holder has agreed not to sell any portion of the
Convertible Notes or any shares of the APPI Common Stock issued or issuable upon
conversion thereof for a period of 24 months following the date the Convertible
Notes were issued to such holder (which Notes were issued between September 30,
1996 and December 31, 1996). The Company has agreed with the Underwriters not to
waive the restrictive provisions of those agreements for 180 days after the date
of the Form S-1 without the prior written consent of Smith Barney Inc. Upon
expiration of these agreements, the registered shares of APPI Common Stock will
be eligible for resale in the public market and the unregistered shares of APPI
Common Stock, the Convertible Notes and the shares of APPI Common Stock issued
or issuable upon conversion of the Convertible Notes will become eligible for
sale in the public market, subject to the provisions of Rule 144 of the
Securities Act.
In addition, the Company and its officers and directors and substantially
all other holders of APPI Common Stock and securities convertible into or
exercisable or exchangeable for APPI Common Stock have agreed that for a period
of 180 days following the Initial Public Offering they will not, without the
prior written consent of Smith Barney Inc., offer, sell, contract to sell or
otherwise dispose of APPI Common Stock or any securities convertible into or
exercisable or exchangeable for APPI Common Stock except, in the case of the
Company, in certain limited circumstances.
CONTROL BY EXISTING STOCKHOLDERS
Following the completion of the Mergers and Exchanges, the conversion of
the Convertible Notes and completion of the Initial Public Offering, members of
the Board of Directors and the executive officers of the Company will own
approximately 12.3% of the outstanding shares of Common Stock and the security
holders of the Founding Affiliated Practices will own approximately 59.3% of the
outstanding shares of Common Stock (including shares received by Directors of
the Company who are also security holders of the Founding Affiliated Practices).
The Company's Amended and Restated Bylaws do not provide for cumulative voting.
The Company's Amended and Restated Bylaws provide that, following the
consummation of the Initial Public Offering, the Board of Directors must
nominate two physicians licensed to practice medicine from the Affiliated
Practices for election to the Board of Directors at each annual meeting of the
Company's stockholders (three physicians licensed to practice medicine from the
Affiliated Practices if the size of the Board of Directors increases to nine).
Although to the knowledge of the Company such directors and other persons do not
have any arrangements or understandings among themselves with respect to the
voting of the shares of Common Stock beneficially owned by such persons,
following the completion of the Initial Public Offering such persons will be
able to control the affairs of the Company. See "APPI -- APPI Principal
Stockholders."
ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of the Company's Restated Certificate of Incorporation,
the Company's Amended and Restated Bylaws and Delaware law could discourage
potential acquisition proposals, delay or prevent a change in control of the
Company and, consequently, limit the price that investors might be willing to
pay in the future for shares of the Common Stock. These provisions include the
inability to remove directors except for
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cause and the Company's ability to issue, without further stockholder approval,
shares of preferred stock with rights and privileges senior to the Common Stock.
The Company also is subject to Section 203 of the DGCL which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with an "interested stockholder" for a period of
three years following the date that such stockholder became an interested
stockholder. See "Comparison of Capital Stock -- Description of Capital Stock of
APPI."
The Company has entered into employment agreements with four of its
executive officers which contain provisions that require the Company to pay
certain amounts to such employees upon their termination following certain
events including a change of control of the Company. Such agreements may delay
or prevent a change of control of the Company. See "APPI -- Management and
Executive Compensation -- Employment Agreements; Covenants-Not-to-Compete."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Initial Public Offering, there has been no public market for
the Common Stock, and there can be no assurance that an active public market for
the Common Stock will develop or continue after the Initial Public Offering. The
Initial Public Offering Price has been determined by negotiations among the
Company and the several Underwriters, and may not be indicative of the market
price for the Common Stock after the Initial Public Offering. There can be no
assurance that the market price for the Common Stock will not decline below the
initial market price. From time to time after the Initial Public Offering, there
may be significant volatility in the market price for the Common Stock. The
trading price of the Common Stock could be subject to significant fluctuations
in response to variations in the Company's quarterly operating results, general
trends in the Company's industry, regulatory and reimbursement developments,
changes in earnings estimates by securities analysts and other factors affecting
the Company's industry or the securities market as a whole. Any such
fluctuations may adversely affect the market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered in the Initial Public
Offering will experience immediate and substantial dilution in the net tangible
book value of their shares of Common Stock in the amount of $13.19 per share
(based on an assumed public offering price of $15.00 per share and after giving
effect to the Reorganizations and conversion of the Convertible Notes). In the
event the Company issues additional Common Stock in the future, including shares
that may be issued in connection with future acquisitions, or upon the exercise
of options, purchasers of Common Stock in the Initial Public Offering may
experience further dilution in the net tangible book value per share of Common
Stock.
IMPACT OF SERVICE AGREEMENTS ON PROVIDER COMPENSATION; RESTRICTIONS ON AUTONOMY
OF FOUNDING AFFILIATED PRACTICES
Upon Consummation of the Mergers and Exchanges, each of the Founding
Affiliated Practices and the Company will have entered into Service Agreements
pursuant to which the Company will provide management, administrative, technical
and non-medical services to each such Founding Affiliated Practice in exchange
for a service fee. Payment of the service fee to the Company will be an expense
of each Founding Affiliated Practice and as such will reduce the amount of
revenues available for provider compensation and benefits. See "APPI -- APPI's
Operation, Management and Business Following the Mergers and
Exchanges -- Service Agreements."
Further, the Service Agreements provide the Company with the ability to
influence and control a significant portion of the non-medical aspects of the
Founding Affiliated Practices. Although each Founding Affiliated Practice will
maintain exclusive authority over the medical aspects of its respective
professional radiologic practice, the ability of such Founding Affiliated
Practice and its providers to take certain non-medical business action such as
hiring and firing non-professional personnel, choice of vendors and acquisition
of equipment or facilities in certain cases will be restricted, unless approved
by the Company. See
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"APPI -- APPI's Operation, Management and Business Following the Mergers and
Exchanges -- Service Agreements."
REQUIREMENT TO PURCHASE ASSETS
Upon termination of the Service Agreements by the Company for cause, the
Company has certain rights to require the Founding Affiliated Practice to
purchase from the Company and assume all assets and related liabilities and
obligations associated with the professional and technical radiology services
provided by such Founding Affiliated Practice at the time of such termination.
The purchase price for such assets, liabilities and obligations will be the
lesser of fair market value thereof or the return of the consideration received
in the Merger or Exchange, as applicable. If the Company elects to require an
Entity to purchase the assets, the parties shall enter into an asset purchase
agreement containing representations, warranties and conditions customary to a
transaction of this size involving the purchase and sale of similar businesses.
At the closing, the Company shall (i) transfer and assign the assets to the
Entity and, in consideration therefor, the Entity shall pay to the Company an
amount of cash, or at the option of the Entity (subject to certain conditions)
an amount of APPI Common Stock, or some combination thereof, equal to the
purchase price and (ii) assume the liabilities related to such Entity pertaining
to the assets. If possible, the transaction shall be structured, as a tax-free
transfer, though there can be no assurance that it will be so.
If any Service Agreement is terminated by the Company for cause and the
Company elects to require the Founding Affiliated Practice to purchase such
assets, liabilities and obligations, such required purchase could severely
impact the cash flows and financial condition of such Founding Affiliated
Practice. See "APPI -- APPI's Operation, Management and Business Following the
Mergers and Exchanges -- Service Agreements."
INCOME TAX RISKS
The security holders have received an opinion from Haynes and Boone,
L.L.P., upon the basis of certain assumptions described therein and the
representations of the officers of APPI and each of the Entities, to the effect
that the Mergers and Exchanges will satisfy the requirements for tax deferral
under either Section 351 or Section 368 of the Internal Revenue Code. No ruling
will be requested from the IRS on this issue. An opinion of counsel is not
binding on the IRS or the courts. Furthermore, no assurance can be given that
the tax-deferred characterization of the Mergers and Exchanges will not be
challenged, or if challenged, will be defended successfully. If the tax
characterization of the Mergers and Exchanges is successfully challenged, there
could be significant adverse tax consequences to the Entities and their
respective security holders. In addition, the Reorganizations may be treated as
taxable distributions, with the effect of the creation of taxable income at both
the Company and the security holder levels. If the value of capital stock of one
or more of the NewCos distributed in the respective Reorganizations exceeds the
nominal value determined to be applicable by the respective boards of directors
of the Entities, there could be significant adverse tax consequences to the
Entities distributing, and security holders receiving, the capital stock of such
NewCo or NewCos. See "Approval of the Mergers, Exchanges and Related
Transactions -- Certain Income Tax Considerations."
RISKS RELATING TO FAILURE TO APPROVE THE MERGERS, EXCHANGES AND REORGANIZATIONS
Each of the Entities has incurred and is expected to further incur
substantial costs in connection with the analysis, planning, documentation,
negotiation and approval process related to the applicable Merger, Exchange
and/or Reorganization. In the event the security holders of the Entities do not
approve the proposed Mergers, Exchanges and Reorganizations, there can be no
assurance that the Entities or their respective security holders will have
sufficient funds available to pay such costs and expenses.
Another risk of failure to approve the Mergers and Exchanges is that the
Entities would remain in their current respective circumstances, which include
the circumstances that led the respective board of directors of each Merger
Entity to recommend the Mergers. See "Approval of the Mergers, Exchanges and
Related Transactions -- APPI's Reasons for the Mergers and Exchanges," and
"-- The Merger and Exchange
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Entities' Reasons for the Mergers and Exchanges and Recommendations of the
Boards of Directors of the Merger Entities."
In addition, the obligation of APPI to consummate each Merger is subject to
certain conditions, including, without limitation, that the sum of the amount
which may become due to the security holders who have dissented to a given
Merger and have indicated their intent to seek appraisal rights plus the cash
portion of the consideration paid in the applicable Merger shall not exceed 25%
of the total consideration paid in the applicable Merger. See "Approval of the
Mergers, Exchanges and Related Transactions -- Conditions of the Merger
Agreements and Exchange Agreements -- Conditions Applicable to the Merger
Agreements."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS AND EXCHANGES
Several individuals have interests in the Mergers and Exchanges which are
greater than the interests of the Entities' security holders. In particular,
Michael L. Sherman, M.D., a director nominee of APPI and a physician owner of
Advanced, entered into a consulting agreement with APPI in August 1996 pursuant
to which Dr. Sherman received an option grant for 20,000 shares of APPI Common
Stock under the Automatic Option Grant Program. The Company and Dr. Sherman have
also entered into a consulting agreement which will go into effect immediately
following the Initial Public Offering for which Dr. Sherman will receive annual
compensation of $100,000. In addition, as part of the Advanced Merger
Transaction, the Company will issue approximately 65,014 shares of APPI Common
Stock and $303,395 in cash to Dr. Sherman in exchange for his ownership interest
in Advanced, subject to the adjustments applicable to changes in the Initial
Public Offering Price as described above. The Company has also agreed to
nominate Dr. Sherman for election to the Board of Directors at the next two
annual meetings of stockholders.
Less T. Chafen, M.D., Chairman of the Board of Pacific, has been nominated
and approved to serve as a director of APPI effective upon consummation of the
Initial Public Offering. At such time, Dr. Chafen will receive an option grant
for 30,000 shares of APPI Common Stock under the Company's 1996 Stock Option
Plan Automatic Option Grant Program. In addition, as part of the Pacific and TMI
Merger Transactions, the Company will issue an aggregate of 31,994 shares of
Common Stock and $149,307 in cash to Dr. Chafen in exchange for his ownership
interest in Pacific, subject to the adjustments applicable to changes in the
Initial Public Offering Price as described above.
Derace L. Schaffer, M.D., a director of APPI since its inception and
President of Ide, purchased 1,000,000 shares of APPI Common Stock in the Company
for $125,000. Dr. Schaffer also owns $107,500 in principal amount of the
Convertible Notes. In addition, on July 25, 1997 Dr. Schaffer and Mr. Pappajohn,
a director of the Company, personally guaranteed a $1,000,000 line of credit for
the benefit of the Company. As a director of the Company, Dr. Schaffer will be
eligible to participate in the Automatic Option Grant Program upon consummation
of the Initial Public Offering. In addition, as part of the Ide Merger
Transaction, APPI will issue 94,256 shares of Common Stock and $439,860.00 in
cash to Dr. Schaffer in exchange for his ownership interest in Ide, subject to
the adjustments applicable to changes in the Initial Public Offering Price as
described above.
Due to the benefits to be received by Drs. Sherman, Chafen and Schaffer in
connection with the Mergers, as described herein, the interests of these
individuals may be different from the interests of security holders of the
Entities generally. Security holders should consider such persons' interests in
the applicable Merger in connection with any such person's recommendation of
such Merger.
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INTRODUCTION
This Prospectus/Joint Proxy Statement is furnished in connection with the
solicitation of proxies from (i) the security holders of each Merger Entity
approving each respective Merger Proposal and (ii) the security holders of each
Exchange Entity approving each respective Exchange Proposal.
ADVANCED MEETING
DATE, TIME AND PLACE OF ADVANCED MEETING
The Advanced Meeting will be held at the principal executive offices of
Advanced located at 7253 Ambassador Road, Baltimore, Maryland 21244 on November
3, 1997 at 6:00 p.m.
PURPOSE
The purpose of the Advanced Meeting is to vote upon proposals: (i) to
approve the Advanced Merger proposal and to approve and adopt the Advanced
Merger Agreement and (ii) to transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of Advanced Common Stock at the close of
business on October 24, 1997 are entitled to notice of and to vote at the
Advanced Meeting. As of the Advanced Record Date, there were 64 security holders
of record of Advanced Common Stock holding an aggregate of 475,000 shares of
Advanced Common Stock. See "Advanced Radiology -- Advanced Radiology Principal
Stockholders."
VOTE REQUIRED
Approval and adoption of the Advanced Merger Agreement and approval of the
Advanced Merger Proposal requires the affirmative vote of the holders of
two-thirds of the shares entitled to vote thereon. Votes will be counted by the
Advanced Board.
Each Security holder of record of Advanced Common Stock on the Advanced
Record Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
Security holders of Advanced at the Advanced Meeting.
The required quorum for the transaction of business at the Advanced Meeting
is a majority of the shares of Advanced Common Stock outstanding on the Advanced
Record Date. Advanced intends to include abstentions as present or represented
for purposes of establishing a quorum for the transaction of business.
VOTING OF PROXIES
All shares of Advanced Common Stock that are entitled to vote and are
represented at the Advanced Meeting by properly executed proxies received prior
to or at the Advanced Meeting and not duly and timely revoked will be voted at
the Advanced Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted (i)
FOR approval of the Advanced Merger Proposal and (ii) FOR approval and adoption
of the Advanced Merger Agreement.
If any other matters are properly presented for consideration at the
Advanced Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Advanced
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Advanced, at or before the taking of the vote at the
Advanced Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly
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executing a later dated proxy relating to the same shares and delivering it to
the Secretary of Advanced, before the taking of the vote at the Advanced
Meeting; or (iii) attending the Advanced Meeting and voting in person (although
attendance at the Advanced Meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to Advanced Radiology at 7253 Ambassador Road, Baltimore,
Maryland 21244, Attention: Secretary or hand-delivered to the Secretary of
Advanced, in each case at or before the taking of the vote at the Advanced
Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Advanced Security holders will be shared by
APPI and Advanced. Proxies may be solicited by certain Advanced directors,
officers and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.
IDE MEETING
DATE, TIME AND PLACE OF IDE MEETING
The Ide Meeting will be held at the principal executive offices of Ide
located at 2273 South Clinton Avenue, Rochester, New York 14618 on November 3,
1997 at 5:30 p.m.
PURPOSE
The purpose of the Ide Meeting is to vote upon proposals: (i) to approve
the Ide Merger Proposal and to approve and adopt the Ide Merger Agreement and
(ii) to transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of Ide Common Stock at the close of business on
September 30, 1997 are entitled to notice of and to vote at the Ide Meeting. As
of the Ide Record Date, there were 22 security holders of record of Ide Common
Stock holding an aggregate of 2,150 shares of Ide Common Stock. See "The Ide
Group -- Ide Principal Shareholders."
VOTE REQUIRED
Approval and adoption of the Ide Merger Agreement and approval of the Ide
Merger Proposal requires the affirmative vote of the holders of three-quarters
of the shares of Ide Common Stock outstanding on the Ide Record Date. Votes will
be counted by the Ide Board.
Each security holder of record of Ide Common Stock on the Ide Record Date
is entitled to cast one vote per share, exercisable in person or by properly
executed proxy, on each matter properly submitted for the vote of the security
holders of Ide at the Ide Meeting.
The required quorum for the transaction of business at the Ide Meeting is
three-quarters of the shares of Ide Common Stock outstanding on the Ide Record
Date. Ide intends to include abstentions as present or represented for purposes
of establishing a quorum for the transaction of business.
VOTING OF PROXIES
All shares of Ide Common Stock that are entitled to vote and are
represented at the Ide Meeting by properly executed proxies received prior to or
at the Ide Meeting and not duly and timely revoked will be voted at the Ide
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the Ide Merger Proposal and (ii) FOR approval and adoption of the Ide Merger
Agreement.
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If any other matters are properly presented for consideration at the Ide
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the Ide Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Ide, at or before the taking of the vote at the Ide
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Ide, before the taking of the vote at the Ide
Meeting or; (iii) attending the Ide Meeting and voting in person (although
attendance at the Ide Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to The Ide Group, P.C. at 2273 South Clinton Avenue, Rochester, New York 14618,
Attention: Secretary or hand-delivered to the Secretary of Ide, in each case at
or before the taking of the vote at the Ide Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Ide security holders will be shared by APPI
and Ide. Proxies may be solicited by certain Ide directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
M&S MEETING
DATE, TIME AND PLACE OF M&S MEETING
The M&S Meeting will be held at 215 East Quincy, One Lexington Medical
Building, Second Floor Conference Room, San Antonio, Texas 78205 on November 3,
1997 at 5:45 p.m.
PURPOSE
The purpose of the M&S Meeting is to vote upon proposals: (i) to approve
the M&S Merger Proposal and to approve and adopt the M&S Merger Agreement and
(ii) to transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of M&S Common Stock at the close of business on
October 1, 1997 are entitled to notice of and to vote at the M&S Meeting. As of
the M&S Record Date, there were 19 security holders of record of M&S Common
Stock holding an aggregate of 190 shares of M&S Common Stock. See "M&S X-Ray
Practices -- M&S Principal Shareholders."
VOTE REQUIRED
Approval and adoption of the M&S Merger Agreement and approval of the M&S
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the security holders of M&S as of the M&S Record Date. Votes will be counted by
the M&S Board.
Each security holder of record of M&S Common Stock on the M&S Record Date
is entitled to cast one vote, exercisable in person or by properly executed
proxy, on each matter properly submitted for the vote of the security holders of
M&S at the M&S Meeting.
The required quorum for the transaction of business at the M&S Meeting is a
majority of the shares of M&S Common Stock outstanding on the M&S Record Date.
M&S intends to include abstentions as present or represented for purposes of
establishing a quorum for the transaction of business.
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<PAGE> 96
VOTING OF PROXIES
All shares of M&S Common Stock that are entitled to vote and are
represented at the M&S Meeting by properly executed proxies received prior to or
at the M&S Meeting and not duly and timely revoked will be voted at the M&S
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the M&S Merger Proposal and (ii) FOR approval and adoption of the M&S Merger
Agreement.
If any other matters are properly presented for consideration at the M&S
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the M&S Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of M&S, at or before the taking of the vote at the M&S
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of M&S, before the taking of the vote at the M&S
Meeting; or (iii) attending the M&S Meeting and voting in person (although
attendance at the M&S Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to M&S X-Ray Associates, P.A. at 730 North Main Avenue, Suite B109, San Antonio,
Texas 78205, Attention: Secretary or hand-delivered to the Secretary of M&S, in
each case at or before the taking of the vote at the M&S Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of M&S security holders will be shared by APPI
and M&S. Proxies may be solicited by certain M&S directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
LEXINGTON MEETING
DATE, TIME AND PLACE OF LEXINGTON MEETING
The Lexington Meeting will be held at 215 East Quincy, One Lexington
Medical Building, Second Floor Conference Room, San Antonio, Texas 78205 on
November 3, 1997 at 5:45 p.m.
PURPOSE
The purpose of the Lexington Meeting is to vote upon proposals: (i) to
approve the Lexington Exchange Proposal and to approve and adopt the Lexington
Exchange Agreement and (ii) to transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING PARTNERSHIP INTERESTS
Partners of record of Lexington partnership interests at the close of
business on October 1, 1997 are entitled to notice of and to vote at the
Lexington Meeting. As of the Lexington Record Date, there were 11 limited
partners and one general partner holding an aggregate of 100% of the partnership
interests in Lexington. See "M&S X-Ray Practices -- Lexington Partnership
Interest Holders."
VOTE REQUIRED
In order that the Lexington Exchange Transactions may avoid being
characterized as a "roll-up transaction" as provided by Item 901(c)(2)(iv) under
Regulation S-K, (i) the holders of two-thirds of the partnership interests of
Lexington must approve the Lexington Exchange Proposal and (ii) the holders of
two-
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<PAGE> 97
thirds of the partnership interests of each of the other Exchange Entities must
approve their respective Exchange Proposals. In addition, in order to comply
with Lexington's Amended and Restated Agreement of Limited Partnership and Texas
law, the General Partner may not transfer its interest as a General Partner in
the Partnership without the consent of more than fifty percent (50%) of the
distributive share of profits and losses of the partnership owned by all of the
limited partners and the limited partnership interests may not be transferred
without the General Partner's consent. Votes will be counted by the General
Partner.
The required quorum for the transaction of business at the Lexington
Meeting is a majority of the Lexington partnership interests outstanding on the
Lexington Record Date. Lexington intends to include abstentions as present or
represented for purposes of establishing a quorum for the transaction of
business.
VOTING OF PROXIES
All Lexington partnership interests that are entitled to vote and are
represented at the Lexington Meeting by properly executed proxies received prior
to or at the Lexington Meeting and not duly and timely revoked will be voted at
the Lexington Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted (i)
FOR approval of the Lexington Exchange Proposal and (ii) FOR approval and
adoption of the Lexington Exchange Agreement.
If any other matters are properly presented for consideration at the
Lexington Meeting (or any adjournments or postponements thereof) including,
among other things, consideration of a motion to adjourn or postpone the
Lexington Meeting to another time and/or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
enclosed forms of proxy and voting thereunder will have the discretion to vote
on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the General Partner of Lexington, at or before the taking of the vote at
the Lexington Meeting, a written notice of revocation bearing a later date than
the proxy; (ii) duly executing a later dated proxy relating to the same
partnership interests and delivering it to the General Partner of Lexington,
before the taking of the vote at the Lexington Meeting; or (iii) attending the
Lexington Meeting and voting in person (although attendance at the Lexington
Meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent to Lexington MR
Ltd. at 730 North Main Avenue, Suite B109, San Antonio, Texas 78205, Attention:
General Partner or hand-delivered to the General Partner of Lexington, in each
case at or before the taking of the vote at the Lexington Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Lexington security holders will be shared
by APPI and Lexington. Proxies may be solicited by certain partners, officers
and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.
MADISON MEETING
DATE, TIME AND PLACE OF MADISON MEETING
The Madison Meeting will be held at 215 East Quincy, One Lexington Medical
Building, Second Floor Conference Room, San Antonio, Texas 78205 on November 3,
1997 at 5:45 p.m.
PURPOSE
The purpose of the Madison Meeting is to vote upon proposals: (i) to
approve the Madison Exchange Proposal and to approve and adopt the Madison
Exchange Agreement and (ii) to transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.
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<PAGE> 98
RECORD DATE AND OUTSTANDING PARTNERSHIP INTERESTS
Partners of record of Madison partnership interests at the close of
business on October 1, 1997 are entitled to notice of and to vote at the Madison
Meeting. As of the Madison Record Date, there were 13 general partners holding
an aggregate of 100% of the partnership interests in Madison. See "M&S X-Ray
Practices -- Madison Partnership Interest Holders."
VOTE REQUIRED
In order to comply with Madison's Joint Venture Agreement and Texas Law and
in order that the Madison Exchange Transaction may avoid being characterized as
a "roll-up transaction" as provided by Item 901(c)(2)(iv) of Registration S-K,
(i) the holders of two-thirds of the partnership interests of Madison must
approve the Madison Exchange Proposal and (ii) the holders of two-thirds of the
partnership interests of each of the other Exchange Entities must approve their
respective Exchange Proposals. Votes will be counted by the Managing General
Partner.
The required quorum for the transaction of business at the Madison Meeting
is a majority of the partnership interests of Madison outstanding on the Madison
Record Date. Madison intends to include abstentions as present or represented
for purposes of establishing a quorum for the transaction of business.
VOTING OF PROXIES
All Madison partnership interests that are entitled to vote and are
represented at the Madison Meeting by properly executed proxies received prior
to or at the Madison Meeting and not duly and timely revoked will be voted at
the Madison Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted (i)
FOR approval of the Madison Exchange Proposal and (ii) FOR approval and adoption
of the Madison Exchange Agreement.
If any other matters are properly presented for consideration at the
Madison Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Madison
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Managing General Partner of Madison, at or before the taking of the
vote at the Madison Meeting, a written notice of revocation bearing a later date
than the proxy; (ii) duly executing a later dated proxy relating to the same
partnership interests and delivering it to the Managing General Partner of
Madison, before the taking of the vote at the Madison Meeting; or (iii)
attending the Madison Meeting and voting in person (although attendance at the
Madison Meeting will not in and of itself constitute a revocation of a proxy).
Any written notice of revocation or subsequent proxy should be sent to Madison
Square Joint Venture at 730 North Main Avenue, Suite B109, San Antonio, Texas
78205, Attention: Managing General Partner or hand-delivered to the Managing
General Partner of Madison, in each case at or before the taking of the vote at
the Madison Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Madison security holders will be shared by
APPI and Madison. Proxies may be solicited by certain partners, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
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<PAGE> 99
SOUTH TEXAS MEETING
DATE, TIME AND PLACE OF SOUTH TEXAS MEETING
The South Texas Meeting will be held at 215 East Quincy, One Lexington
Medical Building, Second Floor Conference Room, San Antonio, Texas 78205 on
November 3, 1997 at 5:45 p.m.
PURPOSE
The purpose of the South Texas Meeting is to vote upon proposals: (i) to
approve the South Texas Merger Proposal and to approve and adopt the South Texas
Merger Agreement and (ii) to transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of South Texas Common Stock at the close of
business on October 1, 1997 are entitled to notice of and to vote at the South
Texas Meeting. As of the South Texas Record Date, there were 12 security holders
of record of South Texas Common Stock holding an aggregate of 120 shares of
South Texas Common Stock. See "M&S X-Ray Practices -- South Texas and San
Antonio Principal Shareholders."
VOTE REQUIRED
Approval and adoption of the South Texas Merger Agreement and approval of
the South Texas Merger Proposal requires the affirmative vote of the holders of
two-thirds of the shares of South Texas Common Stock outstanding on the South
Texas Record Date. Votes will be counted by the South Texas Board.
Each security holder of record of South Texas Common Stock on the South
Texas Record Date is entitled to cast one vote per share, exercisable in person
or by properly executed proxy, on each matter properly submitted for the vote of
the security holder of South Texas at the South Texas Meeting.
The required quorum for the transaction of business at the South Texas
Meeting is a majority of the shares of South Texas Common Stock outstanding on
the South Texas Record Date. South Texas intends to include abstentions as
present or represented for purposes of establishing a quorum for the transaction
of business.
VOTING OF PROXIES
All shares of South Texas Common Stock that are entitled to vote and are
represented at the South Texas Meeting by properly executed proxies received
prior to or at the South Texas Meeting and not duly and timely revoked will be
voted at the South Texas Meeting in accordance with the instructions indicated
on such proxies. If no such instructions are indicated, such proxies will be
voted (i) FOR approval of the South Texas Merger Proposal and (ii) FOR approval
and adoption of the South Texas Merger Agreement.
If any other matters are properly presented for consideration at the South
Texas Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the South Texas
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of South Texas, at or before the taking of the vote at the
South Texas Meeting, a written notice of revocation bearing a later date than
the proxy; (ii) duly executing a later dated proxy relating to the same shares
and delivering it to the Secretary of South Texas, before the taking of the vote
at the South Texas Meeting; or (iii) attending the South Texas Meeting and
voting in person (although attendance at the South Texas Meeting will not in and
of itself constitute a revocation of a proxy). Any written notice of revocation
or subsequent proxy should be sent to South Texas
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<PAGE> 100
MR, Inc. at 730 North Main Avenue, Suite B109, San Antonio, Texas 78205,
Attention: Secretary or hand-delivered to the Secretary of South Texas, in each
case at or before the taking of the vote at the South Texas Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of South Texas security holders will be shared
by APPI and South Texas. Proxies may be solicited by certain South Texas
directors, officers and employees personally or by telephone, telecopy or other
means of communication. Such persons will not receive additional compensation,
but may be reimbursed for reasonable out-of-pocket expenses incurred in
connection with such solicitation.
SOUTH TEXAS NO. 1 MEETING
DATE, TIME AND PLACE OF SOUTH TEXAS NO. 1 MEETING
The South Texas No. 1 Meeting will be held at 215 East Quincy, One
Lexington Medical Building, Second Floor Conference Room, San Antonio, Texas
78205 on November 3, 1997 at 5:45.
PURPOSE
The purpose of the South Texas No. 1 Meeting is to vote upon proposals: (i)
to approve the South Texas No. 1 Exchange Proposal and to approve and adopt the
South Texas No. 1 Exchange Agreement and (ii) to transact such other business as
may properly come before the meeting or any adjournments or postponements
thereof.
RECORD DATE AND OUTSTANDING PARTNERSHIP INTERESTS
Partners of record of South Texas No. 1 partnership interests at the close
of business on October 1, 1997 are entitled to notice of and to vote at the
South Texas No. 1 Meeting. As of the South Texas No. 1 Record Date, there were
12 limited partners and one general partner holding an aggregate of 100% of the
partnership interests in South Texas No. 1. See "M&S X-Ray Practices -- South
Texas No. 1 Partnership Interest Holders."
VOTE REQUIRED
In order that the South Texas No. 1 Exchange Transaction may avoid being
characterized as a "roll-up transaction" as provided by Item 901(c)(2)(iv) under
Regulation S-K, (i) holders of two-thirds of the partnership interests of South
Texas No. 1 must approve the South Texas No. 1 Exchange Proposal and (ii)
holders of two-thirds of the partnership interests of each of the other Exchange
Entities must approve their respective Exchange Proposals. In addition, in order
to comply with South Texas No. 1's Limited Partnership Agreement and Texas law,
the approval of one or more limited partners holding in the aggregate two-thirds
of the percentage ownership interests held by the limited partners as a class is
necessary for transfer of the General Partner's interest in South Texas No. 1
and the approval of one or more partners, other than the transferor partner,
holding in the aggregate two-thirds of the percentage ownership interests of
South Texas No. 1 is necessary for transfer of a limited partner's interest in
South Texas No. 1. Votes will be counted by the General Partner.
The required quorum for the transaction of business at the South Texas No.
1 Meeting is a majority of the partnership interests of South Texas No. 1
outstanding on the South Texas No. 1 Record Date. South Texas No. 1 intends to
include abstentions as present or represented for purposes of establishing a
quorum for the transaction of business.
VOTING OF PROXIES
All South Texas No. 1 partnership interests that are entitled to vote and
are represented at the South Texas No. 1 Meeting by properly executed proxies
received prior to or at the South Texas No. 1 Meeting and
49
<PAGE> 101
not duly and timely revoked will be voted at the South Texas No. 1 Meeting in
accordance with the instructions indicated on such proxies. If no such
instructions are indicated, such proxies will be voted (i) FOR approval of the
South Texas No. 1 Exchange Proposal and (ii) FOR approval and adoption of the
South Texas No. 1 Exchange Agreement.
If any other matters are properly presented for consideration at the South
Texas No. 1 Meeting (or any adjournments or postponements thereof) including,
among other things, consideration of a motion to adjourn or postpone the South
Texas No. 1 Meeting to another time and/or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
enclosed forms of proxy and voting thereunder will have the discretion to vote
on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the General Partner of South Texas No. 1, at or before the taking of the
vote at the South Texas No. 1 Meeting, a written notice of revocation bearing a
later date than the proxy; (ii) duly executing a later dated proxy relating to
the same partnership interests and delivering it to the General Partner of South
Texas No. 1, before the taking of the vote at the South Texas No. 1 Meeting; or
(iii) attending the South Texas No. 1 Meeting and voting in person (although
attendance at the South Texas No. 1 Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to South Texas South Texas No. 1 MRI Limited Partnership at 730
North Main Avenue, Suite B109, San Antonio, Texas 78205, Attention: General
Partner or hand-delivered to the General Partner of South Texas No. 1, in each
case at or before the taking of the vote at the South Texas No. 1 Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of South Texas No. 1 security holders will be
shared by APPI and South Texas No. 1. Proxies may be solicited by certain
partners, officers and employees personally or by telephone, telecopy or other
means of communication. Such persons will not receive additional compensation,
but may be reimbursed for reasonable out-of-pocket expenses incurred in
connection with such solicitation.
SAN ANTONIO MEETING
DATE, TIME AND PLACE OF SAN ANTONIO MEETING
The San Antonio Meeting will be held at 215 East Quincy, One Lexington
Medical Building, Second Floor Conference Room, San Antonio, Texas 78205 located
on November 3, 1997 at 5:45 p.m.
PURPOSE
The purpose of the San Antonio Meeting is to vote upon proposals: (i) to
approve the San Antonio Merger Proposal and to approve and adopt the San Antonio
Merger Agreement and (ii) to transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of San Antonio Common Stock at the close of
business on October 1, 1997 are entitled to notice of and to vote at the San
Antonio Meeting. As of the San Antonio Record Date, there were 12 security
holders of record of San Antonio Common Stock holding an aggregate of 120 shares
of San Antonio Common Stock. See "M&S X-Ray Practices -- South Texas and San
Antonio Principal Shareholders."
VOTE REQUIRED
Approval and adoption of the San Antonio Merger Agreement and approval of
the San Antonio Merger Proposal requires the affirmative vote of the holders of
two-thirds of the shares of San Antonio Common Stock outstanding on the San
Antonio Record Date. Votes will be counted by the San Antonio Board.
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<PAGE> 102
Each security holder of record of San Antonio Common Stock on the San
Antonio Record Date is entitled to cast one vote per share, exercisable in
person or by properly executed proxy, on each matter properly submitted for the
vote of the security holders of San Antonio at the San Antonio Meeting.
The required quorum for the transaction of business at the San Antonio
Meeting is a majority of the shares of San Antonio Common Stock outstanding on
the San Antonio Record Date. San Antonio intends to include abstentions as
present or represented for purposes of establishing a quorum for the transaction
of business.
VOTING OF PROXIES
All shares of San Antonio Common Stock that are entitled to vote and are
represented at the San Antonio Meeting by properly executed proxies received
prior to or at the San Antonio Meeting and not duly and timely revoked will be
voted at the San Antonio Meeting in accordance with the instructions indicated
on such proxies. If no such instructions are indicated, such proxies will be
voted (i) FOR approval of the San Antonio Merger Proposal and (ii) FOR approval
and adoption of the San Antonio Merger Agreement.
If any other matters are properly presented for consideration at the San
Antonio Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the San Antonio
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of San Antonio, at or before the taking of the vote at the
San Antonio Meeting, a written notice of revocation bearing a later date than
the proxy; (ii) duly executing a later dated proxy relating to the same shares
and delivering it to the Secretary of San Antonio, before the taking of the vote
at the San Antonio Meeting; or (iii) attending the San Antonio Meeting and
voting in person (although attendance at the San Antonio Meeting will not in and
of itself constitute a revocation of a proxy). Any written notice of revocation
or subsequent proxy should be sent to San Antonio MR, Inc. at 730 North Main
Avenue, Suite B109, San Antonio, Texas 78205, Attention: Secretary or hand-
delivered to the Secretary of San Antonio, in each case at or before the taking
of the vote at the San Antonio Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of San Antonio security holders will be shared
by APPI and San Antonio. Proxies may be solicited by certain San Antonio
directors, officers and employees personally or by telephone, telecopy or other
means of communication. Such persons will not receive additional compensation,
but may be reimbursed for reasonable out-of-pocket expenses incurred in
connection with such solicitation.
SAN ANTONIO NO. 2 MEETING
DATE, TIME AND PLACE OF SAN ANTONIO NO. 2 MEETING
The San Antonio No. 2 Meeting will be held at 215 East Quincy, One
Lexington Medical Building, Second Floor Conference Room, San Antonio, Texas
78205 on November 3, 1997 at 5:45 p.m.
PURPOSE
The purpose of the San Antonio No. 2 Meeting is to vote upon proposals: (i)
to approve the San Antonio No. 2 Exchange Proposal and to approve and adopt the
San Antonio No. 2 Exchange Agreement and (ii) to transact such other business as
may properly come before the meeting or any adjournments or postponements
thereof.
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<PAGE> 103
RECORD DATE AND OUTSTANDING PARTNERSHIP INTERESTS
Partners of record of San Antonio No. 2 partnership interests at the close
of business on October 1, 1997 are entitled to notice of and to vote at the San
Antonio No. 2 Meeting. As of the San Antonio No. 2 Record Date, there were 12
limited partners and one general partner holding an aggregate of 100% of the
partnership interests in San Antonio No. 2. See "M&S X-Ray Practices -- San
Antonio No. 2 Partnership Interest Holders."
VOTE REQUIRED
In order that the San Antonio No. 2 Exchange Transaction may avoid being
characterized as a "roll-up transaction" as provided by Item 901(c)(2)(iv) under
Regulation S-K, (i) holders of two-thirds of the partnership interests of San
Antonio No. 2 must approve the San Antonio No. 2 Exchange Proposal and (ii)
holders of two-thirds of the partnership interests of each of the other Exchange
Entities must approve their respective Exchange Proposals. In addition, in order
to comply with San Antonio No. 2's Limited Partnership Agreement and Texas law,
the approval of one or more limited partners holding in the aggregate two-thirds
of the percentage ownership interests held by the limited partners as a class is
necessary for transfer of the General Partner's interest in San Antonio No. 2
and the approval of one or more partners, other than the transferor partner,
holding in the aggregate two-thirds of the percentage ownership interests of San
Antonio No. 2 is necessary for transfer of a limited partner's interest in San
Antonio No. 2. Votes will be counted by the General Partner.
The required quorum for the transaction of business at the San Antonio No.
2 Meeting is a majority of the partnership interests of San Antonio No. 2
outstanding on the San Antonio No. 2 Record Date. San Antonio No. 2 intends to
include abstentions as present or represented for purposes of establishing a
quorum for the transaction of business.
VOTING OF PROXIES
All San Antonio No. 2 partnership interests that are entitled to vote and
are represented at the San Antonio No. 2 Meeting by properly executed proxies
received prior to or at the San Antonio No. 2 Meeting and not duly and timely
revoked will be voted at the San Antonio No. 2 Meeting in accordance with the
instructions indicated on such proxies. If no such instructions are indicated,
such proxies will be voted (i) FOR approval of the San Antonio No. 2 Exchange
Proposal and (ii) FOR approval and adoption of the San Antonio No. 2 Exchange
Agreement.
If any other matters are properly presented for consideration at the San
Antonio No. 2 Meeting (or any adjournments or postponements thereof) including,
among other things, consideration of a motion to adjourn or postpone the San
Antonio No. 2 Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed forms of proxy and voting thereunder will have the discretion to
vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the General Partner of San Antonio No. 2, at or before the taking of the
vote at the San Antonio No. 2 Meeting, a written notice of revocation bearing a
later date than the proxy; (ii) duly executing a later dated proxy relating to
the same partnership interests and delivering it to the General Partner of San
Antonio No. 2, before the taking of the vote at the San Antonio No. 2 Meeting;
or (iii) attending the San Antonio No. 2 Meeting and voting in person (although
attendance at the San Antonio No. 2 Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to San Antonio MRI Partnership San Antonio No. 2 Ltd. at 730
North Main Avenue, Suite B109, San Antonio, Texas 78205, Attention: General
Partner or hand-delivered to the General Partner of San Antonio No. 2, in each
case at or before the taking of the vote at the San Antonio No. 2 Meeting.
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<PAGE> 104
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of San Antonio No. 2 security holders will be
shared by APPI and San Antonio No. 2. Proxies may be solicited by certain
partners, officers and employees personally or by telephone, telecopy or other
means of communication. Such persons will not receive additional compensation,
but may be reimbursed for reasonable out-of-pocket expenses incurred in
connection with such solicitation.
PACIFIC MEETING
DATE, TIME AND PLACE OF PACIFIC MEETING
The Pacific Meeting will be held at the principal executive offices of
Pacific located at 350 Hawthorne Avenue, Oakland, California 94609 on November
3, 1997 at 6:00 p.m.
PURPOSE
The purpose of the Pacific Meeting is to vote upon proposals: (i) to
approve the Pacific Merger Proposal and to approve and adopt the Pacific Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of Pacific Common Stock at the close of business
on October 16, 1997 are entitled to notice of and to vote at the Pacific
Meeting. As of the Pacific Record Date, there were 22 security holders of record
of Pacific Common Stock holding an aggregate of 11,000 shares of Pacific Common
Stock. See "Pacific Imaging Consultants -- Pacific Principal Shareholders."
VOTE REQUIRED
Approval and adoption of the Pacific Merger Agreement and approval of the
Pacific Merger Proposal requires the affirmative vote of the holders of a
majority of the shares of Pacific Common Stock outstanding on the Pacific Record
Date. Votes will be counted by the Pacific Board.
Each security holder of record of Pacific Common Stock on the Pacific
Record Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of Pacific at the Pacific Meeting.
The required quorum for the transaction of business at the Pacific Meeting
is a majority of the shares of Pacific Common Stock outstanding on the Pacific
Record Date. Pacific intends to include abstentions as present or represented
for purposes of establishing a quorum for the transaction of business.
VOTING OF PROXIES
All shares of Pacific Common Stock that are entitled to vote and are
represented at the Pacific Meeting by properly executed proxies received prior
to or at the Pacific Meeting and not duly and timely revoked will be voted at
the Pacific Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted (i)
FOR approval of the Pacific Merger Proposal and (ii) FOR approval and adoption
of the Pacific Merger Agreement.
If any other matters are properly presented for consideration at the
Pacific Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Pacific
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Pacific, at or before the taking of the vote
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<PAGE> 105
at the Pacific Meeting, a written notice of revocation bearing a later date than
the proxy; (ii) duly executing a later dated proxy relating to the same shares
and delivering it to the Secretary of Pacific, before the taking of the vote at
the Pacific Meeting; or (iii) attending the Pacific Meeting and voting in person
(although attendance at the Pacific Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to Pacific Imaging Consultants, A Medical Group, Inc. at 350
Hawthorne Avenue, Oakland, California 94609, Attention: Secretary or
hand-delivered to the Secretary of Pacific, in each case at or before the taking
of the vote at the Pacific Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Pacific security holders will be shared by
APPI and Pacific. Proxies may be solicited by certain Pacific directors,
officers and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.
TMI MEETING
DATE, TIME AND PLACE OF TMI MEETING
The TMI Meeting will be held at the principal executive offices of TMI
located at 350 Hawthorne Avenue, Oakland, California 94609 on November 3, 1997
at 6:00 p.m.
PURPOSE
The purpose of the TMI Meeting is to vote upon proposals: (i) to approve
the TMI Merger Proposal and to approve and adopt the TMI Merger Agreement and
(ii) to transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security Holders of record of TMI Common Stock at the close of business on
October 16, 1997 are entitled to notice of and to vote at the TMI Meeting. As of
the TMI Record Date, there were 22 security holders of record of TMI Common
Stock holding an aggregate of 110,000 shares of TMI Common Stock. See "Pacific
Imaging Consultants -- TMI Principal Shareholders."
VOTE REQUIRED
Approval and adoption of the TMI Merger Agreement and approval of the TMI
Merger Proposal requires the affirmative vote of the holders of a majority of
the shares of TMI Common Stock outstanding on the TMI Record Date. Votes will be
counted by the TMI Board.
Each security holder of record of TMI Common Stock on the TMI Record Date
is entitled to cast one vote per share, exercisable in person or by properly
executed proxy, on each matter properly submitted for the vote of the security
holders of TMI at the TMI Meeting.
The required quorum for the transaction of business at the TMI Meeting is a
majority of the shares of TMI Common Stock outstanding on the TMI Record Date.
TMI intends to include abstentions as present or represented for purposes of
establishing a quorum for the transaction of business.
VOTING OF PROXIES
All shares of TMI Common Stock that are entitled to vote and are
represented at the TMI Meeting by properly executed proxies received prior to or
at the TMI Meeting and not duly and timely revoked will be voted at the TMI
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the TMI Merger Proposal and (ii) FOR approval and adoption of the TMI Merger
Agreement.
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If any other matters are properly presented for consideration at the TMI
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the TMI Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of TMI, at or before the taking of the vote at the TMI
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of TMI, before the taking of the vote at the TMI
Meeting; or (iii) attending the TMI Meeting and voting in person (although
attendance at the TMI Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Total Medical Imaging, Inc. at 350 Hawthorne Avenue, Oakland, California
94609, Attention: Secretary or hand-delivered to the Secretary of TMI, in each
case at or before the taking of the vote at the TMI Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of TMI security holders will be shared by APPI
and TMI. Proxies may be solicited by certain TMI directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
RNM MEETING
DATE, TIME AND PLACE OF RNM MEETING
The RNM Meeting will be held at the principal executive office of RNM
located at 823 SW Mulvane, Suite 1, Topeka, Kansas 66606 on November 3, 1997 at
5:30 p.m.
PURPOSE
The purpose of the RNM Meeting is to vote upon proposals: (i) to approve
the RNM Merger Proposal and to approve and adopt the RNM Merger Agreement and
(ii) to transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of RNM Common Stock at the close of business on
October 13, 1997 are entitled to notice of and to vote at the RNM Meeting. As of
the RNM Record Date, there were 24 security holders of record of RNM Common
Stock holding an aggregate of 3,096 shares of RNM Common Stock. See "Radiology
and Nuclear Medicine -- RNM Principal Stockholders."
VOTE REQUIRED
Approval and adoption of the RNM Merger Agreement and approval of the RNM
Merger Proposal require the affirmative vote of the holders of a majority of the
shares of RNM Common Stock outstanding on the RNM Record Date. Votes will be
counted by the RNM Board.
Each security holder of record of RNM Common Stock on the RNM Record Date
is entitled to cast one vote per share, exercisable in person or by properly
executed proxy, on each matter properly submitted for the vote of the security
holders of RNM at the RNM Meeting.
The required quorum for the transaction of business at the RNM Meeting is a
majority of the shares of RNM Common Stock outstanding on the RNM Record Date.
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<PAGE> 107
VOTING OF PROXIES
All shares of RNM Common Stock that are entitled to vote and are
represented at the RNM Meeting by properly executed proxies received prior to or
at the RNM Meeting and not duly and timely revoked will be voted at the RNM
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the RNM Merger Proposal and (ii) FOR approval and adoption of the RNM Merger
Agreement.
If any other matters are properly presented for consideration at the RNM
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the RNM Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of RNM, at or before the taking of the vote at the RNM
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of RNM, before the taking of the vote at the RNM
Meeting; or (iii) attending the RNM Meeting and voting in person (although
attendance at the RNM Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Radiology and Nuclear Medicine, A Professional Association at Medical Park
West Building, 823 S. Mulvane Street, Suite 1, Topeka, Kansas 66606, Attention:
Secretary or hand-delivered to the Secretary of RNM, in each case at or before
the taking of the vote at the RNM Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of RNM Security holders will be shared by APPI
and RNM. Proxies may be solicited by certain RNM directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
AIOC MEETING
DATE, TIME AND PLACE OF AIOC MEETING
The AIOC Meeting will be held at the corporate offices of AIOC located at
18 Squadron Boulevard, New City, New York 10956, on November 3, 1997 at 5:00
p.m.
PURPOSE
The purpose of the AIOC Meeting is to vote upon proposals: (i) to approve
the AIOC Merger Proposal and to approve and adopt the AIOC Merger Agreement and
(ii) to transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of AIOC Common Stock at the close of business on
October 1, 1997 are entitled to notice of and to vote at the AIOC Meeting. As of
the AIOC Record Date, there were 13 security holders of record of AIOC Common
Stock holding an aggregate of 130 shares of AIOC Common Stock. See "Rockland
Radiological Group -- Rockland Radiological Group Principal Shareholders."
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<PAGE> 108
VOTE REQUIRED
Approval and adoption of the AIOC Merger Agreement and approval of the AIOC
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of AIOC Common Stock outstanding on the AIOC Record Date. Votes will
be counted by the AIOC Board.
Each security holder of record of AIOC Common Stock on the AIOC Record Date
is entitled to cast one vote per share, exercisable in person or by properly
executed proxy, on each matter properly submitted for the vote of the security
holders of AIOC at the AIOC Meeting.
The required quorum for the transaction of business at the AIOC Meeting is
a majority of the shares of AIOC Common Stock outstanding on the AIOC Record
Date. AIOC intends to include abstentions as present or represented for purposes
of establishing a quorum for the transaction of business.
VOTING OF PROXIES
All shares of AIOC Common Stock that are entitled to vote and are
represented at the AIOC Meeting by properly executed proxies received prior to
or at the AIOC Meeting and not duly and timely revoked will be voted at the AIOC
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the AIOC Merger Proposal and (ii) FOR approval and adoption of the AIOC Merger
Agreement.
If any other matters are properly presented for consideration at the AIOC
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the AIOC Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of AIOC, at or before the taking of the vote at the AIOC
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of AIOC, before the taking of the vote at the
AIOC Meeting; or (iii) attending the AIOC Meeting and voting in person (although
attendance at the AIOC Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Advanced Imaging of Orange County, P.C. at 18 Squadron Boulevard, New City,
New York 10956, Attention: Secretary or hand-delivered to the Secretary of AIOC,
in each case at or before the taking of the vote at the AIOC Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of AIOC security holders will be shared by
APPI and AIOC. Proxies may be solicited by certain AIOC directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
CIA MEETING
DATE, TIME AND PLACE OF CIA MEETING
The CIA Meeting will be held at the corporate offices of CIA located at 18
Squadron Boulevard, New City, New York 10956, on November 3, 1997 at 5:00 p.m.
PURPOSE
The purpose of the CIA Meeting is to vote upon proposals: (i) to approve
the CIA Merger Proposal and to approve and adopt the CIA Merger Agreement and
(ii) to transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
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<PAGE> 109
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of CIA Common Stock at the close of business on
October 1, 1997 are entitled to notice of and to vote at the CIA Meeting. As of
the CIA Record Date, there were 13 security holders of record of CIA Common
Stock holding an aggregate of 130 shares of CIA Common Stock. See "Rockland
Radiological Group -- Rockland Radiological Group Principal Shareholders."
VOTE REQUIRED
Approval and adoption of the CIA Merger Agreement and approval of the CIA
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of CIA Common Stock outstanding on the CIA Record Date. Votes will be
counted by the CIA Board.
Each security holder of record of CIA Common Stock on the CIA Record Date
is entitled to cast one vote per share, exercisable in person or by properly
executed proxy, on each matter properly submitted for the vote of the security
holders of CIA at the CIA Meeting.
The required quorum for the transaction of business at the CIA Meeting is a
majority of the shares of CIA Common Stock outstanding on the CIA Record Date.
CIA intends to include abstentions as present or represented for purposes of
establishing a quorum for the transaction of business.
VOTING OF PROXIES
All shares of CIA Common Stock that are entitled to vote and are
represented at the CIA Meeting by properly executed proxies received prior to or
at the CIA Meeting and not duly and timely revoked will be voted at the CIA
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the CIA Merger Proposal and (ii) FOR approval and adoption of the CIA Merger
Agreement.
If any other matters are properly presented for consideration at the CIA
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the CIA Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of CIA, at or before the taking of the vote at the CIA
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of CIA, before the taking of the vote at the CIA
Meeting; or (iii) attending the CIA Meeting and voting in person (although
attendance at the CIA Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Central Imaging Associates, P.C. at 18 Squadron Boulevard, New City, New York
10956, Attention: Secretary or hand-delivered to the Secretary of CIA, in each
case at or before the taking of the vote at the CIA Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of CIA security holders will be shared by APPI
and CIA. Proxies may be solicited by certain CIA directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
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<PAGE> 110
MRIA MEETING
DATE, TIME AND PLACE OF MRIA MEETING
The MRIA Meeting will be held at the corporate offices of MRIA located at
18 Squadron Boulevard, New City, New York 10956, on November 3, 1997 at 5:00
p.m.
PURPOSE
The purpose of the MRIA Meeting is to vote upon proposals: (i) to approve
the MRIA Merger Proposal and to approve and adopt the MRIA Merger Agreement and
(ii) to transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of MRIA Common Stock at the close of business on
October 31, 1997 are entitled to notice of and to vote at the MRIA Meeting. As
of the MRIA Record Date, there were 13 security holders of record of MRIA Common
Stock holding an aggregate of 130 shares of MRIA Common Stock. See "Rockland
Radiological Group -- Rockland Radiological Group Principal Shareholders."
VOTE REQUIRED
Approval and adoption of the MRIA Merger Agreement and approval of the MRIA
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of MRIA Common Stock outstanding on the MRIA Record Date. Votes will
be counted by the MRIA Board.
Each security holder of record of MRIA Common Stock on the MRIA Record Date
is entitled to cast one vote per share, exercisable in person or by properly
executed proxy, on each matter properly submitted for the vote of the security
holders of MRIA at the MRIA Meeting.
The required quorum for the transaction of business at the MRIA Meeting is
a majority of the shares of MRIA Common Stock outstanding on the MRIA Record
Date. MRIA intends to include abstentions as present or represented for purposes
of establishing a quorum for the transaction of business.
VOTING OF PROXIES
All shares of MRIA Common Stock that are entitled to vote and are
represented at the MRIA Meeting by properly executed proxies received prior to
or at the MRIA Meeting and not duly and timely revoked will be voted at the MRIA
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the MRIA Merger Proposal and (ii) FOR approval and adoption of the MRIA Merger
Agreement.
If any other matters are properly presented for consideration at the MRIA
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the MRIA Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of MRIA, at or before the taking of the vote at the MRIA
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of MRIA, before the taking of the vote at the
MRIA Meeting; or (iii) attending the MRIA Meeting and voting in person (although
attendance at the MRIA Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Mid Rockland Imaging Associates, P.C. at 18 Squadron Boulevard, New City, New
York 10956, Attention: Secretary or hand-delivered to the Secretary of MRIA, in
each case at or before the taking of the vote at the MRIA Meeting.
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<PAGE> 111
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of MRIA security holders will be shared by
APPI and MRIA. Proxies may be solicited by certain MRIA directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
NYACK MEETING
DATE, TIME AND PLACE OF NYACK MEETING
The Nyack Meeting will be held at the corporate offices of Nyack located at
18 Squadron Boulevard, New City, New York 10956, on November 3, 1997 at 5:00
p.m.
PURPOSE
The purpose of the Nyack Meeting is to vote upon proposals: (i) to approve
the Nyack Merger Proposal and to approve and adopt the Nyack Merger Agreement
and (ii) to transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of Nyack Common Stock at the close of business
on October 1, 1997 are entitled to notice of and to vote at the Nyack Meeting.
As of the Nyack Record Date, there were 13 security holders of record of Nyack
Common Stock holding an aggregate of 130 shares of Nyack Common Stock. See
"Rockland Radiological Group -- Rockland Radiological Group Principal
Shareholders."
VOTE REQUIRED
Approval and adoption of the Nyack Merger Agreement and approval of the
Nyack Merger Proposal requires the affirmative vote of the holders of two-thirds
of the shares of Nyack Common Stock outstanding on the Nyack Record Date. Votes
will be counted by the Nyack Board.
Each security holder of record of Nyack Common Stock on the Nyack Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of Nyack at the Nyack Meeting.
The required quorum for the transaction of business at the Nyack Meeting is
a majority of the shares of Nyack Common Stock outstanding on the Nyack Record
Date. Nyack intends to include abstentions as present or represented for
purposes of establishing a quorum for the transaction of business.
VOTING OF PROXIES
All shares of Nyack Common Stock that are entitled to vote and are
represented at the Nyack Meeting by properly executed proxies received prior to
or at the Nyack Meeting and not duly and timely revoked will be voted at the
Nyack Meeting in accordance with the instructions indicated on such proxies. If
no such instructions are indicated, such proxies will be voted (i) FOR approval
of the Nyack Merger Proposal and (ii) FOR approval and adoption of the Nyack
Merger Agreement.
If any other matters are properly presented for consideration at the Nyack
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the Nyack Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Nyack, at or before the taking of the vote
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at the Nyack Meeting, a written notice of revocation bearing a later date than
the proxy; (ii) duly executing a later dated proxy relating to the same shares
and delivering it to the Secretary of Nyack, before the taking of the vote at
the Nyack Meeting; or (iii) attending the Nyack Meeting and voting in person
(although attendance at the Nyack Meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to Nyack Magnetic Resonance Imaging, P.C. at 18 Squadron
Boulevard, New City, New York 10956, Attention: Secretary or hand-delivered to
the Secretary of Nyack, in each case at or before the taking of the vote at the
Nyack Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Nyack security holders will be shared by
APPI and Nyack. Proxies may be solicited by certain Nyack directors, officers
and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.
PELHAM MEETING
DATE, TIME AND PLACE OF PELHAM MEETING
The Pelham Meeting will be held at the corporate offices of Pelham located
at 18 Squadron Boulevard, New City, New York 10956, on November 3, 1997 at 5:00
p.m.
PURPOSE
The purpose of the Pelham Meeting is to vote upon proposals: (i) to approve
the Pelham Merger Proposal and to approve and adopt the Pelham Merger Agreement
and (ii) to transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of Pelham Common Stock at the close of business
on October 1, 1997 are entitled to notice of and to vote at the Pelham Meeting.
As of the Pelham Record Date, there were 13 security holders of record of Pelham
Common Stock holding an aggregate of 130 shares of Pelham Common Stock. See
"Rockland Radiological Group -- Rockland Radiological Group Principal
Shareholders."
VOTE REQUIRED
Approval and adoption of the Pelham Merger Agreement and approval of the
Pelham Merger Proposal requires the affirmative vote of the holders of
two-thirds of the shares of Pelham Common Stock outstanding on the Pelham Record
Date. Votes will be counted by the Pelham Board.
Each security holder of record of Pelham Common Stock on the Pelham Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of Pelham at the Pelham Meeting.
The required quorum for the transaction of business at the Pelham Meeting
is a majority of the shares of Pelham Common Stock outstanding on the Pelham
Record Date. Pelham intends to include abstentions as present or represented for
purposes of establishing a quorum for the transaction of business.
VOTING OF PROXIES
All shares of Pelham Common Stock that are entitled to vote and are
represented at the Pelham Meeting by properly executed proxies received prior to
or at the Pelham Meeting and not duly and timely revoked will be voted at the
Pelham Meeting in accordance with the instructions indicated on such proxies. If
no such instructions are indicated, such proxies will be voted (i) FOR approval
of the Pelham Merger Proposal and (ii) FOR approval and adoption of the Pelham
Merger Agreement.
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<PAGE> 113
If any other matters are properly presented for consideration at the Pelham
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the Pelham Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Pelham, at or before the taking of the vote at the Pelham
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Pelham, before the taking of the vote at the
Pelham Meeting; or (iii) attending the Pelham Meeting and voting in person
(although attendance at the Pelham Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to Pelham Imaging Associates, P.C. at 18 Squadron Boulevard, New
City, New York 10956, Attention: Secretary or hand-delivered to the Secretary of
Pelham, in each case at or before the taking of the vote at the Pelham Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Pelham security holders will be shared by
APPI and Pelham. Proxies may be solicited by certain Pelham directors, officers
and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.
RRG MEETING
DATE, TIME AND PLACE OF RRG MEETING
The RRG Meeting will be held at the corporate offices of RRG located at 18
Squadron Boulevard, New City, New York 10956, on November 3, 1997 at 5:00 p.m.
PURPOSE
The purpose of the RRG Meeting is to vote upon proposals: (i) to approve
the RRG Merger Proposal and to approve and adopt the RRG Merger Agreement and
(ii) to transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of RRG Common Stock at the close of business on
October 1, 1997 are entitled to notice of and to vote at the RRG Meeting. As of
the RRG Record Date, there were 13 security holders of record of RRG Common
Stock holding an aggregate of 130 shares of RRG Common Stock. See "Rockland
Radiological Group -- Rockland Radiological Group Principal Shareholders."
VOTE REQUIRED
Approval and adoption of the RRG Merger Agreement and approval of the RRG
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of RRG Common Stock outstanding on the RRG Record Date. Votes will be
counted by the RRG Board.
Each security holder of record of RRG Common Stock on the RRG Record Date
is entitled to cast one vote per share, exercisable in person or by properly
executed proxy, on each matter properly submitted for the vote of the security
holders of RRG at the RRG Meeting.
The required quorum for the transaction of business at the RRG Meeting is a
majority of the shares of RRG Common Stock outstanding on the RRG Record Date.
RRG intends to include abstentions as present or represented for purposes of
establishing a quorum for the transaction of business.
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<PAGE> 114
VOTING OF PROXIES
All shares of RRG Common Stock that are entitled to vote and are
represented at the RRG Meeting by properly executed proxies received prior to or
at the RRG Meeting and not duly and timely revoked will be voted at the RRG
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the RRG Merger Proposal and (ii) FOR approval and adoption of the RRG Merger
Agreement.
If any other matters are properly presented for consideration at the RRG
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the RRG Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of RRG, at or before the taking of the vote at the RRG
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of RRG, before the taking of the vote at the RRG
Meeting; or (iii) attending the RRG Meeting and voting in person (although
attendance at the RRG Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Rockland Radiological Group, P.C. at 18 Squadron Boulevard, New City, New
York 10956, Attention: Secretary or hand-delivered to the Secretary of RRG, in
each case at or before the taking of the vote at the RRG Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of RRG security holders will be shared by APPI
and RRG. Proxies may be solicited by certain RRG directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
WIC MEETING
DATE, TIME AND PLACE OF WIC MEETING
The WIC Meeting will be held at the corporate offices of WIC located at 18
Squadron Boulevard, New City, New York 10956, on November 3, 1997 at 5:00 p.m..
PURPOSE
The purpose of the WIC Meeting is to vote upon proposals: (i) to approve
the WIC Merger Proposal and to approve and adopt the WIC Merger Agreement and
(ii) to transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of WIC Common Stock at the close of business on
October 1, 1997 are entitled to notice of and to vote at the WIC Meeting. As of
the WIC Record Date, there were 13 security holders of record of WIC Common
Stock holding an aggregate of 130 shares of WIC Common Stock. See "Rockland
Radiological Group -- Rockland Radiological Group Principal Shareholders."
VOTE REQUIRED
Approval and adoption of the WIC Merger Agreement and approval of the WIC
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of WIC Common Stock outstanding on the WIC Record Date. Votes will be
counted by the WIC Board.
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Each security holder of record of WIC Common Stock on the WIC Record Date
is entitled to cast one vote per share, exercisable in person or by properly
executed proxy, on each matter properly submitted for the vote of the security
holders of WIC at the WIC Meeting.
The required quorum for the transaction of business at the WIC Meeting is a
majority of the shares of WIC Common Stock outstanding on the WIC Record Date.
WIC intends to include abstentions as present or represented for purposes of
establishing a quorum for the transaction of business.
VOTING OF PROXIES
All shares of WIC Common Stock that are entitled to vote and are
represented at the WIC Meeting by properly executed proxies received prior to or
at the WIC Meeting and not duly and timely revoked will be voted at the WIC
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the WIC Merger Proposal and (ii) FOR approval and adoption of the WIC Merger
Agreement.
If any other matters are properly presented for consideration at the WIC
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the WIC Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of WIC, at or before the taking of the vote at the WIC
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of WIC, before the taking of the vote at the WIC
Meeting or; (iii) attending the WIC Meeting and voting in person (although
attendance at the WIC Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Women's Imaging Consultants, P.C. at 18 Squadron Boulevard, New City, New
York 10956, Attention: Secretary or hand-delivered to the Secretary of WIC, in
each case at or before the taking of the vote at the WIC Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of WIC security holders will be shared by APPI
and WIC. Proxies may be solicited by certain WIC directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
VALLEY MEETING
DATE, TIME AND PLACE OF VALLEY MEETING
The Valley Meeting will be held at 340 Dardanelli Lane, Suite 11A, Los
Gatos, California 95030 on November 3, 1997 at 6:30 p.m..
PURPOSE
The purpose of the Valley Meeting is to vote upon proposals: (i) to approve
the Valley Merger Proposal and to approve and adopt the Valley Merger Agreement
and (ii) to transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Security holders of record of Valley Common Stock at the close of business
on October 20, 1997 are entitled to notice of and to vote at the Valley Meeting.
As of the Valley Record Date, there were 20 security
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holders of record of Valley Common Stock holding an aggregate of 19,937.50
shares of Valley Common Stock. See "Valley Radiology Group -- Valley Principal
Shareholders."
VOTE REQUIRED
Approval and adoption of the Valley Merger Agreement and approval of the
Valley Merger Proposal requires the affirmative vote of the holders of a
majority of the shares of Valley Common Stock outstanding on the Valley Record
Date. Votes will be counted by the Valley Board.
Each security holder of record of Valley Common Stock on the Valley Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of Valley at the Valley Meeting.
The required quorum for the transaction of business at the Valley Meeting
is a majority of the shares of Valley Common Stock outstanding on the Valley
Record Date. Valley intends to include abstentions as present or represented for
purposes of establishing a quorum for the transaction of business.
VOTING OF PROXIES
All shares of Valley Common Stock that are entitled to vote and are
represented at the Valley Meeting by properly executed proxies received prior to
or at the Valley Meeting and not duly and timely revoked will be voted at the
Valley Meeting in accordance with the instructions indicated on such proxies. If
no such instructions are indicated, such proxies will be voted (i) FOR approval
of the Valley Merger Proposal and (ii) FOR approval and adoption of the Valley
Merger Agreement.
If any other matters are properly presented for consideration at the Valley
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the Valley Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Valley, at or before the taking of the vote at the Valley
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Valley, before the taking of the vote at the
Valley Meeting; or (iii) attending the Valley Meeting and voting in person
(although attendance at the Valley Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to Valley Radiologists Medical Group, Inc. at 1101 South
Winchester Boulevard, Suite J220, San Jose, California 95128, Attention:
Secretary or hand-delivered to the Secretary of Valley, in each case at or
before the taking of the vote at the Valley Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Valley security holders will be shared by
APPI and Valley. Proxies may be solicited by certain Valley directors, officers
and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.
APPROVAL OF THE MERGERS, EXCHANGES AND RELATED TRANSACTIONS
The following discussion summarizes the proposed Mergers, Exchanges and
related transactions. The following is not, however, a complete statement of all
provisions of the Merger Agreements, Exchange Agreements and related agreements.
Statements made in this Prospectus/Joint Proxy Statement with respect to the
terms of the Mergers, Exchanges and related transactions are qualified in their
respective entireties by reference to the more detailed information set forth in
the Merger Agreements and Exchange Agreements. A copy of the applicable Merger
or Exchange Agreement being solicited hereby is attached as Appendix A.
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Each Merger Agreement was entered into by and between APPI and Advanced,
Ide, M&S, South Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack,
Pelham, RRG, WIC or Valley, as the case may be, in June 1997 following approval
by each Merger Entity's Board of Directors. Each Exchange Agreement was executed
by APPI and Randall Preissig, M.D., the Managing Partner of each of Lexington,
Madison, South Texas No. 1 and San Antonio No. 2, on behalf of such Exchange
Entity, in June 1997.
Detailed terms of and conditions to those Mergers and related transactions
whereby the entity to be acquired by APPI shall merge with and into a subsidiary
of APPI are contained in the Pacific, TMI and Valley Merger Agreements. A form
of Merger Agreement, which substantially conforms to the Pacific, TMI and Valley
Merger Agreements, is attached to this Prospectus/Joint Proxy Statement as
Appendix B. Detailed terms of and conditions to those Mergers and related
transactions whereby the entity to be acquired by APPI shall merge with and into
APPI are contained in the Advanced, Ide, M&S, South Texas, San Antonio, RNM,
AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC Merger Agreements. A form of Merger
Agreement, which substantially conforms to the Advanced, Ide, M&S, South Texas,
San Antonio, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC Merger Agreements,
is attached to this Prospectus/Joint Proxy Statement as Appendix C. Detailed
terms and conditions of the Exchanges and related transactions are contained in
the Exchange Agreements. A form of Exchange Agreement, which substantially
conforms to the Exchange Agreements, is attached to the Prospectus/Joint Proxy
Statement as Appendix D. Copies of the actual Merger and Exchange Agreements for
each of the Merger and Exchange Entities are available upon written request of
APPI's General Counsel at 2301 NationsBank Plaza, 901 Main Street, Dallas, Texas
75202-3721.
APPI'S MATERIAL CONTACTS AND BOARD DELIBERATIONS
APPI was formed in April 1996 to begin operations as a radiology physician
practice management company. APPI's focus is to develop, consolidate and manage
integrated radiology and IC networks. APPI's focus was developed based on the
belief of its founders that radiology services in the United States are
delivered through a fragmented system of local providers, including small to
medium-sized groups of diagnostic and interventional radiologists and radiation
oncologists. In addition, the founders observed that cost-containment pressures
on health care providers, including radiologists, have placed small to
medium-sized physician groups at a competitive disadvantage, since their
practices typically have high operating costs and often lack the capital,
information systems and management expertise necessary to provide both
high-quality and cost-effective medical care. Following its inception, APPI
began identifying radiology practices that could be candidates to affiliate with
a physician practice management company like APPI to manage and administer the
non-medical aspects of their practices and provide access to greater capital
resources, more efficient cost structures and expertise in contracting with
payors.
During May, June and July 1996, APPI developed a list of potential
radiology practices in different parts of the United States to approach
regarding possible affiliation with APPI. During this period, APPI commenced
discussions with representatives of radiology groups on its target list and
entered into confidentiality agreements with Advanced Radiology and The Ide
Group.
During August, September and October 1996, APPI continued its affiliation
development efforts and entered into confidentiality agreements with M&S, RNM
and RRG. In addition, during this period APPI entered into letters of intent
with Advanced, Ide and M&S. Following the execution of the letters of intent,
APPI commenced financial audits of Advanced, Ide and M&S and also commenced its
legal due diligence with respect to those practices.
During November and December 1996 and January 1997, APPI continued its
affiliation development efforts with practices that had executed confidentiality
agreements with APPI. On November 20, 1996 and January 23, 1997, APPI entered
into letters of intent with RRG and RNM, respectively. Following the execution
of these letters of intent, APPI commenced financial audits of those practices
and legal due diligence. Also during this period, APPI distributed its first
draft of the Service Agreement to those Founding Affiliated Practices which had
executed letters of intent as well as to Pacific which was contemplating whether
to enter into a letter of intent with APPI. APPI then began preliminary
discussions and negotiations with such
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Founding Affiliated Practices regarding the Service Agreement. During this
period, Pacific and Valley entered into letters of intent with APPI.
During February, March and April 1997, APPI commenced financial audits of
and legal due diligence on the Founding Affiliated Practices, and APPI and the
Founding Affiliated Practices continued their discussions and negotiation of the
Service Agreement. In addition, APPI distributed the first draft of the Merger
and Exchange Agreements for review and comment by the Founding Affiliated
Practices.
Thereafter, APPI began negotiations and discussions with the Founding
Affiliated Practices regarding the Merger and Exchange Agreements. Certain
representatives of the Founding Affiliated Practices met with members of APPI's
management in Dallas on March 7-8 to discuss open issues in the Service
Agreement and the Merger and Exchange Agreements and preliminary strategies for
APPI's growth and development. On April 16-17, certain representatives of the
Founding Affiliated Practices and counsel for such Practices met in Dallas to
continue their discussions of open points in the Merger and Exchange Agreements
and the Service Agreement.
In March and April 1997, APPI selected the underwriters for the Initial
Public Offering. In early April, APPI's management met with the underwriters to
commence preparation of the Form S-1. During this time, APPI continued its legal
due diligence and financial audits regarding the Founding Affiliated Practices.
During May, June and through the date of this filing, APPI concluded its
negotiation of the Service Agreement, Merger and Exchange Agreements and related
agreements for the Reorganizations and in June such agreements were executed by
APPI and each respective Founding Affiliated Practice. APPI continued to work on
the Form S-1 and filed the Form S-1 with the SEC on June 27, 1997. During May
and June, APPI also commenced work on this Registration Statement.
ADVANCED RADIOLOGY'S MATERIAL CONTACTS AND MANAGEMENT COMMITTEE DELIBERATIONS
On January 1, 1995, five separate radiology practices joined together to
form Advanced Radiology, LLC. Two additional practices subsequently became
members of Advanced Radiology, LLC in March, 1996 and January, 1997,
respectively. In the spring of 1996, the Management Committee of Advanced
Radiology, LLC, consisting of Harry A. Knipp, M.D., H. Alexander Munitz, M.D.,
Barton M. Cockey, M.D., Michael L. Sherman, M.D., James D. Winthrop, M.D., Blair
Andrew, M.D., David McNeely, M.D., Charles J.E. Arnold, M.D., and Lee Goodman,
M.D., recognized it would need to address the company's long-term competitive
issues in light of the challenges resulting from merging six practices, as well
as the changes occurring in the Baltimore market and the healthcare industry as
a whole.
Drs. Sherman, Munitz, Andelman, Winthrop and Arnold, representatives of
Advanced's Management Committee, met with representatives from APPI in May 1996
in order to explore the possibility of merging with APPI. In June 1996, APPI was
invited to present to the entire Management Committee of Advanced Radiology,
LLC.
Also during this period, the Management Committee determined to hire
consultants from First Union Bank of Charlotte, North Carolina, who have
extensive experience in medical mergers and acquisitions. The consultant group,
working with the Advanced Management Committee, identified and met with several
prospective physician management companies. The consultant group also outlined
four additional alternatives for Advanced: raise private equity, undertake an
initial public offering, sell the practice to a hospital, or sell the practice
to a managed care company. Advanced Radiology, LLC explored these alternatives
in June 1996.
Working with the consultants from First Union, a confidentiality agreement
with APPI was negotiated and signed on July 3, 1996. At that same time, certain
business and financial information of Advanced was shared with APPI.
On July 23, 1996, the consultants from First Union gave a presentation to
the members of Advanced Radiology, LLC regarding APPI's proposal. The members
authorized the Management Committee to continue negotiating with APPI. After
additional meetings of the Management Committee, a letter of intent was
negotiated and signed on August 13, 1996.
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Thereafter, Advanced Radiology, LLC and its representatives entered into
negotiations with APPI regarding valuation of the practice and the Service
Agreement. Over the course of the next ten months, the Management Committee met
on a weekly basis to discuss the terms of the proposed transaction with APPI. In
addition, the members of Advanced Radiology, LLC met on three separate occasions
(February 6, 1997, February 19, 1997 and February 20, 1997) to discuss the
proposed transaction. Drs. Sherman, Munitz and Winthrop of Advanced, along with
representatives from First Union, attended a meeting with APPI in Dallas on
March 7, 1997 to discuss the transaction and meet representatives from the other
Founding Affiliated Practices. On March 20, 1997 the consultants from First
Union gave a presentation regarding the current status of the transaction and
valuation considerations to the Management Committee of Advanced Radiology, LLC.
From March 1997 to May 1997, Advanced Radiology, LLC and First Union worked
with APPI to finalize valuation of the practice and terms of the Service
Agreement. On May 29, 1997, Advanced Radiology LLC held a meeting of the
membership where First Union presented valuation considerations and the members
reviewed certain preliminary terms of the proposed transaction with APPI. The
members again authorized the Management Committee to continue to proceed with
the discussion with APPI.
In June 1997, the Management Committee of Advanced Radiology, LLC approved
the execution and delivery of the Advanced Merger Agreement, subject to member
approval after their receipt and review of a Prospectus/Joint Proxy Statement
under this Registration Statement after it becomes effective.
THE IDE GROUP'S MATERIAL CONTACTS AND BOARD DELIBERATIONS
Ide was first introduced to APPI through Derace Schaffer, M.D., President
of Ide. On May 29, 1996, Lawrence R. Muroff, M.D. the Chairman of the Board and
Senior Vice President of Physician Affairs of APPI, Gregory L. Soloman, Chief
Executive Officer of APPI and Mark S. Martin, Senior Vice President and Chief
Operating Officer of APPI gave a presentation on APPI's business model to a
majority of Ide's shareholder group.
On June 10, 1996, Ide entered into a Confidentiality and Standstill
Agreement with APPI. At the June 19, 1996 meeting of Ide's Board of Directors,
the Ide Board considered the risks and benefits of an affiliation with APPI,
including other options available to the group. They also discussed the due
diligence that would be required of both APPI and Ide. The Ide Board delegated
further responsibility for investigating and negotiating a possible affiliation
with APPI to the Board's Finance Committee, consisting of Michael Lebowitz,
M.D., Richard Tobin, M.D., Ronald Hainen, M.D., Frank Kelley, M.D., Rosemary
Utz, M.D. and Ken Pearsen, M.D. From the initial meeting on June 19, 1996 until
the signing of the Merger Agreement on June 27, 1997, the Ide Board met
periodically to discuss the status of the ongoing negotiations with APPI. Also
during this period, Ide's Finance Committee met several times a month, both
formally and informally, to discuss every aspect of the proposed transaction.
The Finance Committee reported to the Ide Board on an ongoing basis.
On June 27, 1996, Ide sent initial financial and practice data to APPI. The
company received a first draft of the Service Agreement from APPI on July 19,
1996. A shareholders' meeting was held during the month of July, 1996 at which
the shareholders authorized the Board and officers of Ide to negotiate and
execute a non-binding letter of intent with APPI. On August 1, 1996, the letter
of intent was signed. Throughout August 1997, Ide focused on responding the
APPI's due diligence requests.
On August 30, 1996, APPI and its accountants, Arthur Andersen, gave a
presentation to Ide's Finance Committee regarding tax considerations associated
with the proposed transaction.
On October 9, 1996, Messrs. Martin and Solomon gave a presentation of the
preliminary terms, including the management fee, of the proposed transaction to
all members of the Finance Committee. Thereafter, the Committee weighed the
considerations supporting the transaction (such as access to capital to expand
the business, professional practice expansion, infrastructure cost avoidance)
against the financial impact of the proposed management fee. After an extensive
discussion of these matters, the Finance Committee determined
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to recommend proceeding with the proposed transaction to the entire Ide Board.
The Board accepted the Committee's recommendation and approved a continuation of
negotiations and discussions with APPI.
On October 16, 1996, certain representatives of Ide (including Drs.
Lebowitz and Tobin) and Ide's legal counsel participated in a conference call
with Mr. Solomon and APPI's legal counsel to discuss issues pertaining to the
Service Agreement. On November 26, 1996, DeJoy, Knauf & Blood commenced their
audit of Ide.
On January 29, 1997, representatives from Ide and representatives from
Advanced had a teleconference to discuss the proposed transactions and share
information, analyses, concerns, ideas, etc.
On February 19-20, 1997, APPI revisited the economic terms of the deal with
the Finance Committee following receipt of the audited financial information
from Dejoy, Knauf & Blood. Following the presentation, the Finance Committee
discussed the proposed terms in detail.
On February 26, 1997, representatives of a majority of the Founding
Affiliated Practices met via teleconference to once again share information and
analysis concerning APPI and the Merger and Exchange Transactions. The groups
reconvened in person at a meeting in Dallas on March 8-9, 1997 to continue
addressing these issues.
On March 18, 1997, the Finance Committee reviewed the discussions from the
Dallas meeting with the Ide Board and presented to the Board a final proposal
for the APPI merger. On April 2, 1997, the Board met to discuss in detail the
final proposal. The Board reiterated its approval of continued discussions and
negotiations with APPI and authorized the Ide management to release Ide's
financial information for public disclosure in the Form S-1.
On May 22, 1997, the Finance Committee presented the Ide Board with the
Merger Agreement and Services Agreement. The Board considered the terms of these
agreements and determined that more detailed information was required before a
Board vote could be taken. Over the course of the next week, the Finance
Committee addressed the issues raised at the May 22 Board meeting, which
included retaining Shattuck Hammond to provide an opinion to Ide with respect to
the commercial reasonableness of the service fee under the Services Agreement
and the comparability of such fee to management fees under other management
services agreements providing for similar services in other physician practice
management transactions.
On June 3, 1997, the Ide Board unanimously approved the Ide Merger
Agreement, Services Agreement and Ide Merger Proposal, subject to shareholder
approval after receipt and review of a Prospectus/Joint Proxy Statement pursuant
to this Registration Statement after it becomes effective. The Board also
authorized execution and delivery of the agreements, subject to receipt of a
form of the opinion from Shattuck Hammond satisfactory to the Finance Committee.
On June 24, 1997, the form of opinion was delivered and the Finance Committee
determined it was satisfied with the findings. On June 27, 1997 the Ide Merger
Agreement was executed and delivered by Ide.
M&S X-RAY PRACTICES' MATERIAL CONTACTS AND BOARD DELIBERATIONS
During the spring of 1996, Mr. Mark Martin, the Chief Operating Officer of
APPI, contacted M&S X-Ray practices to inquire whether M&S, South Texas, San
Antonio, Lexington, Madison, South Texas No. 1 and San Antonio No. 2 would be
interested in affiliating with APPI.
During July 1996, representatives of the M&S X-Ray Practices met with
representatives of Cain Brothers, financial advisor for M&S X-Ray Practices, to
discuss the possible strategic benefits of an affiliation with APPI. The
Entities comprising the M&S X-Ray Practices entered into letters of intent with
APPI in September 1996. Following the execution of such letters of intent, M&S
X-Ray Practices began conducting a financial and legal due diligence review of
APPI.
During October, November and December of 1996, M&S X-Ray Practices
completed their financial review and legal due diligence on APPI. During the
same time period, representatives of M&S X-Ray Practices and its counsel began
negotiating Service Agreements with APPI.
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On January 31, 1997, certain representatives of M&S X-Ray Practices,
including Terry A. Brown, the Chief Executive Officer of M&S, Dr. Jeremy N.
Wiersig, a director of M&S and Dr. Randall S. Preissig, a director of M&S and
the managing partner of Madison, met with Mark Martin and Sami Abbasi, the Chief
Operating Officer and Chief Financial Officer, respectively, of APPI to discuss
the M&S, South Texas and San Antonio Merger Proposals and the Lexington,
Madison, South Texas No. 1 and San Antonio No. 2 Exchange Proposals. During this
meeting the parties also discussed the preliminary results of Arthur Anderson's
financial review of the various entities comprising M&S X-Ray Practices.
During February 1997, representatives of the Exchange Entities and members
of the respective Boards of M&S, South Texas and San Antonio met with APPI to
discuss the economic and tax consequences of the Merger and Exchange Proposals.
On March 7, 1997, Dr. A. Kenneth Trevino, a director of M&S, Dr. Gregory
Wojcik, a director of M&S, South Texas and San Antonio, and Dr. Wiersig met with
members of APPI's management and certain representatives of the other Founding
Affiliated Practices in Dallas to discuss certain open issues in the Service
Agreements and the Merger and Exchange Agreements and strategies for APPI's
growth and development. On April 17, 1997 counsel for M&S X-Ray Practices and
certain representatives of the other Founding Affiliated Practices reconvened in
Dallas to continue their discussions of the Merger and Exchange Agreements.
During May and June, 1997, M&S X-Ray Practices and APPI concluded their
negotiations over the M&S, South Texas and San Antonio Merger Agreements and the
Lexington, Madison, South Texas No. 1 and San Antonio No. 2 Exchange Agreements.
On May 29, 1997, the members of the respective Boards of M&S, South Texas
and San Antonio met and approved the M&S Merger Proposal, South Texas Merger
Proposal and San Antonio Merger Proposal, respectively, subject to shareholder
approval after receipt and review of a Prospectus/Joint Proxy Statement pursuant
to this Registration Statement after it becomes effective. Around the same time
Dr. Randall Preissig, the Managing Partner of each of the Exchange Entities,
determined that the Lexington Exchange Proposal, Madison Exchange Proposal,
South Texas No. 1 Exchange Proposal and San Antonio No. 2 Exchange Proposal
would be in the best interests of Lexington, Madison, South Texas No. 1 and San
Antonio No. 2, respectively. Accordingly, Dr. Preissig executed each of the
Exchange Agreements on behalf of the applicable Exchange Entities and approved
each Exchange Proposal, subject to security holder approval after receipt and
review of a Prospectus/Joint Proxy Statement pursuant to this Registration
Statement after it becomes effective.
PACIFIC IMAGING CONSULTANTS' MATERIAL CONTACTS AND BOARD DELIBERATIONS
During 1996, certain representatives of Pacific, including Charles E.
Fiske, M.D., a member of the Pacific Board, and Mark Weinberg, the Executive
Director of Pacific, met from time to time with members of the Valley Board to
discuss a proposal that the two companies establish a physician practice
management company.
In October 1996, Less Chafen, M.D. a member of the Pacific Board, attended
the Economic Symposium for Radiology and learned about APPI's business model and
growth plans. At the October meeting of the Pacific Board, Dr. Chafen discussed
the strategic benefits that Pacific could derive from being affiliated with a
physician practice management company such as APPI, such as gaining access to
management expertise and capital and achieving operating efficiencies. The
Pacific Board agreed to consider pursuing an affiliation with APPI and contacted
the Valley Board to inquire whether Valley would be also interested in meeting
with representatives of APPI.
In December 1996, certain representatives of APPI, including Lawrence R.
Muroff, M.D., the Chairman of the Board and Senior Vice President of Physician
Affairs of APPI, and Mark S. Martin, the Senior Vice President and Chief
Operating Officer of APPI, met with the directors of Pacific and Valley at a
joint meeting of the Pacific and Valley Boards. At the meeting, Dr. Muroff and
Mr. Martin presented APPI's business model and discussed the potential benefits
that an affiliation with APPI could provide to both Pacific and
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Valley. After the Dr. Chafen and Mr. Martin left the meeting, the Pacific Board
discussed the relative merits of affiliating with APPI and establishing a
separate physician practice management group with Valley. The Pacific Board
determined that an affiliation with APPI would allow Pacific to obtain greater
economies of scale and operating efficiencies than the Valley proposal. On the
other hand, the Pacific Board believed that the Valley Proposal would allow it
to retain greater autonomy and would provide Pacific with management service
fees, an additional source of revenue. After a lengthy discussion regarding
these issues, the Pacific Board agreed that it would be in the best interests of
Pacific and its shareholders to pursue an affiliation with APPI. Pacific then
signed a confidentiality agreement with APPI.
During December 1996 and January and February 1997, Pacific conducted a
financial and legal due diligence review of APPI. During the same time period,
Pacific began negotiations with APPI on a Service Agreement and Merger
Agreement.
On March 7-8 of 1997, certain representatives of Pacific met with
management of APPI and representatives of certain other Founding Affiliated
Practices to discuss open issues in the Service Agreements and Merger and
Exchange Agreements and to review APPI's strategy for growth and development. In
April 1997, representatives of Pacific and its counsel reconvened in Dallas with
management of APPI and representatives of other Founding Affiliated Practices to
continue their discussions regarding open issues in the Merger Agreements.
On May 13, 1997, the Pacific Board met to review the Service Agreement and
Merger Agreement with APPI. During the meeting, the Pacific Board approved the
Service Agreement, Merger Agreement and Pacific Merger Proposal, subject to
shareholder approval after receipt and review of a Prospectus/Joint Proxy
Statement pursuant to this Registration Statement after it becomes effective.
RADIOLOGY AND NUCLEAR MEDICINE'S MATERIAL CONTACTS AND BOARD DELIBERATIONS
In July 1996, representatives of RNM attended a conference at which
representatives of APPI, including Lawrence R. Muroff, M.D., the Chairman of the
Board and Senior Vice President of Physician Affairs of APPI, Derace L.
Schaffer, M.D., a Director of APPI, Gregory L. Solomon, President, Chief
Executive Officer and a Director of APPI, and Mark S. Martin, Senior Vice
President and Chief Operating Officer of APPI, made presentations regarding
physician practice management companies. Subsequently, a representative of RNM
contacted APPI regarding the possibility of having APPI's representatives make a
similar presentation to RNM.
On September 17, 1996, Messrs. Solomon and Martin and Dr. Muroff presented
information about APPI, including the rationale for affiliating with APPI and
current industry issues faced by radiology groups, to the RNM Board, and certain
officers and employees of RNM. Following the meeting, RNM entered into a
confidentiality agreement with APPI.
On October 10, 1996, the RNM Board met and reviewed information provided by
APPI concerning the proposed transaction, including a summary of the key terms
of the proposed Service Agreement. The RNM Board then met on October 14, 1996,
at which time William J. Walls, M.D., President of RNM, led a discussion
concerning the disadvantages and advantages of affiliating with APPI. After the
discussion, the RNM Board determined that additional information was needed
before it could make any recommendations to the stockholders.
At the December 26, 1996 Board meeting, Ralph D. Reymond, M.D., reminded
the RNM Board that there were alternatives to pursuing an affiliation with APPI
and suggested that the group designate Richard Meindinger, M.D., as medical
director with authority to address certain management issues faced by RNM. The
RNM Board then discussed the advisability of proceeding to the letter of intent
stage with APPI. After discussing several alternatives to signing the letter of
intent, the Board concurred that proceeding with negotiations and discussions
with APPI was the most favorable option presented to the Board and agreed to
sign the letter of intent.
A meeting was then held on January 6, 1997 with Dr. Muroff, Messrs. Solomon
and Martin, and Ralph D. Reymond, M.D., Stephen D. Coon, M.D., Judith A. Kooser,
M.D., Russell E. Greene, M.D., Benjamin A.
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Franklin, M.D., Russell C. Harvey, M.D., Crosby L. Gernon, M.D., and Dennis C.
Peterson M.D., to address questions raised by certain of RNM's physicians.
During January, February and March 1997, RNM conducted a financial and
legal due diligence review of APPI.
On March 7, 1997, Drs. Coon and Walls and Mr. Brown attended a meeting with
other members of the Founding Affiliated Practices and APPI management,
investors, accountants and attorneys to discuss APPI's growth and development
strategy and issues related to the Service Agreement and Merger Agreements.
On March 20, 1997, Messrs. Martin and Solomon met with the RNM Board and
certain RNM stockholders to address any outstanding questions and concerns
raised by the RNM Board and RNM employees.
On June 10, 1997, a special meeting of the RNM stockholders was held at
which the stockholders preliminarily approved the RNM Merger Agreement and RNM
Merger Proposal, subject to final stockholder approval after their receipt and
review of a Prospectus/Joint Proxy Statement pursuant to this Registration
Statement after it becomes effective and subject to satisfaction of the
following additional conditions:
a. development of a final Service Agreement and a final Merger
Agreement in forms acceptable to the RNM Board following consultation with
legal counsel.
b. receipt of an acceptable evaluation by Shattuck Hammond Partners,
Inc. of the payments due under the Service Agreement.
c. receipt of appropriate approvals and consents to the transactions
contemplated in the Service Agreement and the Merger Agreement from
hospitals and other contracting parties with which RNM currently has
contractual relationships; and
d. that a covenant be received from APPI which would guarantee
preservation now and in the future of the capabilities of the RNM
retirement plans or replacement plans relative to the abilities of
radiologist participants and retirees to continue funding, continue
investment alternatives and continue all the other flexibility in the
retirement plans to the extent currently available.
ROCKLAND RADIOLOGICAL GROUP'S MATERIAL CONTACTS AND BOARD DELIBERATIONS
On November 15, 1995, the Board of Directors of each of the Entities
comprising the Rockland Radiological Group met to discuss the future direction
of the group's radiology practice in the evolving managed care environment. The
directors discussed various options that were available to the group, including,
among other things, merger with another physician practice, network association
and affiliation with a public company. Over the course of the ensuing year, the
directors held strategic planning meetings and conducted interviews with various
multispecialty physician practice management companies.
In October 1996, the management group of the Rockland Radiological Group,
consisting of Herbert Z. Geller, M.D., Mark Geller, M.D. and Elliot Handler,
M.D., along with its financial consultant and administrator, attended the
Economics Symposium in Washington, D.C., where they learned of APPI as a
radiology practice management company. The Rockland management group discussed
APPI's potential and decided to explore the merits of its possible affiliation
with APPI. Shortly thereafter, the Rockland Radiological Group entered into a
confidentiality agreement with APPI.
On November 13, 1996, the Boards of the Rockland Entities met with their
financial consultant to discuss methods for evaluating the practice and
protecting its value, as well as the strategic and economic benefits of various
practice alternatives available to the group, including a merger with APPI. On
November 20, 1996, the Board approved a letter of intent to pursue negotiations
with APPI.
On December 17, 1996, the Boards met to discuss the progress of Rockland
Radiological Group's merger discussions with APPI. The management group
explained the financial and legal due diligence review which was being conducted
by APPI.
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On February 26, 1997, the Boards met with a delegation of APPI
representatives to discuss APPI's planned structure, the other prospective
Founding Affiliated Practices, APPI's growth and development strategy and the
business and financial impact of a merger of APPI and the Rockland Radiological
Group.
On March 12, 1997, at a meeting of the Rockland Boards, Smith Barney made a
presentation regarding its experience with physician practice management
companies. The Rockland Boards discussed procedural matters related to moving
forward with the merger negotiations, including the commencement of a financial
and legal due diligence review of APPI.
On May 21, 1997, the Rockland Boards met with counsel for the group to
discuss the status of the due diligence review of APPI and the various
agreements which would be executed in connection with the Merger Transactions.
On May 23, 1997, the Rockland Boards voted unanimously in favor of proceeding
with the Merger Transactions with APPI, subject to agreement on the definitive
terms of the merger and a vote of the shareholders of the Rockland Entities
after receipt and review of a Prospectus/Joint Proxy Statement pursuant to this
Registration Statement after it has become effective.
VALLEY RADIOLOGY GROUP'S MATERIAL CONTACTS AND BOARD DELIBERATIONS
During September, October, and November 1996, members of the Valley Board
met with representatives of Pacific and members of the Pacific Board to discuss
a proposal that the two companies form a MSO in order to achieve strategic
benefits and economies of scale. In November 1996, APPI representatives made a
presentation to the Pacific Board, and the Pacific representatives of the MSO
subsequently suggested that Valley contact APPI. Dr. Edward Lebowitz, a member
of the Valley Board, met with Greg Solomon, Chief Executive Officer of APPI, in
Chicago during the following week at the annual Radiological Society of North
America meeting.
During December 1996, Lawrence R. Muroff, M.D., the Chairman of the Board
and Senior Vice President of Physician Affairs of APPI, and Mark Martin, the
Senior Vice President and Chief Operating Officer of APPI, met with the
directors of Valley and Pacific at a joint meeting of the Valley and Pacific
Boards. At the meeting, Dr. Muroff and Mr. Martin presented a detailed analysis
of APPI's business plan and discussed the potential benefits that an affiliation
with APPI could provide to both Valley and Pacific. Dr. Muroff and Mr. Martin
also answered questions from the members of the Valley and Pacific boards at
that time.
Although the Valley Board believed that Valley would derive certain
strategic benefits from being affiliated with APPI, including increased access
to capital and improved operating efficiencies, it decided not to enter into a
letter of intent with APPI at that time. The principal reasons for preferring
not to affiliate with APPI were the loss of autonomy and reduction in income
that were considered likely to result from such an affiliation.
During January and February 1997, Valley and Pacific representatives made
further progress in the formation of their MSO, but it became clear that Pacific
was strongly in favor of pursuing an affiliation with APPI. For this reason, in
February 1997, Messrs. Solomon and Martin, and Don Pelton, and Mark Laurent of
APPI attended a meeting of the Valley Board to discuss further the potential
benefits of an affiliation with APPI. Upon completion of the meeting, the Valley
Board determined that an affiliation with APPI would allow Valley to achieve
greater economies of scale, a greater competitive advantage in securing third
party payor contracts, and better operating efficiencies than the MSO proposal.
For these reasons, Valley entered into a letter of intent with APPI in March
1997.
During March and April 1997, Valley conducted its financial review of and
legal due diligence on APPI. During the same time period, Dr. Lebowitz and John
Noonan, M.D., and Eric Trefelner, M.D., members of the Valley Board, met with
members of APPI's management team, as well as representatives of certain other
Founding Affiliated Practices, in Dallas to discuss the Mergers and Exchanges
and APPI's strategy for growth and development. Among the issues discussed were
APPI's stated dedication to "same store growth," the importance of "same store
growth" to share value as emphasized by representatives of potential
underwriters, and the strategy APPI would pursue to raise individual physician
income after the IPO. Also during
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March and April 1997, Valley began negotiations with APPI over the Valley Merger
Agreement and the Service Agreement.
In May 1997, Mr. Martin attended the Valley Board meeting to answer
questions from the Valley Board and to address any remaining concerns that the
Valley Board had regarding the Valley Merger Proposal, specifically the economic
and tax consequences of such a proposal. After Mr. Martin excused himself from
the meeting, the Valley Board discussed the results of the Company's due
diligence efforts and the terms of the Valley Merger Agreement with the
Company's legal counsel. Following these discussions, the Valley Board approved
the Valley Merger Proposal, subject to shareholder approval after receipt and
review of a Prospectus/Joint Proxy Statement under this Registration Statement
after it becomes effective.
APPI'S REASONS FOR THE MERGERS AND EXCHANGES
APPI was formed in April 1996 for the purpose of acquiring and
consolidating radiology practices on a national basis with the explicit purpose
of forming a publicly traded radiology practice management company. From its
inception, APPI's focus has been to develop, consolidate and manage integrated
radiology and IC networks. APPI and the Founding Affiliated Practices recognized
that market forces were driving physicians, including radiologists, into larger
group practices and driving group practices to seek corporate partners to
provide management expertise, capital and sophisticated information systems.
APPI and the Founding Affiliated Practices identified certain factors which they
believe apply pressure to physician groups, which factors include, without
limitation, increased managed care penetration, declining reimbursements from
private and governmental payors, increased competition for payor contracts,
physician oversupply, physician income erosion, increased complexity of billing
and collection processes, increased information system requirements and the need
for greater sums of capital to remain competitive.
APPI and the Founding Affiliated Practices believed that if APPI could
provide the resources (including business and management expertise, purchasing
power and sophisticated information systems) necessary for radiology practices
to compete in the managed care dominated environment, then radiology practices
would be motivated to affiliate with APPI. APPI and the Founding Affiliated
Practices believe that if APPI was successful in affiliating with a select group
of radiology practices across the United States, that they would be able to
develop integrated networks of radiology groups and ICs to provide wide
geographic coverage and subspecialty expertise.
APPI's strategy is to (i) emphasize quality service, (ii) expand within its
selected markets, (iii) improve operating efficiencies within the Founding
Affiliated Practices and (iv) expand into new regional markets through
acquisitions of or affiliations with additional radiology practices and ICs.
APPI believes that the Founding Affiliated Practices form the foundation upon
which APPI can attempt to implement its strategy.
THE MERGER AND EXCHANGE ENTITIES' REASONS FOR THE MERGERS AND EXCHANGES AND
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF THE MERGER ENTITIES
The respective Boards of Directors of the Entities have identified a number
of potential benefits of the Mergers, Exchanges and an affiliation with APPI to
security holders of the Entities. The potential benefits include:
- APPI's management will offer the Founding Affiliated Practices
management resources and expertise in areas such as strategic planning,
marketing, managed care contracting, business development, purchasing,
billings and collections and dealing with hospitals and other facilities.
Such resources and expertise could offer the Founding Affiliated Practices
opportunities to enhance practice revenue and spend more time on the
professional as opposed to administrative aspects of their practice. In
addition, through access to the collective knowledge and information of all
Affiliated Practices, Affiliated Practices will be in a better position to
identify and promote best practices and operating efficiencies in areas
such as practice guidelines, equipment utilization and resource management.
- Through APPI, the Founding Affiliated Practices will have increased
access to capital to upgrade existing imaging equipment, purchase equipment
for new imaging modalities, invest in new technologies (e.g.,
teleradiology), invest in clinical information systems to improve quality
of care, and implement
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financial and cost-accounting systems to optimize resource management,
facilitate managed care contracting and improve profitability.
- As part of APPI's acquisition and expansion strategy, the Founding
Affiliated Practices will serve as a hub for future acquisitions of and
affiliations with practices and imaging centers in regions in which the
Founding Affiliated Practices are located. Through such acquisitions and
affiliations, and opportunities to invest in technologies such as
teleradiology, the Founding Affiliated Practices will be positioned to
provide greater geographic coverage and patient accessibility, improved
response time and broader subspecialty expertise, thereby improving patient
service and referring physician satisfaction.
- The Mergers, Exchanges and affiliations with APPI offer the Founding
Affiliated Practices the opportunity to participate in a larger and more
diversified physician organization which will have greater contracting
ability and bargaining leverage with managed care organizations, greater
financial strength and ability to enter into risk-sharing arrangements with
payors, and greater purchasing power with vendors.
- The consideration the security holders are receiving in the Mergers
and Exchanges is enabling them to liquidate a portion of the equity they
have in their respective Founding Affiliated Practices. In addition, a
substantial portion of the consideration to be received by security holders
of the Entities is in the form of an equity interest in a larger and more
diversified physician organization that is expected to benefit
strategically, competitively and operationally from the Mergers and
Exchanges and the affiliation with APPI. The security holders equity
interest in APPI provides them with the potential to realize greater
long-term returns on and liquidity of the financial investment they
currently have in their respective Founding Affiliated Practices. Finally,
it is anticipated that the other benefits described above could enhance the
revenues of the Founding Affiliated Practices and increase physician
compensation.
The respective Board of Directors of the Entities also identified a number
of potential adverse effects of the Mergers and Exchanges on the security
holders of each Entity including (i) decreased autonomy in the management of
their respective Founding Affiliated Practices, (ii) payment of a service fee to
APPI out of practice revenues, (iii) dependence on the operating results of the
other Affiliated Practices and the continued affiliation of such Practices with
APPI, (iv) the lack of prior operating experience of APPI with the Founding
Affiliated Practices, (v) risks associated with APPI's acquisition and expansion
strategy and (vi) general risks associated with owning an equity interest in
APPI. These and other risk factors may interfere with or undermine the
realization of the potential benefits described above. See "Risk Factors."
In reaching their decisions to approve the respective Merger Proposals, the
Boards of each of the Entities were influenced by all of the potential benefits
described above. The importance of each benefit varied to some extent for each
Board; however, each Board was positively influenced by each of the benefits to
some degree.
The Advanced Board has approved the Advanced Merger Proposal. In reaching
its decision to approve the Advanced Merger Proposal, the Advanced Board was
most strongly influenced by (i) the benefits relating to the management
resources and expertise offered by APPI, particularly for strategic planning and
implementation, (ii) those benefits relating to access to capital, particularly
for investments in facilities and equipment and information systems to optimize
resource and utilization management, (iii) those benefits relating to prospects
of increased current physician compensation and equity value through potential
appreciation in APPI's Common Stock, and (iv) the relatively greater autonomy
Advanced would retain in decisions related to physician income distribution and
professional staffing issues as compared to other physician practice management
models. The Advanced Board felt the most significant potential adverse effects
of the Advanced Merger Proposal were (i) the potential lack of attention and
responsiveness from APPI's management as APPI implements its growth strategy and
(ii) potential limitations on the amount of capital that might be available for
investments that would benefit Advanced due to the multitude of investment
opportunities within all of the Founding Affiliated Practices, but concluded
that such factors were outweighed by the potential benefits. THE ADVANCED BOARD
RECOMMENDS APPROVAL OF THE ADVANCED MERGER PROPOSAL BY ITS SECURITY HOLDERS.
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The Ide Board has approved the Ide Merger Proposal. In its decision to
approve the Ide Merger Proposal, the Ide Board was most strongly influenced by
(i) the benefits relating to management resources and expertise, particularly
for long-term strategic planning, (ii) those benefits relating to access to
capital, particularly to build management infrastructure and implement
information systems to improve utilization management in a managed care
environment, (iii) those benefits relating to prospects for increased equity
value through potential appreciation in APPI's Common Stock, and (iv) continued
autonomy in decisions on matters such as professional staffing and physician
income distribution. The Ide Board felt that the most significant potential
adverse effects of the Ide Merger Proposal were (i) the risks associated with
owning an equity interest in APPI, including the restrictions on resale of the
APPI shares issued pursuant to the Ide Merger imposed on the security holders of
Ide pursuant to lock-up agreements executed by them in connection with the Ide
Merger Transaction, and (ii) the concern that APPI would not be able to fulfill
its operational support obligations under the Service Agreement, but concluded
that such factors were outweighed by the potential benefits. THE IDE BOARD
RECOMMENDS APPROVAL OF THE IDE MERGER PROPOSAL BY ITS SECURITY HOLDERS.
The members of the Boards of South Texas and San Antonio comprise a
majority of the M&S Board. The M&S, South Texas and San Antonio Boards have each
approved their respective Merger Proposals. In their decisions to approve their
respective Merger Proposals, the M&S Board, South Texas Board and San Antonio
Board were most strongly influenced by (i) the benefits relating to APPI's
management resources and expertise, particularly for strategic planning,
marketing,managed care contracting and reimbursement matters, (ii) those
benefits relating to access to capital, particularly to upgrade existing
equipment and purchase equipment for new modalities, (iii) those benefits
relating to APPI's in-market expansion strategy, and (iv) the relatively greater
autonomy the Entities would retain in the area of physician income distribution
as compared to other physician practice management models. The M&S, South Texas
and San Antonio Boards felt that the most significant potential adverse effects
of their respective Merger Proposals were (i) the concern regarding the view of
its joint venture partner and its affiliated hospitals to their respective
affiliations with APPI, and (ii) the concern regarding APPI's ability to fulfill
its operational support obligations under the Service Agreement, but concluded
that such factors were outweighed by the potential benefits. EACH OF THE M&S,
SOUTH TEXAS AND SAN ANTONIO BOARDS RECOMMENDS APPROVAL OF THE APPLICABLE MERGER
PROPOSAL BY ITS RESPECTIVE SECURITY HOLDERS.
The Pacific Board and TMI Board are comprised of the same individuals. The
Pacific Board and TMI Board have each approved their respective Merger
Proposals. In their decision to approve their respective Merger Proposals, the
Pacific Board and TMI Board were most strongly influenced by the benefits
relating to (i) APPI's management resources and expertise, particularly in the
area of practice marketing, managed care contracting and reimbursement matters,
(ii) access to capital and expanded patient service, particularly with respect
to investments in teleradiology and information systems to improve utilization
management, (iii) building management infrastructure, (iv) the prospects of
increasing revenue and current physician compensation, and (v) retained
autonomy, particularly with respect to decisions on professional staffing and
physician income distribution. The Pacific Board and the TMI Board felt that the
most significant potential adverse effects of their respective Merger Proposals
were (i) potential limitations on the amount of capital for their respective
expansion and replacement projects in light of the potential capital needs of
the other Founding Affiliated Practices, and (ii) the possibility that the
future value of their practices might be greater than the value being realized
in the respective Merger Proposals, but concluded that such factors were
outweighed by the potential benefits. EACH OF THE PACIFIC BOARD AND TMI BOARD
RECOMMENDS APPROVAL OF THE APPLICABLE MERGER PROPOSAL BY ITS RESPECTIVE SECURITY
HOLDERS.
The RNM Board has approved the RNM Merger Proposal. In its decision to
approve the RNM Merger Proposal, the RNM Board was strongly influenced by (i)
the potential benefits relating to APPI's management resources and expertise,
particularly for long-term strategic planning, (ii) those benefits relating to
access to capital, particularly for investments in teleradiology and outpatient
imaging facilities, (iii) those benefits relating to improved patient service
and referral source satisfaction through greater geographic coverage and the
implementation of teleradiology, (iv) those benefits relating to prospects of
maintaining
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current levels of physician compensation, and (v) the autonomy RNM would retain
in decisions on matters such as professional staffing and physician income
distribution as compared to other physician practice management companies. The
RNM Board felt that the significant potential adverse effects of the RNM Merger
Proposal were (i) the potential adverse reaction from the health care
communities in which it practices, and (ii) the risks associated with equity
ownership in APPI and the resale restrictions imposed on the APPI shares issued
to the RNM security holders pursuant to lock-up agreements executed by them in
connection with the RNM Merger Transaction, but concluded that such factors were
outweighed by the potential benefits. THE RNM BOARD RECOMMENDS APPROVAL OF THE
RNM MERGER PROPOSAL BY ITS SECURITY HOLDERS.
The members of the Boards of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
are comprised of the same individuals. The AIOC, CIA, MRIA, Nyack, Pelham, RRG
and WIC Boards have each approved their respective Merger Proposals. In their
decision to approve their respective Merger Proposals, the Boards of AIOC, CIA,
MRIA, Nyack, Pelham, RRG and WIC were most strongly influenced by (i) the
benefits relating to access to capital, particularly to establish outpatient
imaging facilities and invest in information systems to improve utilization
management and facilitate managed care contracting, (ii) those benefits relating
to APPI's management resources and expertise, particularly for strategic
planning and practice marketing, (iii) the potential for equity value
appreciation in the APPI shares being issued in the respective Merger
Transactions, and (iv) the retention of autonomy in decisions on professional
staffing and physician income distribution. The Boards felt that (i) the risks
associated with equity ownership in APPI and the resale restrictions imposed on
the APPI shares issued pursuant to the Mergers, (ii) the potential for loss of
control over business decisions for which the practices were historically
responsible and (iii) the potential for decreased compensation were the most
significant potential adverse effects of their respective Merger Proposals.
However, the Boards concluded that such potential adverse effects were
outweighed by the potential benefits. EACH OF THE AIOC, CIA, MRIA, NYACK,
PELHAM, RRG AND WIC BOARDS RECOMMENDS APPROVAL OF THE APPLICABLE MERGER
PROPOSALS BY ITS RESPECTIVE SECURITY HOLDERS.
The Valley Board has approved the Valley Merger Proposal. In its decision
to approve the Valley Merger Proposal, the Valley Board was most strongly
influenced by (i) the benefits relating to APPI's management resources and
expertise, particularly for marketing, managed care contracting, reimbursement
management and the implementation of information systems, (ii) those benefits
relating to access to capital, particularly for investments in information
systems and teleradiology, (iii) those benefits relating to prospects for
increased current physician compensation and the opportunity for partial
liquidity of their security holders' equity interests in their practices, and
(iv) retention of autonomy in decisions on matters such as professional staffing
and physician income distribution. The Valley Board felt that (i) the potential
for loss of control over business decisions for which it was historically
responsible, (ii) the possibility that the future value of its practice might be
greater than the current value being realized in the Valley Merger Proposal, and
(iii) the concern regarding APPI's ability to fulfill its operational support
obligations under the Service Agreement, were the most significant potential
adverse effects of the Valley Merger Proposal. However, the Valley Board
concluded that such factors were outweighed by the potential benefits. THE
VALLEY BOARD RECOMMENDS APPROVAL OF THE VALLEY MERGER PROPOSAL BY ITS SECURITY
HOLDERS.
CONVERSION OF SHARES AND EXCHANGE OF PARTNERSHIP INTERESTS
The aggregate consideration (APPI Common Stock and cash) to be paid by APPI
to each security holder pursuant to the terms of each Merger Agreement and
Exchange Agreement shall fluctuate in relation to the Initial Public Offering
Price; provided, however, the aggregate consideration shall not be less than a
negotiated base aggregate consideration as set forth in each Merger Agreement
and Exchange Agreement. Each security holder of a Merger or Exchange Entity who
receives shares of APPI Common Stock and cash in each entity's respective Merger
or Exchange will be required to execute and deliver a Stockholder Representation
Letter to APPI, which, among other things, prohibits such security holder from
selling any such shares for a period of 12 months following the Effective Date,
and then limits the ability of such security holder to sell such shares to (i)
up to 25% of such shares upon expiration of the 12-month period following the
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Effective Date, (ii) an additional 25% of such shares upon expiration of the
18-month period following the Effective Date and (iii) the remaining 50% of such
shares on or after the second anniversary of the Effective Date. The following
tables present the potential exchange ratios and cash consideration to be paid
by APPI to each security holder, assuming a range in the Initial Public Offering
Price of $10 to $20.
Conversion of Advanced Common Stock
At the Effective Time of the Advanced Merger, the Advanced Common Stock
shall be converted as follows:
(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and
after the Effective Time.
(b) Each share of Advanced Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into
and exchanged for the right to receive that number of shares of APPI Common
Stock (the "Advanced Exchange Ratio") and that amount of cash (the
"Advanced Cash Consideration") determined in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock
is $14.00 per share, then the Advanced Exchange Ratio shall be 7.5000
and the Advanced Cash Consideration shall be $35.000;
(ii) if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then the Advanced Exchange Ratio shall
be 7.5000 and the Advanced Cash Consideration shall be equal to the
product of (x) $35.0000 multiplied by (y) the quotient of the Initial
Public Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then the Advanced Exchange Ratio shall be
equal to the product of (x) 7.5000 multiplied by (y) the quotient of
$14.00 divided by the Initial Public Offering Price, and the Advanced
Cash Consideration shall be $35.0000.
The following table illustrates the applicable Advanced Exchange Ratio and
Advanced Cash Consideration for each share of Advanced Common Stock at each
price within the $10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- -------- -------------
<S> <C> <C>
$10.00................................. 10.5000 $ 35.0000
$11.00................................. 9.5455 $ 35.0000
$12.00................................. 8.7500 $ 35.0000
$13.00................................. 8.0769 $ 35.0000
$14.00................................. 7.5000 $ 35.0000
$15.00................................. 7.5000 $ 37.5000
$16.00................................. 7.5000 $ 40.0000
$17.00................................. 7.5000 $ 42.5000
$18.00................................. 7.5000 $ 45.0000
$19.00................................. 7.5000 $ 47.5000
$20.00................................. 7.5000 $ 50.0000
</TABLE>
Conversion of Ide Common Stock
At the Effective Time of the Ide Merger, the Ide Common Stock shall be
converted as follows:
(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and
after the Effective Time.
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(b) Each share of Ide Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into
and exchanged for the right to receive that number of shares of APPI Common
Stock (the "Ide Exchange Ratio") and that amount of cash (the "Ide Cash
Consideration") determined in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock
is $14.00 per share, then the Ide Exchange Ratio shall be 942.5581 and
the Ide Cash Consideration shall be $4,398.6047;
(ii) if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then the Ide Exchange Ratio shall be
942.5581 and the Ide Cash Consideration shall be equal to the product of
(x) $4,398.6047 multiplied (y) the quotient of the Initial Public
Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then the Ide Exchange Ratio shall be
equal to the product of (x) 942.5581 multiplied by (y) the quotient of
$14.00 divided by the Initial Public Offering Price, and the Ide Cash
Consideration shall be $4,398.6047.
The following table illustrates the applicable Ide Exchange Ratio and Ide
Cash Consideration for each share of Ide Common Stock at each price within the
$10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- ---------- -------------
<S> <C> <C>
$10.00.......................... 1,319.5813 $ 4,398.6047
$11.00.......................... 1,199.6194 $ 4,398.6047
$12.00.......................... 1,099.6511 $ 4,398.6047
$13.00.......................... 1,015.0626 $ 4,398.6047
$14.00.......................... 942.5581 $ 4,398.6047
$15.00.......................... 942.5581 $ 4,712.7908
$16.00.......................... 942.5581 $ 5,026.9768
$17.00.......................... 942.5581 $ 5,341.1629
$18.00.......................... 942.5581 $ 5,655.3489
$19.00.......................... 942.5581 $ 5,969.5350
$20.00.......................... 942.5581 $ 6,283.7210
</TABLE>
Conversion of M&S Common Stock
At the Effective Time of the M&S Merger, the shares of M&S Common Stock
shall be converted as follows:
(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and
after the Effective Time.
(b) Each share of M&S Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into
and exchanged for the right to receive that number of shares of APPI Common
Stock (the "M&S Exchange Ratio") and that amount of cash (the "M&S Cash
Consideration") determined in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock
is $14.00 per share, then the M&S Exchange Ratio shall be 3,868.1289 and
the M&S Cash Consideration shall be $18,051.2684;
(ii) if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then the M&S Exchange Ratio shall be
3,868.1289 and the M&S Cash Consideration shall be equal to the product
of (x) $18,051.2684 multiplied by (y) the quotient of the Initial Public
Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then the M&S Exchange Ratio shall be
equal to the product of (x) 3,868.1289 multiplied by
79
<PAGE> 131
(y) the quotient of $14.00 divided by the Initial Public Offering Price,
and the M&S Cash Consideration shall be $18,051.2684.
The following table illustrates the applicable M&S Exchange Ratio and M&S
Cash Consideration for each share of M&S Common Stock at each price within the
$10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- ----------- -------------
<S> <C> <C>
$10.00.............................. 5,415.3805 $18,051.2684
$11.00.............................. 4,923.0732 $18,051.2684
$12.00.............................. 4,512.8171 $18,051.2684
$13.00.............................. 4,165.6773 $18,051.2684
$14.00.............................. 3,868.1289 $18,051.2684
$15.00.............................. 3,868.1289 $19,340.6447
$16.00.............................. 3,868.1289 $20,630.0210
$17.00.............................. 3,868.1289 $21,919.3973
$18.00.............................. 3,868.1289 $23,208.7737
$19.00.............................. 3,868.1289 $24,498.1500
$20.00.............................. 3,868.1289 $25,787.5263
</TABLE>
Exchange of Lexington Partnership Interests
Upon the consummation of the Lexington Exchange, all of the partners of
Lexington, except for Baptist Memorial Hospital System and San Antonio No. 2,
will transfer 18.9% of the total partnership interests in Lexington in exchange
for shares of APPI Common Stock and cash as set forth below. APPI will also
acquire the partnership interests in Lexington held by San Antonio No. 2 upon
consummation of the San Antonio No. 2 Exchange. Accordingly, following the
consummation of the Exchanges, APPI will own approximately 78.9% of the
partnership interests in Lexington and Baptist Memorial Hospital System will own
the remaining 21.1% of the partnership interests in Lexington. The aggregate
number of shares of APPI Common Stock (the "Lexington Exchange Ratio") and that
aggregate amount of cash (the "Lexington Cash Consideration") that the Lexington
partners will receive will be determined in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the Lexington Exchange Ratio shall be 108,092.0000
and the Lexington Cash Consideration shall be $504,427.0000;
(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the Lexington Exchange Ratio shall be
$108,092.0000 and the Lexington Cash Consideration shall be equal to the
product of (x) $504,427.0000 multiplied by (y) the quotient of the Initial
Public Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the Lexington Exchange Ratio shall be
equal to the product of (x) 108,092.0000 multiplied by (y) the quotient of
$14.00 divided by the Initial Public Offering Price, and the Lexington Cash
Consideration shall be 504,427.0000.
80
<PAGE> 132
The following table illustrates the applicable Lexington Exchange Ratio and
Lexington Cash Consideration that such Lexington Partners would receive at each
price within the $10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- ------------ -------------
<S> <C> <C>
$10.00........................... 151,328.8000 $504,427.0000
$11.00........................... 137,571.6364 $504,427.0000
$12.00........................... 126,107.3333 $504,427.0000
$13.00........................... 116,406.7692 $504,427.0000
$14.00........................... 108,092.0000 $504,427.0000
$15.00........................... 108,092.0000 $540,457.5000
$16.00........................... 108,092.0000 $576,488.0000
$17.00........................... 108,092.0000 $612,518.5000
$18.00........................... 108,092.0000 $648,549.0000
$19.00........................... 108,092.0000 $684,579.5000
$20.00........................... 108,092.0000 $720,610.0000
</TABLE>
Exchange of Madison Partnership Interests
Upon the consummation of the Madison Exchange, all of the partners of
Madison will transfer 100% of the total partnership interests in Madison in
exchange for that aggregate number of shares of APPI Common Stock (the "Madison
Exchange Ratio") and that aggregate amount of cash (the "Madison Cash
Consideration") determined in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the Madison Exchange Ratio shall be 123,502.0000 and
the Cash Consideration shall be $576,342.0000;
(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the Madison Exchange Ratio shall be
123,502.0000 and the Madison Cash Consideration shall be equal to the
product of (x) $576,342.0000 multiplied by (y) the quotient of the Initial
Public Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the Madison Exchange Ratio shall be equal
to the product of (x) 123,502.0000 multiplied by (y) the quotient of $14.00
divided by the Initial Public Offering Price, and the Madison Cash
Consideration shall be $576,342.0000.
The following table illustrates the applicable Madison Exchange Ratio and
Madison Cash Consideration that such Madison Partners would receive at each
price within the $10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- ------------ -------------
<S> <C> <C>
$10.00........................... 172,902.8000 $576,342.0000
$11.00........................... 157,184.3636 $576,342.0000
$12.00........................... 144,085.6667 $576,342.0000
$13.00........................... 133,002.1539 $576,342.0000
$14.00........................... 123,502.0000 $576,342.0000
$15.00........................... 123,502.0000 $617,509.2857
$16.00........................... 123,502.0000 $658,676.5714
$17.00........................... 123,502.0000 $699,843.8571
$18.00........................... 123,502.0000 $741,011.1429
$19.00........................... 123,502.0000 $782,178.4286
$20.00........................... 123,502.0000 $823,345.7143
</TABLE>
81
<PAGE> 133
Conversion of South Texas Common Stock
At the Effective Time of the South Texas Merger, the South Texas Common
Stock shall be converted as follows:
(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and
after the Effective Time.
(b) Each share of South Texas Common Stock issued and outstanding at
the Effective Time shall cease to be outstanding and shall be converted
into and exchanged for the right to receive that number of shares of APPI
Common Stock (the "South Texas Exchange Ratio") and that amount of cash
(the "South Texas Cash Consideration") determined in accordance with the
following:
(i) if the Initial Public Offering Price of the APPI Common Stock
is $14.00 per share, then the South Texas Exchange Ratio shall be
21.3083 and the South Texas Cash Consideration shall be $99.5167;
(ii) if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then the South Texas Exchange Ratio
shall be 21.3083 and the South Texas Cash Consideration shall be equal
to the product of (x) $99.5167 multiplied by (y) the quotient of the
Initial Public Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then the South Texas Exchange Ratio shall
be equal to the product of (x) 21.3083 multiplied by (y) the quotient of
$14.00 divided by the Initial Public Offering Price, and the South Texas
Cash Consideration shall be $99.5167.
The following table illustrates the applicable South Texas Exchange Ratio
and South Texas Cash Consideration for each share of South Texas Common Stock at
each price within the $10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- ------- -------------
<S> <C> <C>
$10.00.................................. 29.8316 $ 99.5167
$11.00.................................. 27.1197 $ 99.5167
$12.00.................................. 24.8597 $ 99.5167
$13.00.................................. 22.9474 $ 99.5167
$14.00.................................. 21.3083 $ 99.5167
$15.00.................................. 21.3083 $106.6250
$16.00.................................. 21.3083 $113.7334
$17.00.................................. 21.3083 $120.8417
$18.00.................................. 21.3083 $127.9500
$19.00.................................. 21.3083 $135.0583
$20.00.................................. 21.3083 $142.1667
</TABLE>
82
<PAGE> 134
Exchange of South Texas No. 1 Partnership Interests
Upon the consummation of the South Texas No. 1 Exchange, all of the
partners of South Texas No. 1, except for South Texas, will transfer 99% of the
total partnership interests in South Texas No. 1 in exchange for shares of APPI
Common Stock and cash as set forth below. APPI will also acquire the remaining
1% partnership interest in South Texas No. 1 held by South Texas upon
consummation of the South Texas Merger. The aggregate number of shares of APPI
Common Stock (the "South Texas No. 1 Exchange Ratio") and that aggregate amount
of cash (the "South Texas No. 1 Cash Consideration") that the South Texas No. 1
partners will receive will be determined in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the South Texas No. 1 Exchange Ratio shall be
253,221.0000 and the South Texas No. 1 Cash Consideration shall be
$1,181,698.0000;
(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the South Texas No. 1 Exchange Ratio
shall be 253,221.0000 and the South Texas No. 1 Cash Consideration shall be
equal to the product of (x) $1,181,698.0000 multiplied by (y) the quotient
of the Initial Public Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the South Texas No. 1 Exchange Ratio shall
be equal to the product of (x) 253,221.0000 multiplied by (y) the quotient
of $14.00 divided by the Initial Public Offering Price, and the South Texas
No. 1 Cash Consideration shall be $1,181,698.0000.
The following table illustrates the applicable South Texas No. 1 Exchange
Ratio and South Texas No. 1 Cash Consideration that such South Texas No. 1
Partners would receive at each price within the $10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
------------------------------------- ------------ ---------------
<S> <C> <C>
$10.00......................... 354,509.4000 $1,181,698.0000
$11.00......................... 322,281.2727 $1,181,698.0000
$12.00......................... 295,424.5000 $1,181,698.0000
$13.00......................... 272,699.5385 $1,181,698.0000
$14.00......................... 253,221.0000 $1,181,698.0000
$15.00......................... 253,221.0000 $1,266,105.0000
$16.00......................... 253,221.0000 $1,350,512.0000
$17.00......................... 253,221.0000 $1,434,919.0000
$18.00......................... 253,221.0000 $1,519,326.0000
$19.00......................... 253,221.0000 $1,603,733.0000
$20.00......................... 253,221.0000 $1,688,140.0000
</TABLE>
Conversion of San Antonio Common Stock
At the Effective Time of the San Antonio Merger, the San Antonio Common
Stock shall be converted as follows:
(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and
after the Effective Time.
(b) Each share of San Antonio Common Stock issued and outstanding at
the Effective Time shall cease to be outstanding and shall be converted
into and exchanged for the right to receive that number of shares of APPI
Common Stock (the "San Antonio Exchange Ratio") and that amount of cash
(the "San Antonio Cash Consideration") determined in accordance with the
following:
83
<PAGE> 135
(i) if the Initial Public Offering Price of the APPI Common Stock
is $14.00 per share, then the San Antonio Exchange Ratio shall be
28.4313 and the San Antonio Cash Consideration shall be $132.6792;
(ii) if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then the San Antonio Exchange Ratio
shall be 28.4313 and the San Antonio Cash Consideration shall be equal
to the product of (x) $132.6792 multiplied by (y) the quotient of the
Initial Public Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then the San Antonio Exchange Ratio shall
be equal to the product of (x) 28.4313 multiplied by (y) the quotient of
$14.00 divided by the Initial Public Offering Price, and the San Antonio
Cash Consideration shall be $132.6792.
The following table illustrates the applicable San Antonio Exchange Ratio
and San Antonio Cash Consideration for each share of San Antonio Common Stock at
each price within the $10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- ------- -------------
<S> <C> <C>
$10.00.................................. 39.8038 $132.6792
$11.00.................................. 36.1853 $132.6792
$12.00.................................. 33.1699 $132.6792
$13.00.................................. 30.6183 $132.6792
$14.00.................................. 28.4313 $132.6792
$15.00.................................. 28.4313 $142.1563
$16.00.................................. 28.4313 $151.6338
$17.00.................................. 28.4313 $161.1105
$18.00.................................. 28.4313 $170.5875
$19.00.................................. 28.4313 $180.0646
$20.00.................................. 28.4313 $189.5417
</TABLE>
Exchange of San Antonio No. 2 Partnership Interests
Upon the consummation of the San Antonio No. 2 Exchange, all of the
partners of San Antonio No. 2, except for San Antonio, will transfer 99% of the
total partnership interests in San Antonio No. 2 in exchange for shares of APPI
Common Stock and cash as set forth below. APPI will also acquire the remaining
1% partnership interest in San Antonio No. 2 held by San Antonio upon
consummation of the San Antonio Merger. The aggregate number of shares of APPI
Common Stock (the "San Antonio No. 2 Exchange Ratio") and that aggregate amount
of cash (the "San Antonio No. 2 Cash Consideration") that the San Antonio No. 2
partners will receive will be determined in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the San Antonio No. 2 Exchange Ratio shall be
337,754.0000 and the San Antonio No. 2 Cash Consideration shall be
$1,576,187.0000;
(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the San Antonio No. 2 Exchange Ratio
shall be 337,754.0000 and the San Antonio No. 2 Cash Consideration shall be
equal to the product of (x) $1,576,187.0000 multiplied by (y) the quotient
of the Initial Public Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the San Antonio No. 2 Exchange Ratio shall
be equal to the product of (x) 337,754.0000 multiplied by (y) the quotient
of $14.00 divided by the Initial Public Offering Price, and the San Antonio
No. 2 Cash Consideration shall be $1,576,187.0000.
84
<PAGE> 136
The following table illustrates the applicable San Antonio No. 2 Exchange
Ratio and San Antonio No. 2 Cash Consideration that such San Antonio No. 2
Partners would receive at each price within the $10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
------------------------------------- ------------ ---------------
<S> <C> <C>
$10.00......................... 472,855.6000.. $1,576,187.0000
$11.00......................... 429,868.7272.. $1,576,187.0000
$12.00......................... 394,046.3333.. $1,576,187.0000
$13.00......................... 363,735.0769.. $1,576,187.0000
$14.00......................... 337,754.0000.. $1,576,187.0000
$15.00......................... 337,754.0000.. $1,688,771.7857
$16.00......................... 337,754.0000.. $1,801,356.5714
$17.00......................... 337,754.0000.. $1,913,941.3571
$18.00......................... 337,754.0000.. $2,026,526.1429
$19.00......................... 337,754.0000.. $2,139,110.9286
$20.00......................... 337,754.0000.. $2,251,695.7143
</TABLE>
Conversion of Pacific Common Stock
At the Effective Time of the Pacific Merger, the Pacific Common Stock shall
be converted as follows:
(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and
after the Effective Time.
(b) Each share of Common Stock of the subsidiary of APPI issued and
outstanding at the Effective Time shall cease to be outstanding and shall
be converted into one share of APPI Common Stock.
(c) Each share of Pacific Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into
and exchanged for the right to receive that number of shares of APPI Common
Stock (the "Pacific Exchange Ratio") and that amount of cash (the "Pacific
Cash Consideration") determined in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock
is $14.00 per share, then the Pacific Exchange Ratio shall be
41.5926 and the Pacific Cash Consideration shall be $194.0989
(ii) if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then the Pacific Exchange
Ratio shall be 41.5926 and the Pacific Cash Consideration
shall be equal to the product of (x) $194.0989 multiplied by
(y) the quotient of the Initial Public Offering Price divided
by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then the Pacific Exchange
Ratio shall be equal to the product of (x) 41.5926 multiplied
by (y) the quotient of $14.00 divided by the Initial Public
Offering Price, and the Pacific Cash Consideration shall be
$194.0989.
85
<PAGE> 137
The following table illustrates the applicable Pacific Exchange Ratio and
Pacific Cash Consideration for each share of Pacific Common Stock at each price
within the $10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- -------- -------------
<S> <C> <C>
$10.00.................................. 58.2296 $194.0989
$11.00.................................. 52.9360 $194.0989
$12.00.................................. 48.5247 $194.0989
$13.00.................................. 44.7920 $194.0989
$14.00.................................. 41.5926 $194.0989
$15.00.................................. 41.5926 $207.9631
$16.00.................................. 41.5926 $221.8273
$17.00.................................. 41.5926 $235.6915
$18.00.................................. 41.5926 $249.5557
$19.00.................................. 41.5926 $263.4199
$20.00.................................. 41.5926 $277.2841
</TABLE>
Conversion of TMI Common Stock
At the Effective Time of the TMI Merger, the TMI Common Stock shall be
converted as follows:
(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and
after the Effective Time.
(b) Each share of Common Stock of the subsidiary of APPI issued and
outstanding at the Effective Time shall cease to be outstanding and shall
be converted into one share of APPI Common Stock.
(c) Each share of TMI Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into
and exchanged for the right to receive that number of shares of APPI Common
Stock (the "TMI Exchange Ratio") and that amount of cash (the "TMI Cash
Consideration") determined in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock
is $14.00 per share, then the TMI Exchange Ratio shall be 2.2396 and the
TMI Cash Consideration shall be $10.4515;
(ii) if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then the TMI Exchange Ratio shall be
2.2396 and the TMI Cash Consideration shall be equal to the product of
(x) $10.4515 multiplied by (y) the quotient of the Initial Public
Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then the TMI Exchange Ratio shall be
equal to the product of (x) 2.2396 multiplied (y) the quotient of $14.00
divided by the Initial Public Offering Price, and the TMI Cash
Consideration shall be $10.4515.
86
<PAGE> 138
The following table illustrates the applicable TMI Exchange Ratio and TMI
Cash Consideration for each share of TMI Common Stock at each price within the
$10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- -------- -------------
<S> <C> <C>
$10.00.................................. 3.1354 $ 10.4515
$11.00.................................. 2.8504 $ 10.4515
$12.00.................................. 2.6129 $ 10.4515
$13.00.................................. 2.4119 $ 10.4515
$14.00.................................. 2.2396 $ 10.4515
$15.00.................................. 2.2396 $ 11.1980
$16.00.................................. 2.2396 $ 11.9446
$17.00.................................. 2.2396 $ 12.6911
$18.00.................................. 2.2396 $ 13.4376
$19.00.................................. 2.2396 $ 14.1842
$20.00.................................. 2.2396 $ 14.9307
</TABLE>
Conversion of RNM Common Stock
At the Effective Time of the RNM Merger, the shares of RNM shall be
converted as follows:
(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and
after the Effective Time.
(b) Each share of RNM Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into
and exchanged for the right to receive that number of shares of APPI Common
Stock (the "RNM Exchange Ratio") and that amount of cash (the "RNM Cash
Consideration") determined in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock
is $14.00 per share, then the RNM Exchange Ratio shall be 309.5930 and
the Cash Consideration shall be $1,444.7674;
(ii) If the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then the RNM Exchange Ratio shall be
309.5930 and the RNM Cash Consideration shall be equal to the product of
(x) $1,444.7674 multiplied by (y) the quotient of the Initial Public
Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then the RNM Exchange Ratio shall be
equal to the product of (x) 309.5930 multiplied by (y) the quotient of
$14.00 divided by the Initial Public Offering Price, and the RNM Cash
Consideration shall be $1,444.7674.
87
<PAGE> 139
The following table illustrates the applicable RNM Exchange Ratio and RNM
Cash Consideration for each share of RNM Common Stock at each price within the
$10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- --------- ------------
<S> <C> <C>
$10.00................................ 433.4302 $1,444.7674
$11.00................................ 394.0275 $1,444.7674
$12.00................................ 361.1918 $1,444.7674
$13.00................................ 333.4079 $1,444.7674
$14.00................................ 309.5930 $1,444.7674
$15.00................................ 309.5930 $1,547.9651
$16.00................................ 309.5930 $1,651.1627
$17.00................................ 309.5930 $1,754.3604
$18.00................................ 309.5930 $1,857.5581
$19.00................................ 309.5930 $1,960.7558
$20.00................................ 309.5930 $2,063.9534
</TABLE>
Conversion of Common Stock of Entities Comprising Rockland Radiological Group
At the respective Effective Time of each of the AIOC Merger, CIA Merger,
MRIA Merger, Nyack Merger, Pelham Merger, RRG Merger and WIC Merger, the shares
of each such Entity shall be converted as follows:
(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the applicable Effective Time shall remain issued and outstanding
from and after such Effective Time.
(b) Each share of AIOC Common Stock, CIA Common Stock, MRIA Common
Stock, Nyack Common Stock, Pelham Common Stock, RRG Common Stock and WIC
Common Stock issued and outstanding at the Effective Time of the respective
Mergers shall cease to be outstanding and shall be converted into and
exchanged for the right to receive that number of shares of APPI Common
Stock (the "Rockland Exchange Ratio") and that amount of cash (the
"Rockland Cash Consideration") obtained in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock
is $14.00 per share, then the Rockland Exchange Ratio shall be
1,589.4231 and the Rockland Cash Consideration shall be $7,417.3077;
(ii) if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then the Rockland Exchange Ratio shall
be 1,589.4231 and the Rockland Cash Consideration shall be equal to the
product of (x) $7,417.0377 multiplied by (y) the quotient of the Initial
Public Offering Price divided by $14.00;
(iii) if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then the Rockland Exchange Ratio shall be
equal to the product of (x) 1,589.4231 multiplied by (y) the quotient of
$14.00 divided by the Initial Public Offering Price, and the Rockland
Cash Consideration shall be $7,417.3077.
88
<PAGE> 140
The following table illustrates the applicable Rockland Exchange Ratio and
Rockland Cash Consideration for each share of AIOC Common Stock, CIA Common
Stock, MRIA Common Stock, Nyack Common Stock, Pelham Common Stock, RRG Common
Stock and WIC Common Stock at each price within the $10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- ----------- ------------
<S> <C> <C>
$10.00.............................. 2,225.1923 $ 7,417.3077
$11.00.............................. 2,022.9021 $ 7,417.3077
$12.00.............................. 1,854.3270 $ 7,417.3077
$13.00.............................. 1,711.6864 $ 7,417.3077
$14.00.............................. 1,589.4231 $ 7,417.3077
$15.00.............................. 1,589.4231 $ 7,947.1154
$16.00.............................. 1,589.4231 $ 8,476.9231
$17.00.............................. 1,589.4231 $ 9,006.7308
$18.00.............................. 1,589.4231 $ 9,536.5385
$19.00.............................. 1,589.4231 $10,066.3462
$20.00.............................. 1,589.4231 $10,596.1539
</TABLE>
Conversion of Valley Common Stock
At the Effective Time of the Valley Merger, the shares of Valley Common
Stock shall be converted as follows:
(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and
after the Effective Time.
(b) Each share of Common Stock of the subsidiary of APPI issued and
outstanding at the Effective Time shall cease to be outstanding and shall
be converted into one share of APPI Common Stock.
(c) Each share of Valley Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into
and exchanged for the right to receive that number of shares of APPI Common
Stock (the "Valley Exchange Ratio") and that amount of cash (the "Valley
Cash Consideration") determined in accordance with the following:
(i) if the Initial Public Offering Price of the APPI Common Stock
is $14.00 per share, then the Valley Exchange Ratio shall be 29.6972 and
the Cash Consideration shall be $138.5868;
(ii) if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then the Valley Exchange Ratio shall
be equal to 29.6972 and the Valley Cash Consideration shall be equal to
the product of (x) $138.5868 multiplied by (y) the quotient of the
Initial Public Offering Price divided by $14.00; and
(iii) if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then the Valley Exchange Ratio shall be
equal to the product of (x) 29.6972 multiplied by (y) the quotient of
$14.00 divided by the Initial Public Offering Price, and the Valley Cash
Consideration shall be $138.5868.
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<PAGE> 141
The following table illustrates the applicable Valley Exchange Ratio and
Valley Cash Consideration for each share of Valley Common Stock at each price
within the $10 to $20 range:
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
---------------------- -------- ------------
<S> <C> <C>
$10.00................................. 41.5761 $138.5868
$11.00................................. 37.7964 $138.5868
$12.00................................. 34.6467 $138.5868
$13.00................................. 31.9816 $138.5868
$14.00................................. 29.6972 $138.5868
$15.00................................. 29.6972 $148.4859
$16.00................................. 29.6972 $158.3849
$17.00................................. 29.6972 $168.2840
$18.00................................. 29.6972 $178.1830
$19.00................................. 29.6972 $188.0821
$20.00................................. 29.6972 $197.9811
</TABLE>
The total consideration to be paid to each Founding Affiliated Practice and
its respective security holders in connection with the Mergers and Exchanges was
determined by valuing each of the Founding Affiliated Practices using a
consistent methodology. The audited financial statements of the Founding
Affiliated Practices were used as a basis for estimating the consideration to be
paid. The management of APPI evaluated each practice's operating cash flows
taking into account expected future trends (e.g., reimbursement trends,
potential growth opportunities and capital needs, etc.). Based on the
evaluation, APPI management created a projection to estimate the first year
management fee payable to APPI. A multiple was applied to this management fee to
determine the consideration. The same multiple of projected management fee
payable was used for each Founding Affiliated Practice. The merger consideration
is comprised of 25% cash and 75% stock. The consideration mix proposed by APPI
management was designed to achieve several objectives, including aligning
physicians' economic interests with the Company's, managing balance sheet ratios
and preserving capital for future growth opportunities.
In addition, the Company has entered into an agreement in principle with
LXL, to purchase substantially all of the assets of LXL for a purchase price of
approximately $532,000.00. The Company intends to pay the entire purchase price
in cash. The closing of the LXL asset purchase transaction is expected to occur
within 90 days following the consummation of the Mergers and Exchanges. Such
transaction is not a part of any Merger or Exchange. Certain shareholders of
Valley, including Peter J. Long, M.D., Cyril J. McDonald, M.D., William T.
McLaughlin, M.D., Richard Silberstein, M.D., Robert Filipi, M.D., Edward
Lebowitz, M.D., Stephen Teng, M.D., James Vaudagna, M.D., Andrew Koo, M.D.,
Franklin Gee, M.D., Keith Fraker, M.D., John Noonan, M.D., and Bruce Hyman,
M.D., collectively own 100% of the partnership interests in LXL.
CONDITIONS OF THE MERGER AGREEMENTS AND EXCHANGE AGREEMENTS
Conditions of the Mergers and Exchanges.
Consummation of the Mergers and Exchanges is subject to the satisfaction of
the following conditions under applicable laws and rules:
(a) Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the
carrying out of the Merger Transactions or the Exchange Transactions.
(b) Securities Approvals. The Registration Statement and the Form S-1
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of such registration statements shall have
been issued, and no proceedings for that purpose shall have been initiated
or threatened by the SEC. At or prior to the effective date of the Form
S-1, APPI shall have received all
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<PAGE> 142
state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated by the Merger Agreements and the Exchange
Agreements. The APPI Common Stock shall have been approved for listing on
the Nasdaq National Market, subject only to official notification of
issuance.
(c) Closing of Initial Public Offering. The Initial Public Offering
shall have closed.
(d) Security Holder Approval. Each Merger or Exchange Proposal, as the
case may be, shall have been approved and adopted by the requisite number
of security holders of each respective Entity.
Conditions Applicable to the Merger Agreements.
In addition, the obligation of each Merger Entity to consummate each
respective Merger is subject to certain additional conditions, unless waived in
writing by the applicable Merger Entity, which include, without limitation, the
following:
(a) Representations and Warranties. The representations and warranties
of APPI contained in each respective Merger Agreement shall be accurate.
(b) Covenants. APPI shall have performed the covenants required by
each Merger Agreement.
(c) Legal Opinion. Each respective Merger Entity shall have received a
legal opinion from counsel to APPI.
(d) Service Agreement Analysis. Each Merger Entity shall have received
from Shattuck Hammond its opinion that the financial terms of the Service
Agreement are commercially reasonable.
(e) Tax Opinion. Each Merger Entity shall have received from Haynes
and Boone a tax opinion in the form set forth in an exhibit to the forms of
Merger Agreement set forth as Appendices B and C to this Prospectus/Joint
Proxy Statement.
In addition, the obligation of APPI to consummate each Merger is subject to
certain conditions, unless waived by APPI, which include, without limitation,
the following:
(a) Representations and Warranties. The representations and warranties
of each Merger Entity contained in the applicable Merger Agreement shall be
accurate.
(b) Covenants. Each Merger Entity shall have performed the covenants
required by the applicable Merger Agreement.
(c) Legal Opinion. APPI shall have received a legal opinion from
counsel to each respective Merger Entity.
(d) Closing of Mergers and Exchanges. Each of the Mergers and
Exchanges shall have closed.
(e) Consideration Restrictions. Each respective Merger Entity shall
have satisfied its obligations to its security holders regarding dissenters
or related rights under the corporate law of applicable state, and the sum
of the amount which may become due to the security holders who have
dissented to such Merger and have indicated their intent to seek appraisal
rights plus the cash portion of the consideration paid in the applicable
Merger shall not exceed 25% of the total consideration paid in the
applicable Merger.
(f) Stockholder Representation Letter; Indemnification Agreement. Each
security holder who is a party to each respective Merger Agreement shall
have executed and delivered to APPI a Stockholder Representation Letter and
certain of such security holders shall have executed and delivered to APPI
an Indemnification Agreement.
(g) Transfer of Assets. All of the assets and properties of each
respective Merger Entity and its related entities to be transferred to each
respective NewCo pursuant to each respective Reorganization and as approved
by APPI shall have been transferred, assigned and conveyed to such NewCo.
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<PAGE> 143
Conditions Applicable to the Exchange Agreements.
The obligation of each Exchange Entity to consummate each respective
Exchange is also subject to certain additional conditions unless waived by the
applicable Exchange Entity, which conditions include, without limitation, the
following:
(a) Representations and Warranties. The representations and warranties
of APPI contained in each respective Exchange Agreement shall be accurate.
(b) Covenants. APPI shall have performed the covenants required by
each Exchange Agreement.
(c) Legal Opinion. Each respective Exchange Entity shall have received
a legal opinion from counsel to APPI.
(d) Tax Opinion. Each Exchange Entity shall have received a tax
opinion from Haynes and Boone.
In addition, the obligation of APPI to consummate each Exchange is subject
to certain conditions unless waived by APPI, which include, without limitation,
the following:
(a) Representations and Warranties. The representations and warranties
of each Exchange Entity contained in the applicable Exchange Agreement
shall be accurate.
(b) Covenants. Each Exchange Entity shall have performed the covenants
required by the applicable Exchange Agreement.
(c) Legal Opinion. APPI shall have received a legal opinion from
counsel to each respective Exchange Entity.
(d) Closing of Mergers and Exchanges. Each of the Mergers and
Exchanges shall have closed.
CLOSING OF THE MERGERS AND EXCHANGES AND EFFECTIVE TIME OF THE MERGERS
The closing of the transactions provided for in each Exchange Agreement and
each Merger Agreement shall occur on the date on which the transactions
contemplated by the Initial Public Offering are consummated. The Effective Time
of each Merger will occur at the time the applicable Certificate of Merger is
filed with the Secretary of State of the state of California, Delaware, Kansas,
Maryland, New York or Texas, as the case may be, in accordance with such laws,
which filing will be made after satisfaction of certain conditions set forth in
each of the Agreements or at such later time which the parties have agreed upon
and designated in such filing as the Effective Time of the Merger. See "Approval
of the Mergers, Exchanges and Related Transactions -- Conditions of the Merger
Agreements and Exchange Agreements" above.
CONDUCT OF THE MERGER ENTITIES' BUSINESSES PRIOR TO THE MERGERS
Under each respective Merger Agreement, except as required pursuant to the
Reorganizations, where applicable, each Merger Entity has agreed, during the
period from the date of the Merger Agreement and continuing until the earlier of
the termination of such Merger Agreement pursuant to its terms and the Effective
Time, except to the extent that APPI otherwise consents in writing, that each
Merger Entity shall, in all material respects, conduct its business in the
ordinary and usual course consistent with past practices and shall use
reasonable efforts to preserve intact its business and its relationships with
private or governmental entities obligated to render payment to APPI in
consideration of the performance of professional medical or technical services,
referral sources, customers, suppliers, patients, employees and others having
business relations with it; maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the conduct
of the business of the Merger Entity; continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof. In addition, without the written consent of APPI, the Merger Entity
shall not: amend its articles or certificate of incorporation or bylaws, or
other charter documents; issue, sell or authorize for issuance or sale, shares
of any class of its securities (including, but not limited to, by way of stock
split, dividend, recapitalization or other reclassification) or any
subscriptions, options, warrants, rights or convertible securities, or enter
into any
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<PAGE> 144
agreements or commitments of any character obligating it to issue or sell any
such securities; redeem, purchase or otherwise acquire, directly or indirectly,
any shares of its capital stock or any option, warrant or other right to
purchase or acquire any such shares; declare or pay any dividend or other
distribution (whether in cash, stock or other property) with respect to its
capital stock (except as expressly contemplated herein); voluntarily sell,
transfer, surrender, abandon or dispose of any of its assets or property rights
(tangible or intangible) other than the sale of inventory, if any, in the
ordinary course of business consistent with past practices; grant or make any
mortgage or pledge or subject itself or any of its properties or assets to any
lien, charge or encumbrance of any kind, except liens for taxes not currently
due and except for liens which arise by operation of law; voluntarily incur or
assume any liability or indebtedness (contingent or otherwise), except in the
ordinary course of business or which is reasonably necessary for the conduct of
its business; make or commit to make any capital expenditures which are not
reasonably necessary for the conduct of its business; grant any increase in the
compensation payable or to become payable to directors, officers, consultants or
employees other than merit increases to employees of the Merger Entity who are
not directors or officers of the Merger Entity, except in the ordinary course of
business and consistent with past practices; change in any manner any accounting
principles or methods other than changes which are consistent with generally
accepted accounting principles; enter into any material commitment or
transaction other than in the ordinary course of business; take any action which
could reasonably be expected to have a material adverse effect on the Merger
Entity; apply any of its assets to the direct or indirect payment, discharge,
satisfaction or reduction of any amount payable directly or indirectly to or for
the benefit of any affiliate of the Merger Entity, other than in the ordinary
course and consistent with past practices; agree, whether in writing or
otherwise, to do any of the foregoing; and take any action at the board of
director or security holder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of the applicable Merger
Agreement or any of the agreements attached as exhibits thereto, other than as
required to discharge its or their fiduciary duties.
CONDUCT OF EXCHANGE ENTITIES' BUSINESS PRIOR TO THE EXCHANGES
Under each respective Exchange Agreement, each Exchange Entity has agreed,
during the period from the date of each respective Exchange Agreement and
continuing until the earlier of the termination of such Exchange Agreement
pursuant to its terms and the Exchange Closing Date, except to the extent that
APPI otherwise consents in writing, that each Exchange Entity and each partner
thereof shall use his/her/its best efforts to cause the applicable Exchange
Entity to, in all material respects, conduct the business of the Exchange Entity
in the ordinary and usual course consistent with past practices and shall use
reasonable efforts to preserve intact the Exchange Entity's business and its
relationships with referral sources, customers, suppliers, patients, employees
and others having business relations with it; maintain and keep the Exchange
Entity's properties and assets in good repair and condition consistent with past
practice as is material to the conduct of the business of the Exchange Entity;
continuously maintain insurance coverage substantially equivalent to the
insurance coverage in existence on the date hereof. Without the written consent
of APPI, the Exchange Entity shall not, and each partner thereof shall use
his/her/its best efforts to cause the Exchange Entity not to, amend the Exchange
Entity's Certificate of limited partnership or Partnership Agreement or other
charter documents; issue, sell or authorize for issuance or sale, any
partnership interests of the Exchange Entity (except in connection with the
Exchange Transaction) or any subscriptions, options, warrants, rights or
convertible securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such interests; redeem, purchase or
otherwise acquire, directly or indirectly, any shares of its capital stock or
any option, warrant or other right to purchase or acquire any such shares;
declare or pay any dividend or other distribution (whether in cash, stock or
other property) with respect to its partnership interest (except as expressly
contemplated herein); voluntarily sell, transfer, surrender, abandon or dispose
of any of the Exchange Entity's assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the ordinary course of
business consistent with past practices; grant or make any mortgage or pledge or
subject the Exchange Entity or any of the Exchange Entity's properties or assets
to any lien, charge or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of law; voluntarily
incur or assume any liability or indebtedness (contingent or otherwise), except
in the ordinary course of business or which is reasonably necessary for the
conduct of the Exchange Entity's business; make or commit to make any capital
expenditures which are not reasonably necessary for the conduct of the Exchange
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<PAGE> 145
Entity's business; grant any increase in the compensation payable or to become
payable to partners, officers, consultants or employees other than merit
increases to employees of the Exchange Entity who are not partners or officers
of the Exchange Entity, except in the ordinary course of business and consistent
with past practices; change in any manner any accounting principles or methods
other than changes which are consistent with generally accepted accounting
principles; enter into any material commitment or transaction other than in the
ordinary course of business; take any action which could reasonably be expected
to have a material adverse effect on the Exchange Entity; apply any of its
assets to the direct or indirect payment, discharge, satisfaction or reduction
of any amount payable directly or indirectly to or for the benefit of any
affiliate of the Exchange Entity, other than in the ordinary course and
consistent with past practices; agree, whether in writing or otherwise, to do
any of the foregoing; and take any action to in any way amend, revise or
otherwise affect the Exchange Entity's prior approval and effectiveness of the
Exchange Agreement or any of the agreements attached as exhibits thereto, other
than as required to discharge their fiduciary duties.
TERMINATION OF EACH MERGER AGREEMENT
Each Merger Agreement may be terminated and the Merger Transactions may be
abandoned:
(a) at any time prior to the date each of the Form S-1 and the
Registration Statement is declared effective by the SEC by mutual agreement
of all parties;
(b) at any time prior to the Effective Date by APPI if any material
representation or warranty of the Merger Entity or any security holder who
is a party to such agreement contained in each respective Merger Agreement
or in any certificate or other document executed and delivered by the
Merger Entity or any such security holder pursuant to each such Merger
Agreement is or becomes untrue or breached in any material respect or if
the Merger Entity or any such security holder fails to comply in any
material respect with any material covenant or agreement contained therein,
and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within 30 days after receipt of written notice
thereof;
(c) at any time prior to the Effective Date by each respective Merger
Entity if any representation or warranty of APPI (or the relevant
subsidiary of APPI) contained in each respective Merger Entity or in any
certificate or other document executed and delivered by APPI (or the
relevant subsidiary of APPI) pursuant to each respective Merger Entity is
or becomes untrue in any material respect or if APPI fails to comply in any
material respect with any covenant or agreement contained therein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within 30 days after receipt of written notice thereof;
(d) at any time prior to the Effective Date by APPI if, as a result of
the conduct of due diligence and regulatory compliance procedures, APPI
deems termination to be advisable; or
(e) by APPI or each respective Merger Entity if the respective Merger
shall not have been consummated by November 30, 1997.
TERMINATION OF EACH EXCHANGE AGREEMENT
Each Exchange Agreement may be terminated and each respective Exchange may
be abandoned:
(a) at any time prior to the Exchange Closing Date by mutual agreement
of all parties;
(b) at any time prior to the Exchange Closing Date by APPI if any
material representation or warranty of each respective Exchange Entity or
any partner thereof contained in each respective Exchange Agreement or in
any certificate or other document executed and delivered by each respective
Exchange Entity or any partner thereof pursuant to this Agreement is or
becomes untrue or breached in any material respect or if each respective
Exchange Entity or any Seller fails to comply in any material respect with
any material covenant or agreement contained therein, and any such
misrepresentation, noncompliance or breach is not cured, waived or
eliminated within 30 days after receipt of written notice thereof;
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<PAGE> 146
(c) at any time prior to the Exchange Closing Date by a partner of
each respective Exchange Entity as to such partner if any representation or
warranty of APPI contained in each respective Exchange Agreement or in any
certificate or other document executed and delivered by APPI pursuant to
each respective Exchange Agreement is or becomes untrue in any material
respect or if APPI fails to comply in any material respect with any
covenant or agreement contained therein, and any such misrepresentation,
noncompliance or breach is not cured, waived or eliminated within 30 days
after receipt of written notice thereof;
(d) at any time prior to the Exchange Closing Date by APPI if, as a
result of the conduct of due diligence and regulatory compliance
procedures, APPI deems termination to be advisable; or
(e) by APPI or any partner to each respective Exchange Entity as to
such partner if the applicable Exchange shall not have been consummated by
November 30, 1997.
EXPENSES; FEES
All fees and expenses incurred in connection with the Merger Agreements and
the transactions contemplated thereby and the Exchange Agreements and the
transactions contemplated thereby will be paid by the party incurring such
expenses, whether or not the respective Merger or Exchange is consummated.
EXCHANGE/ISSUANCE OF STOCK CERTIFICATES IN THE MERGERS AND EXCHANGES
At or after the Effective Time of each Merger and on the Closing Date of
each Exchange, APPI will make available, and each holder of Old Shares (other
than those security holders who take required actions to properly assert their
dissenters' rights under the applicable state law) or Old Partnership Interests,
as the case may be, will be entitled to receive, upon surrender to APPI of one
or more certificates evidencing Old Shares for cancellation or upon delivery to
APPI of a bill of sale evidencing the transfer of Old Partnership Interests,
certificates or a similar instrument evidencing the number of shares of APPI
Common Stock into which such Old Shares are converted in each Merger or for
which such Old Partnership Interests are exchanged in each Exchange. Shares of
APPI Common Stock into which Old Shares are to be converted in each Merger shall
be deemed to have been issued at the applicable Effective Time. Shares of APPI
Common Stock for which Old Partnership Interests are exchanged in each Exchange
shall be deemed to have been issued as of the applicable Closing Date.
PAYMENT IN LIEU OF FRACTIONAL SHARES
No certificates evidencing fractional shares of APPI Common Stock shall be
issued upon the surrender for exchange of certificates or a similar instrument
evidencing Old Shares or Old Partnership Interests. A holder of Old Shares or
Old Partnership Interests otherwise entitled to receive a fractional share of
APPI Common Stock upon the surrender for exchange of certificates or a similar
instrument evidencing such Old Shares or Old Partnership Interests shall receive
a cash payment in lieu thereof reflecting such holder's proportionate interest
in a share of APPI Common Stock multiplied by the Initial Public Offering Price
of APPI Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS AND EXCHANGES
Michael L. Sherman, M.D., a director nominee of APPI and a physician owner
of Advanced, entered into a consulting agreement with APPI in August 1996
pursuant to which Dr. Sherman received an option grant for 20,000 shares of APPI
Common Stock under the Automatic Option Grant Program. The Company and Dr.
Sherman have also entered into a consulting agreement which will go into effect
immediately following the Initial Public Offering for which Dr. Sherman will
receive annual compensation of $100,000. In addition, as part of the Advanced
Merger Transactions, the Company will issue 65,014 shares of APPI Common Stock
and $303,395 in cash to Dr. Sherman in exchange for his ownership interest in
Advanced, subject to the adjustments applicable to changes in the Initial Public
Offering Price as described above.
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<PAGE> 147
Less T. Chafen, M.D., Chairman of the Board of Pacific, has been nominated
and approved to serve as a director of APPI effective upon consummation of the
Initial Public Offering. At such time, Dr. Chafen will receive an option grant
for 30,000 shares of APPI Common Stock under the Company's 1996 Stock Option
Plan Automatic Option Grant Program. In addition, as part of the Pacific and TMI
Merger Transactions the Company will issue 31,994 shares of APPI Common Stock
and $149,307 in cash to Dr. Chafen in exchange for his ownership interests in
Pacific and TMI, subject to the adjustments applicable to changes in the Initial
Public Offering Price as described above.
Derace L. Schaffer, M.D., a director of APPI since its inception and
President of Ide, purchased 1,000,000 shares of APPI Common Stock for $125,000.
Dr. Schaffer also owns $107,500 in principal amount of the Convertible Notes. In
addition, on July 25, 1997, Dr. Schaffer and Mr. Pappajohn, a director of the
Company, personally guaranteed a $1,000,000 line of credit for the benefit of
the Company. As a director of the Company, Dr. Schaffer will be eligible to
participate in the Automatic Option Grant Program upon consummation of the
Initial Public Offering. In addition, as part of the Ide Merger Transactions,
APPI will issue 94,256 shares of APPI Common Stock and $439,860.00 in cash to
Dr. Schaffer in exchange for his ownership interest in Ide, subject to the
adjustments applicable to changes in the Initial Public Offering Price as
described above.
Due to the benefits to be received by Drs. Sherman, Chafen and Schaffer in
connection with the Mergers, as described herein, the interests of these
individuals may be different from the interests of security holders of the
Entities generally. Security holders should consider such persons' interests in
the applicable Merger in connection with any such person's recommendation of
such Merger.
In addition, the following table provides certain information concerning
certain of the security holders of the Founding Affiliated Practices, including
cash distributions to be paid in connection with the Mergers and Exchanges. Each
of the below listed security holders of the Founding Affiliated Practices is or
will be a Director of the Company and is deemed to be a promotor of the Initial
Public Offering.
<TABLE>
<CAPTION>
CONSIDERATION TO BE RECEIVED
---------------------------------------------
ASSETS TO BE NUMBER OF CASH
SECURITY HOLDER CONTRIBUTED(1) SHARES DISTRIBUTION
--------------------------------- -------------- --------- ------------
<S> <C> <C> <C>
Michael L. Sherman, M.D.......... $ 612,139 $ 65,014 $325,068
Derace L. Schaffer, M.D.......... 326,461 94,256 471,279
Less T. Chafen, M.D.............. 188,642 31,994 159,972
---------- -------- --------
Total.................. $1,127,242 $191,264 $956,319
========== ======== ========
</TABLE>
- ---------------
(1) Assets to Be Contributed reflects the historical book value of the assets of
each Founding Affiliated Practice, including their patient receivable
balance. The non-monetary assets are reflected at historical cost in
accordance with SAB 48. All monetary assets are recorded at fair value,
which is approximated by the historical costs recorded by the Founding
Affiliated Practices.
DISSENTERS' RIGHTS REGARDING THE MERGERS
The following discussion is not a complete statement of the laws pertaining
to dissenters' rights under the CCC, KGCC, MGCL, NYBCL and TBCA, and is
qualified in its entirety by the full text of the sections referenced below,
each of which is set forth in its entirety as Appendices G, H, I, J and K
respectively, to this Prospectus/Joint Proxy Statement. Voting against,
abstaining from voting or failing to vote on approval and adoption of any Merger
Proposal or Exchange Proposal will not constitute a demand for fair value within
the meaning of the relevant acts. Dissenting Security Holders are urged to
consult legal counsel with respect to dissenters' rights under the CCC, KGCC,
MGCL, NYBCL and TBCA.
Any Dissenting Security Holder who perfects the right to be paid the fair
market value of the shares of an Entity held by such Dissenting Security Holder
will generally recognize gain or loss, if any, for income tax purposes upon the
receipt of cash for such shares. The amount of gain or loss and its character as
ordinary or capital gain or loss will be determined in accordance with the
applicable provisions of the Internal Revenue
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<PAGE> 148
Code. Advanced, Ide, M&S, South Texas, San Antonio, Pacific, TMI, RNM, AIOC,
CIA, MRIA, Nyack, Pelham, RRG, WIC and Valley security holders considering the
exercise of dissenters' rights should consider the information set forth under
"Approval of the Mergers, Exchanges and Related Transactions -- Certain Income
Tax Considerations."
Dissenting Security Holders who comply with the applicable procedures
summarized herein will be entitled to receive the fair value of the shares of
the Entities held by such Dissenting Security Holders. For those Entities
organized under the laws of the State of New York (i.e., AIOC, CIA, Ide, MRIA,
Nyack, Pelham, RRG and WIC), such dissenters' rights are detailed in Sections
623 and 910 of the NYBCL. For those Entities organized under the State of Texas
(i.e., M&S, San Antonio and South Texas), such dissenters' rights are detailed
in Articles 5.11 and 5.12 of the TBCA. For those Entities organized under the
State of California (i.e., Pacific, TMI and Valley), such dissenters' rights are
detailed in Sections 1300 through 1304 of the CCC. For RNM, such dissenters'
rights are detailed in Section 17-6712 of the KGCC. For Advanced, such
dissenters' rights are detailed in Sections 3-202 and 3-203 of the MGCL. A
Dissenting Security Holder must follow the applicable steps summarized below
properly and in a timely manner to properly assert the applicable Dissenting
Security Holder's rights.
Under California State Law
Under Section 1300 of the CCC, any holder of record of shares of Pacific
Common Stock, TMI Common Stock or Valley Common Stock who does not desire to
have such shares converted into shares of APPI Common Stock pursuant to the
applicable Entity's Merger may, alternatively, elect to receive a payment in
cash equal to the value of the shares of the Entity held by such Dissenting
Security Holder, provided that the Dissenting Security Holder complies with the
provisions of Sections 1300 through 1304 of the CCC. A Dissenting Security
Holder contemplating the exercise of these dissenters' rights should carefully
review the provisions of Sections 1300 through 1304 of the CCC, which are
included in Appendix G attached to this Prospectus/Joint Proxy Statement.
Set forth below is a brief summary of the procedures that a Dissenting
Security Holder must follow in order to perfect dissenters' rights under
California law. This summary is not intended to be complete and is qualified in
its entirety by reference to Sections 1300 through 1304 of the CCC.
If the Pacific Merger, TMI Merger or Valley Merger is approved by the
required vote of the respective Entity's security holders, each holder of shares
of such Entity's Common Stock who does not vote in favor of the applicable
Merger and who follows the procedures set forth in Section 1301 will be entitled
to have the shares held by such Dissenting Security Holder purchased for cash at
their fair market value. The "fair market value" of the shares of Pacific Common
Stock, TMI Common Stock and/or Valley Common Stock, as applicable, will be
determined as of the day before the first announcement of the terms of each of
the proposed Mergers, excluding any appreciation or depreciation in consequence
of such proposed Merger. Accordingly, the shares of Pacific Common Stock, TMI
Common Stock or Valley Common Stock, as applicable, will be valued as if the
applicable Merger had not occurred.
Within ten days after approval of the Merger of an applicable Entity by
such Entity's security holders, the Entity must mail an Approval Notice to each
Dissenting Security Holder who has not voted in favor of the Merger, together
with a statement of the price determined by such Entity to represent the fair
market value of the shares held by such Dissenting Security Holder, a brief
description of the procedures to be followed in order for such Dissenting
Security Holder to pursue dissenters' rights, and a copy of Sections 1300
through 1304 of the CCC. The statement of price by such Entity constitutes an
offer by that Entity to purchase all shares held by a Dissenting Security Holder
at the stated amount.
A Dissenting Security Holder must, within 30 days after the date on which
the Approval Notice is mailed to such Dissenting Security Holder, mail or
deliver a written demand to the applicable Entity stating that such Dissenting
Security Holder is demanding purchase of the shares of Pacific Common Stock, TMI
Common Stock or Valley Common Stock, as applicable, stating the number of shares
which such Entity must purchase, what the Dissenting Security Holder claims to
be the fair market value of such shares and enclosing the applicable share
certificates for endorsement by such Entity.
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If the applicable Entity and the Dissenting Security Holder agree that such
Dissenting Security Holder is entitled to receive payment for the shares of the
Entity held by such Dissenting Security Holder and agree upon the price of such
shares, the Entity must pay the Dissenting Security Holder such agreed upon
price plus interest thereon within 30 days from the later of (i) the date upon
which such price was agreed or (ii) the date all contractual conditions to the
applicable Merger are satisfied.
If the applicable Entity denies that such Dissenting Security Holder is
entitled to receive payment for the shares of the Entity held by such Dissenting
Security Holder or if such Entity and the Dissenting Security Holder fail to
agree upon the fair market value of shares of Pacific Common Stock, TMI Common
Stock or Valley Common Stock, as applicable, then within six months after the
date that the Approval Notice was mailed to the Dissenting Security Holders, any
Dissenting Security Holder who has made a valid written purchase demand and who
has not voted in favor of approval and adoption of the applicable Merger may
file a complaint in California superior court requesting a determination as to
whether such Dissenting Security Holder is entitled to receive payment for the
shares of the Entity held by such Dissenting Security Holder or as to the fair
market value of such Dissenting Security Holder's shares of Pacific Common
Stock, TMI Common Stock and/or Valley Common Stock, as applicable.
Under Kansas State Law
Under the KGCC, any holder of record of shares of RNM Common Stock who does
not desire to have such shares converted into shares of APPI Common Stock
pursuant to the RNM Merger may, alternatively, elect to receive a payment in
cash equal to the value of such Dissenting Security Holder's shares of RNM
Common Stock, provided that the Dissenting Security Holder complies with the
provisions of Section 17-6712. A Dissenting Security Holder contemplating the
exercise of these dissenters' rights should carefully review the provisions of
Section 17-6712, which are included in Appendix H attached to this
Prospectus/Joint Proxy Statement.
Set forth below is a brief summary of the procedures that a Dissenting
Security Holder must follow in order to perfect dissenters' rights under Kansas
law. This summary is not intended to be complete and is qualified in its
entirety by reference to Section 17-6712 of the KGCC.
Under Section 17-6712, a Dissenting Security Holder must deliver a written
notice of such Dissenting Security Holder's objection to the RNM Merger to RNM
prior to the taking of the vote of security holders on the RNM Merger Proposal.
Any such objection should be sent to RNM at Medical Park West Building, 823 S.
Mulvane Street, Suite 1, Topeka, Kansas 66606, Attention: President. A
Dissenting Security Holder cannot vote the shares of RNM Common Stock held by
such Dissenting Security Holder in favor of the RNM Merger. A SECURITY HOLDER
WHO VOTES SHARES OF RNM COMMON STOCK HELD BY SUCH DISSENTING SECURITY HOLDER IN
FAVOR OF THE RNM MERGER WILL LOSE THE RIGHT TO RECEIVE PAYMENT FOR SUCH SHARES
PURSUANT TO SECTION 17-6712.
If the RNM Merger becomes effective, then Dissenting Security Holders who
have complied with the written objection requirements discussed above will
possess the right to receive payment for the shares of RNM Common Stock
respectively held by them.
Within ten days after the effective date of the RNM Merger, APPI, as the
surviving corporation in the RNM Merger, must give written notice to each former
holder of shares of RNM Common Stock who has complied with the written objection
requirement discussed above that the RNM Merger has become effective. A
Dissenting Security Holder must then deliver a written demand for payment of the
value of the shares of RNM Common Stock held by such Dissenting Security Holder
within 20 days after the date of the mailing of APPI's notice. Any such demand
by a Dissenting Security Holder should be sent to APPI at 901 Main Street, Suite
2301, Dallas, Texas 75202, Attention: President.
Within 30 days after the expiration of the 20 day period in which
Dissenting Security Holders must submit their demands for payment, APPI must pay
to each Dissenting Security Holder who has submitted such a demand the value of
such Dissenting Security Holder's shares of RNM Common Stock. The value of the
Dissenting Security Holders' shares will be the value of the RNM Common Stock as
of the effective date
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of the RNM Merger, excluding any element of value arising from the expectation
or accomplishment of the RNM Merger.
If APPI and a Dissenting Security Holder cannot agree upon the fair value
for the RNM Common Stock within such 30 day period, then either the Dissenting
Security Holder or APPI may file a petition in the District Court of Kansas
demanding a determination of the value of the RNM Common Stock of all Dissenting
Security Holders entitled to payment. Such a petition must be filed within four
months after the expiration of the 30 day period discussed above. Because APPI
has no obligation to file such a petition, the failure of a Dissenting Security
Holder to do so within the period specified may lead to the nullification of
such Dissenting Security Holder's written demand for payment for the shares of
RNM Common Stock held by such Dissenting Security Holder.
If a petition for appraisal described above is filed by a Dissenting
Security Holder, APPI must file with the court a verified list of all Dissenting
Security Holders who have demanded payment for their shares and with whom
agreements as to the value of the shares of RNM Common Stock respectively held
by them has not been reached. The clerk of the court will give APPI and all such
Dissenting Security Holders notice of the date and time for the hearing of such
petition.
After the hearing, the court will determine which Dissenting Security
Holders are entitled to the valuation of and payment for their RNM Common Stock
and will appoint an appraiser to make such an appraisal. The court also will
require the Dissenting Security Holders who are entitled to the valuation of and
payment for their RNM Common Stock to submit their certificates representing
such stock to the clerk of the court, to be held by the clerk until payment by
APPI of the value of such shares. The court will dismiss the proceedings as to
any Dissenting Security Holder who fails to comply with this requirement. Prior
to making a determination of the value of the RNM Common Stock, the appraiser
must afford APPI and all Dissenting Security Holders participating in the
appraisal an opportunity to present evidence relating to the value of the RNM
Common Stock.
Following submission of a report by the appraiser of the value of the RNM
Common Stock, the court will make an ultimate determination of the value of the
shares of RNM Common Stock held by the Dissenting Security Holders. The cost of
such appraisal, including a reasonable fee to and the reasonable expenses of the
appraiser, shall be determined by the court and taxed upon APPI and the
Dissenting Security Holders as the court deems appropriate. Thereafter, the
court will direct APPI to pay each eligible Dissenting Security Holder the value
of the shares of RNM Common Stock held by such Dissenting Security Holder, with
interest thereon if the court so determines.
Under Maryland State Law
Under Section 3-202, any holder of record of shares of Advanced Common
Stock who does not desire to have such shares converted into shares of APPI
Common Stock pursuant to the Advanced Merger may, alternatively, elect to
receive payment in cash equal to the "fair value" of such Dissenting Security
Holder's shares of Advanced Common Stock, provided that the Dissenting Security
Holder complies with the provisions of Section 3-203. The term "fair value" is
defined in Section 3-202 to mean the value of the shares as of the close of
business of the date upon which the security holders approve the proposed merger
to which the Dissenting Security Holder objects, excluding any appreciation or
depreciation in anticipation of the proposed merger. A Dissenting Security
Holder contemplating the exercise of dissenters' rights under the MGCL should
carefully review the provisions of Sections 3-202 and 3-203, which are included
in Appendix I attached to this Prospectus/Joint Proxy Statement.
Set forth below is a brief summary of the procedures that a Dissenting
Security Holder must follow in order to perfect dissenters' rights under
Maryland law. This summary is not intended to be complete and is qualified in
its entirety by reference to Sections 3-202 and 3-203 of the MGCL.
Under Section 3-203, a Dissenting Security Holder must deliver a written
notice of such Dissenting Security Holder's objection to the Advanced Merger
Proposal to Advanced at or prior to the Advanced Meeting. Any such objection
should be sent to Advanced at 7253 Ambassador Road, Baltimore, Maryland
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21244, Attention: President. A Dissenting Security Holder cannot vote the shares
of Advanced Common Stock held by such Dissenting Security Holder in favor of the
Advanced Merger. A SECURITY HOLDER WHO VOTES THE SHARES OF ADVANCED COMMON STOCK
HELD BY SUCH DISSENTING SECURITY HOLDER IN FAVOR OF THE ADVANCED MERGER WILL
LOSE THE RIGHT TO RECEIVE PAYMENT FOR SUCH SHARES.
If the Advanced Merger is approved by the requisite percentage of shares of
Advanced, then Dissenting Security Holders who have complied with the written
objection requirements discussed above will possess the right to receive payment
for the shares of Advanced Common Stock respectively held by them.
Promptly after the Effective Time of the Advanced Merger, APPI, as the
surviving corporation in such Merger, must give written notice of the Effective
Time of the Advanced Merger to each former holder of shares of Advanced Common
Stock who has complied with the written objection requirement discussed above. A
Dissenting Security Holder must then deliver a written demand for payment of the
fair value of the shares of Advanced Common Stock held by such Dissenting
Security Holder to APPI within 20 days after the Effective Time of the Advanced
Merger. Any such demand by a Dissenting Security Holder should be sent to APPI
at 901 Main Street, Suite 2301, Dallas, Texas 75202, Attention: President.
APPI may, at its option, send a written offer to pay each Dissenting
Security Holder who has made demand for payment what APPI considers to be the
fair value of shares held by such Dissenting Security Holder. Such offer must be
accompanied by the following financial information relating to Advanced and any
other information APPI considers pertinent: (i) a balance sheet as of a date not
more than six months prior to the date of the offer and (ii) a profit and loss
statement for the 12 months ending on the date of the balance sheet.
Within 50 days of the Effective Time of the Advanced Merger, APPI or any
Dissenting Security Holder who has not yet received payment for the shares of
Advanced Common Stock held by such Dissenting Security Holder may petition a
court of equity (in the county in which the principal office of APPI is located,
or, the county in which the resident agent of APPI is located) for an appraisal
to determine the fair value of the Advanced Common Stock. If more than one such
petition is filed, the court will consolidate all of the proceedings into one
proceeding.
If the court determines that a Dissenting Security Holder who has filed
such a petition is entitled to an appraisal, then it will appoint three
disinterested appraisers to determine the fair value of the Advanced Common
Stock. Within 60 days after their appointment, unless the court establishes a
longer time, the appraisers must determine the fair value of the Advanced Common
Stock and must file a report with the court stating their conclusion and the
reasons therefor. Each party to the appraisal proceedings will also receive a
copy of the appraisers' report.
After consideration of the appraisers' report, the court will either
accept, modify or reject the appraisers' conclusion. If the court rejects the
appraisers' conclusion, it may either remit the proceedings to the same or other
appraisers or it may make its own determination of the fair value of the
Advanced Common Stock.
Once the fair value of the Advanced Common Stock is determined, APPI must
pay each Dissenting Security Holder participating in the appraisal proceedings
the judicially determined value of the shares held by such Dissenting Security
Holder, together with interest, if the court so determines. APPI need not make
such payment to a Dissenting Security Holder unless and until the Dissenting
Security Holder surrenders the certificate representing the shares of Advanced
Common Stock to APPI, at the address specified above, or to the transfer agent
of APPI. The costs of the appraisal proceedings shall be set by the court and
assessed against Advanced or, if the court determines that a Dissenting Security
Holder failed to accept an offer for payment by APPI in good faith, against such
Dissenting Security Holder.
Under New York State Law
Under Section 910, any holder of record of shares of Ide Common Stock, AIOC
Common Stock, CIA Common Stock, MRIA Common Stock , Nyack Common Stock, Pelham
Common Stock, RRG Common Stock or WIC Common Stock who does not desire to have
such shares converted into shares of APPI Common Stock pursuant to the
applicable Entity's Merger may, alternatively, elect to receive a
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payment in cash equal to the value of the shares of the applicable Entity held
by such Dissenting Security Holder and certain other rights and benefits,
provided that the Dissenting Security Holder complies with the provisions of
Section 623. A Dissenting Security Holder contemplating the exercise of these
dissenters' rights should carefully review the provisions of Sections 623 and
910, which are included in Appendix J attached to this Prospectus/Joint Proxy
Statement.
Set forth below is a brief summary of the procedures that a Dissenting
Security Holder must follow in order to perfect dissenters' rights under New
York law. This summary is not intended to be complete and is qualified in its
entirety by reference to Sections 623 and 910 of the NYBCL.
Under Section 623, a Dissenting Security Holder must file a written
objection to the applicable Entity's Merger with such Entity prior to such
Entity's Meeting or at such Meeting but prior to the vote on the applicable
Merger Proposal. Such written objection should include the Dissenting Security
Holder's notice of election to dissent, the Dissenting Security Holder's name
and residence address, the number and class of shares as to which such
Dissenting Security Holder dissents and a demand for payment of the fair value
of such shares if the Entity's Merger is approved.
If the security holders of an applicable Entity approve such Entity's
Merger, then the Entity must give written notice of such approval to each
Dissenting Security Holder who filed a written objection and who did not vote in
favor of such Merger Proposal within ten days of the date such Merger Proposal
was approved. A SECURITY HOLDER WHO VOTES IN FAVOR OF AN ENTITY'S MERGER WILL BE
DEEMED TO HAVE ELECTED NOT TO ENFORCE THE RIGHT TO RECEIVE PAYMENT FOR THE
SHARES OF SUCH ENTITY HELD BY SUCH DISSENTING SECURITY HOLDER.
If a Dissenting Security Holder of an Entity holds shares represented by
certificates, such Dissenting Security Holder must submit all applicable
certificates to the Entity or to the applicable transfer agent of such Entity,
within one month after such Dissenting Security Holder files a written notice of
election to dissent. Any Dissenting Security Holder holding shares represented
by certificates who does not submit such certificates in this manner may lose
such Dissenting Security Holder's dissenters' rights under Section 623.
The applicable Entity or, if the Merger of such Entity has been
consummated, APPI must, make a Purchase Offer to each Dissenting Security Holder
to pay the Offer Price which the Entity or APPI, as applicable, believes to be a
"fair value" under Section 623 for the shares of the Entity held by such
Dissenting Security Holder. Such Purchase Offer must be made within 15 days of
the later of (i) the consummation of the applicable Merger or (ii) the
expiration of the period within which security holders may file their notices of
election to dissent. All Dissenting Security Holders holding the same class of
securities of the Entity must be offered the same price per share of such class
of securities.
If the applicable Merger has been consummated at the time the Purchase
Offer is made, APPI must, concurrently with the Purchase Offer, provide to each
Dissenting Security Holder (i) who has submitted the certificates evidencing the
applicable shares of the Entity, as provided above, an advanced payment of an
amount equal to 80% of the Offer Price, and (ii) who has not yet submitted the
requisite certificates, a statement that an advanced payment of an amount equal
to 80% of the Offer Price will be made promptly upon the submission of such
certificates. If the Purchase Offer is made prior to the consummation of the
applicable Merger, then such advanced payments or statements relating to
advanced payments, as the case may be, will be made upon the consummation of the
applicable Merger.
If, within 30 days after the date of a Purchase Offer, a Dissenting
Security Holder accepts the Purchase Offer or if the Dissenting Security Holder
and the Entity or APPI, as applicable, agree upon an alternate value for the
Dissenting Security Holder's shares, then any remaining payments owed to the
Dissenting Security Holder must be made to the Dissenting Security Holder within
60 days after the date of the Purchase Offer or 60 days after the applicable
Merger is consummated, whichever is later.
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If (i) the Entity or APPI, as applicable, fails to make a Purchase Offer
within the required 15-day period discussed above or (ii) a Dissenting Security
Holder rejects the Purchase Offer and such Dissenting Security Holder and the
Entity or APPI, as applicable, cannot within 30 days of the date of the Purchase
Offer agree upon a value for the shares of the Entity held by such Dissenting
Security Holder, then the following procedures will apply:
(1) The Entity or APPI, as applicable, will institute a special
proceeding in the Supreme Court in the judicial district in which the
office of the Entity is located within 20 days after the expiration of the
15 or 30-day period discussed above, as the case may be, to determine the
rights of the Dissenting Security Holder and to fix the fair value of such
Dissenting Security Holder's shares.
(2) The court will determine (i) whether the Dissenting Security
Holder is entitled to receive payment for such Dissenting Security Holder's
shares, and (ii) the fair value for such shares. In determining the fair
value for such shares, the court will consider the nature of the
transaction giving rise to the Dissenting Security Holder's right to
receive payment under Section 623, the concepts and methods customarily
used in the relevant securities and financial markets to determine the
value of the share of a corporation engaging in a similar transaction under
comparable circumstances, and all other relevant factors.
(3) Each party to the proceeding must bear its own costs and expenses,
including attorneys' and experts' fees, unless the court, in its
discretion, assesses all of part of such costs and expenses against either
the Dissenting Security Holder or the Entity or APPI, as applicable.
(4) Within 60 days after the final determination of the court
proceeding, the Entity or APPI, as applicable, will pay to the Dissenting
Security Holder the amount found by the court to be owed to such Dissenting
Security Holder upon surrender of the certificates for any such shares
represented by such certificates.
Under Texas State Law
Any holder of record of shares of M&S Common Stock, San Antonio Common
Stock or South Texas Common Stock who does not desire to have such shares
converted into shares of APPI Common Stock pursuant to the applicable Entity's
Merger may, alternatively, elect to receive the fair value of such shares,
provided that the Dissenting Security Holder complies with the provisions of
Articles 5.11 and 5.12 of the TBCA. The term "fair value" is defined in Article
5.12 to mean the value of the shares as of the day immediately preceding the
applicable Entity's Meeting, excluding any appreciation or depreciation in
anticipation of the proposed Merger. A Dissenting Security Holder contemplating
the exercise of dissenters' rights under the TBCA should carefully review the
provisions of Articles 5.11 and 5.12 which are included in Appendix K attached
to this Prospectus/Joint Proxy Statement.
Set forth below is a brief summary of the procedures that a Dissenting
Security Holder must follow in order to perfect dissenters' rights under Texas
law. This summary is not intended to be complete and is qualified in its
entirety by reference to Articles 5.11 and 5.12 of the TBCA.
A Dissenting Security Holder must file a written objection to an applicable
Entity's Merger with such Entity prior to such Entity's Meeting. Such written
objection should include (i) a statement to the effect that such Dissenting
Security Holder intends to exercise dissenters' rights if the Merger Proposal is
approved, and (ii) the address of such Dissenting Security Holder.
If the applicable Entity's Merger is approved by the requisite percentage
of shares, then APPI, as the surviving corporation in the Merger, must deliver
or mail to each Dissenting Security Holder who filed a written objection and did
not vote in favor of such Merger an Approval Notice. A SECURITY HOLDER WHO VOTES
IN FAVOR OF AN ENTITY'S MERGER WILL LOSE THE RIGHT TO RECEIVE PAYMENT FOR THE
SHARES OF SUCH ENTITY'S COMMON STOCK HELD BY SUCH DISSENTING SECURITY HOLDER.
Within ten days from the date of delivery or mailing of the Approval
Notice, a Dissenting Security Holder must make a written demand to APPI for
payment of the fair value of the shares of M&S Common
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Stock, San Antonio Common Stock or South Texas Common Stock, as applicable, held
by such Dissenting Security Holder. Such demand must state the number and class
of shares owned by such Dissenting Security Holder and the fair value of such
shares as estimated by the Dissenting Security Holder.
Within 20 days after receipt by APPI of a demand by a Dissenting Security
Holder for payment of the fair value of the shares held by such Dissenting
Security Holder, APPI shall deliver or mail to the Dissenting Security Holder a
written notice to the effect that APPI will pay within 90 days after the
effective date of the Merger (i) the amount claimed, upon the surrender of the
duly endorsed share certificates, or (ii) some other amount as the fair value,
upon receipt of a notice from the Dissenting Security Holder within 60 days
after the date of such offer that such Dissenting Security Holder will accept
such amount in exchange for surrender of the duly endorsed share certificates.
If APPI and the Dissenting Security Holder can agree upon the fair value, such
value will be paid to the Dissenting Security Holder and such Dissenting
Security Holder shall cease to have any interest in such shares or in either the
Entity or APPI. If agreement as to the fair value cannot be reached, either the
Dissenting Security Holder or APPI may, within the time limits prescribed by
Article 5.12, file a petition in Texas court asking for a finding and
determination of the fair value of such shares. Court costs shall be allocated
between the parties in such manner as the court shall determine to be fair and
equitable.
GOVERNMENT AND REGULATORY APPROVALS
It is a condition to the consummation of the transactions contemplated by
each Merger Agreement and Exchange Agreement that each of the Entities must have
received necessary government and regulatory approvals prior to the Merger or
Exchange, as the case may be. At any time before or after the Effective Time of
the Mergers or the Closing Date of the Exchanges, the Federal Trade Commission
or the Antitrust Division of the United States Department of Justice or any
state could take action pursuant to the federal or state antitrust laws to seek
to enjoin the consummation of a particular Merger or Exchange. Private parties
may also seek to take legal action under the antitrust laws. Based on
information available to them, each of Advanced, Ide, M&S, Lexington, Madison,
South Texas, South Texas No. 1 San Antonio, San Antonio No. 2, Pacific, TMI,
RNM, AIOC, CIA MRIA, Nyack, Pelham, RRG, WIC and Valley believes that the Merger
or Exchange applicable to each such Entity can be effected in compliance with
federal and state antitrust laws. Advanced, Ide, M&S, Lexington, Madison, South
Texas, South Texas No. 1, San Antonio, San Antonio No. 2, Pacific, TMI, RNM,
AIOC, CIA, MRIA, Nyack, Pelham, RRG, WIC and Valley are aware of no governmental
or regulatory approvals required for the consummation of the respective Merger
or Exchange, other than compliance with federal and applicable state securities
and corporate laws, and the required transfer of or amendment to certain of the
Advanced, Ide, M&S, Lexington, Madison, South Texas, South Texas No. 1, San
Antonio, San Antonio No. 2, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham,
RRG, WIC and Valley licenses and permits.
CERTAIN INCOME TAX CONSIDERATIONS
The following discussion summarizes Haynes and Boone, L.L.P.'s opinion
regarding the material federal income tax consequences of the Mergers, Exchanges
and related transactions. Security holders and partners are urged to consult
their own tax advisers as to the particular consequences to them of the
applicable Merger or Exchange, including the application of state, local and
foreign tax laws. This summary may be inapplicable to security holders or
partners who received their APPI Common Stock pursuant to the exercise of
options or as other forms of compensation, who are not citizens or residents of
the United States or who have other special circumstances.
Haynes and Boone, L.L.P., special counsel to APPI, has, upon the basis of
certain assumptions described therein and the representations of the officers of
APPI and each of the Entities, rendered an opinion that, for federal income tax
purposes, each Merger and Exchange will constitute a tax-free reorganization
under either Section 351 or Section 368(a) of the Internal Revenue Code. If so
treated, each Merger and Exchange will have the following federal income tax
consequences: (i) except as set forth below, no gain or loss will be recognized
by the security holders or partners of any of the Entities who exchange their
Old Shares or Old Partnership Interests for APPI Common Stock pursuant to the
Merger or Exchange, as the case may be, (ii) the aggregate tax basis of APPI
Common Stock received in the Merger or Exchange, as the case may be,
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will equal the aggregate tax basis of the Old Shares or Old Partnership
Interests, as the case may be, exchanged therefor, and, in the case of the Old
Partnership Interests, reduced by the partners' shares of partnership
liabilities assumed by APPI, (iii) no gain or loss will be recognized by each of
the Entities in connection with the Merger or Exchange, as the case may be, (iv)
provided that the Old Shares or Old Partnership Interests are held as a capital
asset at the Effective Time of a given Merger or the Closing Date of a given
Exchange, the holding period of APPI Common Stock will include the holding
period of such Old Shares or Old Partnership Interests, except, in the case of
the Old Partnership Interests, to the extent that the APPI Common Stock is
deemed to be received in exchange for assets described in Section 751 of the
Code, the holding period of such APPI Common Stock will commence on the day
following the date of the Exchange, and (v) security holders or partners of any
of the Entities will recognize income and/or gain only to the extent that they
receive (or are deemed to receive) cash or property other than APPI Common
Stock. An opinion of counsel is not binding on the Internal Revenue Service or
the courts. No assurance can be given that the tax-deferred characterization of
the Mergers and Exchanges will not be challenged or, if challenged, will be
defended successfully. If the tax characterization of the Mergers and Exchanges
is successfully challenged, there may be significant adverse tax consequences to
the Entities and their respective security holders.
If the Haynes and Boone, L.L.P. opinion is waived as a condition to the
closing of the Mergers and Exchanges, then the Company will be required to amend
this Registration Statement and resolicit the approval and consent of the
security holders.
ACCOUNTING TREATMENT
SAB 48 states that when a company acquires assets from promoters and
security holders in exchange for stock just prior to, or at the time of, its
initial public offering, such assets should be recorded at the historical cost
to each such promoter or security holder. Each security holder of each of the
Entities is involved as a promoter of its respective Merger or Exchange and the
related Initial Public Offering. Accordingly, the assets and liabilities to be
acquired by APPI or a subsidiary thereof in connection with the Merger
Transactions and Exchange Transactions will be recorded on the APPI balance
sheet in the same amounts as reflected on the balance sheets of the Entities at
the Effective Time of the applicable Merger or Closing Date of the applicable
Exchange. See "Approval of the Mergers, Exchanges and Related
Transactions -- Interests of Certain Persons in the Mergers and Exchanges."
OPINIONS OF SHATTUCK HAMMOND PARTNERS INC.
Each of the Founding Affiliated Practices retained Shattuck Hammond on June
12, 1997 to provide to it financial advisory and investment banking services and
to render to it an opinion as to whether the financial terms of the respective
Service Agreements are commercially reasonable. Shattuck Hammond presented a
form of its opinion to the Founding Affiliated Practices in June 1997 but has
not yet rendered its opinion. The opinions to be rendered by Shattuck Hammond do
not constitute a recommendation as to any action any Merger Entity or any equity
holder of any Merger Entity or any other person should take in connection with
the respective Merger Transactions (including any Service Agreement). Shattuck
Hammond has not been involved in the negotiation of the terms of the Service
Agreements or the Merger Transactions and expresses no opinion with respect
thereto except as to be set forth in its respective commercial reasonableness
opinions to the Founding Affiliated Practices.
To prepare its opinions, Shattuck Hammond has reviewed and considered,
among other things, a draft of the form Merger Agreement; copies of the drafts
of the respective Service Agreements; a draft of the preliminary prospectus of
APPI relating to the Initial Public Offering; financial analysis prepared by
APPI of the pro forma cash flow of the Founding Affiliated Practices, Newcos,
and APPI after giving effect to the Merger Transactions; the services fees
provided for under other management service agreements entered into by other
medical groups; and such other financial studies and analyses as Shattuck
Hammond has considered appropriate, including its assessment of current general
economic, industry, market, monetary and other conditions. To prepare its
opinions, Shattuck Hammond will rely upon and assume the accuracy and
completeness of all information supplied to it and that it obtained from public
sources, and will assume that
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the definitive agreements, when executed, will be substantially identical to the
draft agreements which it reviewed and that the Merger Transactions will take
place as described in the draft agreements.
To prepare its opinions addressed to the Founding Affiliated Practices,
Shattuck Hammond has compared the financial terms of the Service Agreements such
as the amount of fees as a percentage of revenues, when the fees are payable,
and if and to what extent such fees are subject to adjustment, with the
financial terms of other management services agreements in similar contexts
involving publicly-held and privately-held physician practice management
companies with which Shattuck Hammond is familiar. In connection therewith,
Shattuck Hammond has examined and assessed the comparability of both the scope
of services to be performed and the fees to be charged pursuant to the Service
Agreements to the scope of services provided and the fees charged pursuant to
other management services agreements with which it is familiar, including those
entered into with physician practices that are hospital-related such as the
Company. Shattuck Hammond has also examined the governance and reporting
structures between APPI and each Founding Affiliated Practice set forth in each
Service Agreement, particularly the Joint Planning Boards, and has determined
that such structures are reasonable and comparable to the governance and
reporting structures established by physician practice management companies with
which Shattuck Hammond is familiar and which promote physician participation in
the overall management of their practices. Among the physician practice
management companies with which Shattuck Hammond is familiar and against which
it has assessed comparability are Phycor, MedPartners, FPA Medical Management,
Promedco, PhyMatrix, Physician Reliance Network, American Oncology Resources and
Emcare. Based on the foregoing review and analysis, Shattuck Hammond is expected
to opine that the financial terms of the Service Agreements are commercially
reasonable, including the service fees to be paid by the Newcos and that the
service fees are comparable to payments due under other arms-length management
services agreements providing similar services in independent transactions.
The engagement letter dated June 12, 1997 pursuant to which the Founding
Affiliated Practices retained Shattuck Hammond provides for the payment by the
Founding Affiliated Practices to Shattuck Hammond of a non-refundable retainer
of $50,000 due upon execution of such letter and an additional fee of $175,000
payable upon the delivery of Shattuck Hammond's opinions to the Founding
Affiliated Practices (which delivery is to occur at the time of closing of
APPI's Initial Public Offering). The Founding Affiliated Practices have also
agreed to reimburse Shattuck Hammond for expenses incurred by it in connection
with the engagement, including legal fees and disbursements not to exceed
$10,000, and to indemnify Shattuck Hammond for certain liabilities that may
arise out of the rendering of its services or opinions.
Shattuck Hammond is a nationally recognized investment banking firm. As
part of its investment banking business, Shattuck Hammond is continually
involved in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and for other purposes.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
The following unaudited pro forma combined balance sheet gives effect to
the Mergers and Exchanges as a combination of promoter interests, at historical
costs, and is based upon the historical financial statements of APPI and each of
the Founding Affiliated Practices. In addition, the unaudited pro forma combined
balance sheet gives effect to the Initial Public Offering (assuming an Initial
Public Offering Price of $15.00 per share), the conversion of the Convertible
Notes and borrowings of approximately $13.6 million under the Credit Facility to
refinance certain indebtedness previously incurred by the Founding Affiliated
Practices. The unaudited pro forma combined balance sheet gives effect to the
completion of such transactions as if they had occurred on June 30, 1997. Due to
the fact that the Company has had no significant operations to date, no pro
forma statement of operations has been included in this Prospectus. The amount
and composition of costs to be incurred by the Company related to the provision
of management services to the Founding Affiliated Practices may differ from the
costs historically incurred by the Founding Affiliated Practices; therefore, the
costs presented in the individual financial statements of the Founding
Affiliated Practices may not be representative of the Company's costs on a pro
forma basis. The unaudited pro forma balance sheet and notes
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thereto should be read in connection with the other financial information,
including the audited financial statements of APPI and each of the Founding
Affiliated Practices and notes thereto, included elsewhere in this Prospectus.
The unaudited pro forma combined balance sheet is presented for
illustrative purposes only and is not necessarily indicative of the financial
position that would have been achieved if the Mergers and Exchanges, the
conversion of the Convertible Notes and the Initial Public Offering had been
consummated on June 30, 1997.
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AMERICAN PHYSICIAN PARTNERS, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PACIFIC RADIOLOGY ROCKLAND VALLEY
ADVANCED THE IDE M&S X-RAY IMAGING AND NUCLEAR RADIOLOGICAL RADIOLOGY UNADJUSTED
APPI RADIOLOGY GROUP PRACTICES CONSULTANTS MEDICINE GROUP GROUP TOTAL
------- --------- ------- --------- ----------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents...... $ 110 $ 185 $ 238 $ 760 $ -- $ 887 $ 369 $ 386 $ 2,935
Accounts
receivable,
net.............. -- 15,042 5,262 3,702 1,934 2,022 2,843 2,076 32,881
Other
receivables...... 43 375 -- 192 -- -- -- -- 610
Other current
assets........... 95 669 125 73 2,296 221 410 8 3,897
------- ------- ------ ------ ------ ------ ------- ------ -------
Total current
assets......... 248 16,271 5,625 4,727 4,230 3,130 3,622 2,470 40,323
Property and
equipment, net..... 167 14,860 997 758 1,862 662 5,269 1,220 25,795
Investments in joint
ventures........... -- 1,101 -- 1,420 -- 1,322 -- 27 3,870
Deferred income
taxes.............. -- -- -- -- -- -- 1,203 -- 1,203
Notes receivable.... -- -- -- -- -- -- -- 403 403
Intangible assets,
net................ -- -- -- 678 133 -- -- -- 811
Other assets, net... 2,072 7,065 397 46 107 88 2,144 36 11,955
------- ------- ------ ------ ------ ------ ------- ------ -------
Total assets..... $ 2,487 $39,297 $7,019 $ 7,629 $ 6,332 $ 5,202 $ 12,238 $ 4,156 $ 84,360
======= ======= ====== ====== ====== ====== ======= ====== =======
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA DISTRIBUTION ADJUSTED FOR OFFERING PRO FORMA
ADJUSTMENTS COMBINED ADJUSTMENT DISTRIBUTION ADJUSTMENTS AS ADJUSTED
----------- --------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents...... $ (63)(a) $ 2,872 $ -- $ 2,872 $ 66,656(e) $ 2,872
(54,267)(e)
(12,389)(e)
Accounts
receivable,
net.............. -- 32,881 -- 32,881 -- 32,881
Other
receivables...... (219)(a) 391 -- 391 -- 391
Other current
assets........... (2,188)(a) 1,709 -- 1,709 -- 1,709
------- ------- -------- -------- -------- -------
Total current
assets......... (2,470) 37,853 -- 37,853 -- 37,853
Property and
equipment, net..... (122)(a) 25,673 -- 25,673 -- 25,673
Investments in joint
ventures........... 88(a) 3,958 -- 3,958 -- 3,958
Deferred income
taxes.............. (1,111)(b) 92 -- 92 -- 92
Notes receivable.... (400)(a) 3 -- 3 -- 3
Intangible assets,
net................ -- 811 -- 811 2,000 2,811
Other assets, net... (5,565)(a) 6,390 -- 6,390 (2,056)(e) 4,334
------- ------- -------- -------- -------- -------
Total assets..... $ (9,580) $74,780 $ -- $ 74,780 $ (56) $74,724
======= ======= ======== ======== ======== =======
</TABLE>
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LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PACIFIC RADIOLOGY ROCKLAND VALLEY
ADVANCED THE IDE M&S X-RAY IMAGING AND NUCLEAR RADIOLOGICAL RADIOLOGY UNADJUSTED
APPI RADIOLOGY GROUP PRACTICES CONSULTANTS MEDICINE GROUP GROUP TOTAL
------- --------- ------- --------- ----------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current liabilities:
Short-term
borrowings....... $ -- $ 2,900 $ -- $ -- $ -- $ 1,000 $ -- $ 678 $ 4,578
Accounts payable
and accrued
expenses......... 2,086 2,007 2,022 257 1,278 209 189 97 8,145
Accrued salaries
and benefits..... -- 1,606 562 153 288 419 541 257 3,826
Due to joint
ventures......... -- 693 -- -- -- -- -- -- 693
Deferred income
taxes............ -- -- -- -- 855 1,006 573 372 2,806
Current portion of
deferred
compensation..... -- -- -- 83 -- -- -- -- 83
Current portion of
long-term debt... 3,500 3,909 436 231 844 119 1,675 561 11,275
Current portion of
capital lease
obligations...... -- -- -- 13 -- -- 546 -- 559
Distribution
payable.......... -- -- -- -- -- -- -- -- --
Other current
liabilities...... -- 749 -- -- -- -- -- -- 749
------- ------- ------ ------ ------ ------ ------- ------ -------
Total current
liabilities.... 5,586 11,864 3,020 737 3,265 2,753 3,524 1,965 32,714
Deferred income
taxes.............. -- -- 1,042 -- 11 -- -- 37 1,090
Deferred
compensation, net
of current
portion............ -- -- -- 1,346 -- -- 3,600 -- 4,946
Long-term debt, net
of current
portion............ -- 4,813 1,422 178 2,801 -- 5,563 167 14,944
Capital lease
obligations, net of
current portion.... -- -- -- 37 -- -- 1,378 -- 1,415
Long-term debt -- GE
Capital revolving
credit facility.... -- -- -- -- -- -- -- -- --
Other liabilities... -- 359 -- -- -- -- -- -- 359
------- ------- ------ ------ ------ ------ ------- ------ -------
Total
liabilities.... 5,586 17,036 5,484 2,298 6,077 2,753 14,065 2,169 55,468
------- ------- ------ ------ ------ ------ ------- ------ -------
Minority interests
in consolidated
subsidiaries....... -- 408 -- 506 -- -- -- -- 914
Stockholders'
equity:
Common stock....... -- -- -- -- -- -- -- -- --
Additional paid-in
capital.......... 250 -- -- -- -- -- -- -- 250
Accumulated
earnings
(deficit)........ (3,349) 21,853 1,535 4,825 255 2,449 (1,827) 1,987 27,728
------- ------- ------ ------ ------ ------ ------- ------ -------
Total
stockholders'
equity......... (3,099) 21,853 1,535 4,825 255 2,449 (1,827) 1,987 27,978
------- ------- ------ ------ ------ ------ ------- ------ -------
Total liabilities
and
stockholders'
equity......... $ 2,487 $39,297 $7,019 $ 7,629 $ 6,332 $ 5,202 $ 12,238 $ 4,156 $ 84,360
======= ======= ====== ====== ====== ====== ======= ====== =======
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA DISTRIBUTION ADJUSTED FOR OFFERING PRO FORMA
ADJUSTMENTS COMBINED ADJUSTMENT DISTRIBUTION ADJUSTMENTS AS ADJUSTED
----------- --------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Short-term
borrowings....... $ -- $ 4,578 $ -- $ 4,578 $ (4,578)(f) $ --
Accounts payable
and accrued
expenses......... (26)(a) 8,119 -- 8,119 (1,764)(e) 6,355
Accrued salaries
and benefits..... (996)(a) 2,830 -- 2,830 -- 2,830
Due to joint
ventures......... -- 693 -- 693 -- 693
Deferred income
taxes............ 5,892(b) 8,698 -- 8,698 -- 8,698
Current portion of
deferred
compensation..... (83)(a) -- -- -- -- --
Current portion of
long-term debt... -- 11,275 -- 11,275 (6,856)(f) 788
(131)(e)
(3,500)(g)
Current portion of
capital lease
obligations...... -- 559 -- 559 -- 559
Distribution
payable.......... -- -- 54,267(a) 54,267 (54,267)(e) --
Other current
liabilities...... -- 749 -- 749 -- 749
------- ------- -------- -------- -------- -------
Total current
liabilities.... 4,787 37,501 54,267 91,768 (71,096) 20,672
Deferred income
taxes.............. 35(b) 1,125 -- 1,125 -- 1,125
Deferred
compensation, net
of current
portion............ (4,946)(a) -- -- -- -- --
Long-term debt, net
of current
portion............ (105)(a) 14,839 -- 14,839 (12,258)(e) 2,581
Capital lease
obligations, net of
current portion.... -- 1,415 -- 1,415 -- 1,415
Long-term debt -- GE
Capital revolving
credit facility.... -- -- -- -- 13,435(f) 13,435
Other liabilities... -- 359 -- 359 -- 359
------- ------- -------- -------- -------- -------
Total
liabilities.... (229) 55,239 54,267 109,506 (69,919) 39,587
------- ------- -------- -------- -------- -------
Minority interests
in consolidated
subsidiaries....... -- 914 -- 914 -- 914
Stockholders'
equity:
Common stock....... 1(c) 1 -- 1 1(e) 2
Additional paid-in
capital.......... 21,067(d) 21,316 -- 21,316 66,362(e) 91,178
(1)(c)
Accumulated
earnings
(deficit)........ (9,351)(a)(b) (2,690) (54,267)(a) (56,957) 3,500(g) (56,957)
(21,067)(d)
------- ------- -------- -------- -------- -------
Total
stockholders'
equity......... (9,351) 18,627 (54,267) (35,640) 69,863 34,223
------- ------- -------- -------- -------- -------
Total liabilities
and
stockholders'
equity......... $ (9,580) $74,780 $ -- $ 74,780 $ (56) $74,724
======= ======= ======== ======== ======== =======
</TABLE>
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AMERICAN PHYSICIAN PARTNERS, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEET
APPI was incorporated in April 1996 and has conducted no significant
operations and generated no revenue to date other than in connection with the
Initial Public Offering and the Mergers and Exchanges. The following is a
summary of the adjustments reflected in the Unaudited Pro Forma Consolidated
Balance Sheet assuming the Mergers and Exchanges, the Initial Public Offering
and conversion of the Convertible Notes. The Mergers and Exchanges will be
accounted for as a combination of promoter interests, at historical costs, under
generally accepted accounting principles. APPI will not be acquiring equity
interests in the Founding Affiliated Practices, but will be acquiring
substantially all of the assets of the Founding Affiliated Practices.
Upon completion of the Mergers and Exchanges, the Company will not
consolidate the financial position of the Founding Affiliated Practices.
The adjustments reflected in the unaudited pro forma combined balance sheet
are as follows:
(a) To eliminate assets not acquired and liabilities not assumed by
the Company and to reflect the $54.4 million distribution to the Founding
Affiliated Practices. The Company will not be assuming any physician
related assets and liabilities, such as notes receivable from physicians,
accrued physician compensation, deferred physician compensation, and assets
and liabilities related to other physician benefit plans.
(b) To record the establishment of deferred income taxes for the
Company after the Mergers and Exchanges.
(c) To record the issuance of Common Stock to the Founding Affiliated
Practices.
(d) To record the reclassification of the Founding Affiliated
Practices' earnings (deficit) accumulated prior to the Initial Public
Offering to additional paid-in capital.
(e) To reflect the effects of the Initial Public Offering, including
the use of estimated net cash proceeds from the issuance of Common Stock,
to pay the $54.3 million distribution to the Founding Affiliated Practices
and to reduce debt.
(f) To reflect borrowings under the $115,000,000 Credit Facility with
GECC which will occur contemporaneously with the Initial Public Offering.
The proceeds from these borrowings will be used to refinance all remaining
funded debt, except capital leases and one note payable.
(g) To reflect estimated deferred financing costs related to the
Credit Facility.
(h) To reflect the conversion of all $3,500,000 of Convertible Notes
issued by the Company into 437,500 shares of Common Stock.
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<PAGE> 161
APPI
APPI was incorporated in April 1996, has generated no revenue to date and
has conducted no significant operations other than in connection with the
Initial Public Offering and the pending Mergers and Exchanges. The following
discusses APPI's business following the Mergers and Exchanges assuming
consummation of such transactions.
APPI'S OPERATION, MANAGEMENT AND BUSINESS FOLLOWING THE MERGERS AND EXCHANGES
GENERAL
The Company was formed to provide physician practice management and
administrative services to radiology practices with a focus on the development,
consolidation and management of integrated radiology and imaging center
networks. Upon completion of the Initial Public Offering, the Company will
provide practice management services to seven radiology practices consisting of
223 physicians practicing at 42 hospitals and 65 ICs in California, Kansas,
Maryland, New York and Texas. The Company will derive its revenue from service
fees paid by Affiliated Practices for management, administrative, technical and
other non-medical services provided by the Company.
The typical relationship with an Affiliated Practice is expected to involve
the acquisition by the Company of all of the non-medical assets (tangible and
intangible) of the Affiliated Practice and entry into a long-term Service
Agreement with the Affiliated Practice at the time of acquisition pursuant to
which the Company would provide a wide range of management, administrative,
technical and non-medical services in exchange for a service fee. If the
Affiliated Practice owns and operates an IC, the Company would typically acquire
all of the IC-related assets (e.g., x-ray, MRI and CT equipment). As a result,
the Affiliated Practice would rely on the Company to provide all necessary
non-medical business and administrative services and the Affiliated Practice
would continue to employ all of the professional personnel (i.e. the
radiologists) who would continue to provide professional medical services for
and on behalf of the Affiliated Practice.
The Founding Affiliated Practices provide a wide range of diagnostic and
therapeutic services, including x-ray and fluoroscopy, magnetic resonance
imaging, computed tomography, mammography, ultrasound, nuclear medicine,
radiation oncology and interventional radiology. The Founding Affiliated
Practices were selected based on a variety of factors, including: physician and
practice credentials and reputation; competitive market position; subspecialty
mix of physicians; historical financial performance and growth potential; and
willingness to embrace the Company's vision and philosophy regarding the
provision of radiology services. The Company intends to provide Affiliated
Practices with the necessary capital resources and expertise to invest in new
technologies, complete consolidating acquisitions, implement sophisticated
management information systems, promote efficient practice patterns, develop
coordinated marketing efforts and realize purchasing economies of scale.
The Company's objective is to develop integrated networks of radiology
groups and ICs that can provide wide geographic coverage and subspecialty
expertise. The Company intends to provide the networks with sophisticated
management, state-of-the-art information systems and appropriate capital for
expansion. The Company's strategy is to (i) emphasize quality service, (ii)
expand within its selected markets, (iii) improve operating efficiencies within
the Affiliated Practices and (iv) expand into new regional markets through
acquisitions of or affiliations with additional radiology practices and ICs.
In connection with the Mergers, Exchanges and Reorganizations, APPI will
acquire certain assets and liabilities of, and enter into long-term Service
Agreements with, the Founding Affiliated Practices. Pursuant to the Service
Agreements, the Company will provide management, administrative, technical and
non-medical business services to the Founding Affiliated Practices in exchange
for a service fee. The Service Agreements have a 40-year term, subject to
earlier termination under certain circumstances. See "APPI -- APPI's Operation,
Management and Business Following the Mergers and Exchanges -- Service
Agreement."
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INDUSTRY BACKGROUND
Market Overview
The Health Care Financing Administration estimates that national health
care spending in 1995 was approximately $1 trillion, including approximately
$200 billion for physician services and an additional $600 billion for health
care expenditures under the control or influence of physicians. According to the
American College of Radiology, an estimated 350 million radiological procedures
were performed in the United States during 1995. Total spending on radiology
services including diagnostic imaging, interventional radiology and radiation
oncology was estimated at $56 to $70 billion according to a 1995 report prepared
by SMG Marketing Group. Diagnostic imaging, including interventional radiology
procedures, accounted for approximately 82% of the aggregate amount spent on
radiological services performed in the United States, with radiation oncology
services accounting for approximately 18%.
Fees charged for diagnostic imaging, interventional radiology and radiation
oncology procedures consist generally of a technical component relating to
facilities, equipment and non-physician personnel and a professional component
consisting of fees paid to physicians for the interpretation of diagnostic
images, the performance of interventional radiology procedures and the treatment
of radiation oncology patients. Technical facilities are located within
hospitals and in approximately 2,200 outpatient centers throughout the United
States. Professional radiology services are provided by board certified
radiologists, general practitioners and other specialists. There are
approximately 3,200 radiology groups in the United States comprised of
approximately 27,000 practicing radiologists. These groups have a typical size
of six members, but vary in size up to approximately 100 physicians serving a
specific market. Approximately 88% of all radiologists perform diagnostic
procedures, including interventional radiology procedures, and approximately 12%
practice radiation oncology.
RADIOLOGY
In general, radiology includes diagnostic imaging, interventional radiology
and radiation oncology. Imaging procedures use energy waves to penetrate human
tissue and generate images of the body, which can be recorded on film or
digitized for display on a video monitor. Diagnostic imaging procedures are used
to diagnose diseases and physical injuries and are performed in hospitals,
physicians' offices, outpatient centers and ICs. Interventional radiology
procedures include the use of radiological methods to monitor and guide
catheters, stents, drains and needles to open clogged vessels, relieve
obstructed kidneys, perform biopsies of mass lesions, drain abscess collections
and lower pressure in certain vessels. Generally, these interventional
procedures are more time efficient, more cost-effective and less invasive than
surgical alternatives and have historically been performed in a hospital setting
to enable utilization of hospital support services. Radiation oncology
procedures use a variety of radiation sources to treat cancer and/or relieve
pain caused by certain tumors and are performed in hospitals and free-standing
outpatient centers.
The principal diagnostic imaging modalities include the following, all of
which are non-invasive:
General Radiology: X-Ray and Fluoroscopy. X-rays utilize roentgen
rays to penetrate the body and record images of organs and structures on
film. Fluoroscopy utilizes ionizing radiation combined with a video viewing
system for real time monitoring of organs. X-ray and fluoroscopy are the
most frequently used imaging modalities.
Computed Tomography. CT utilizes a computer to direct the movement of
an x-ray tube to produce multiple cross sectional images of a particular
organ or area of the body. CT is used to detect tumors and other conditions
affecting bones and internal organs. It is also used to detect the
occurrence of strokes, hemorrhages and infections. CT provides higher
resolution images than conventional x-rays, but generally not as well
defined as those produced by magnetic resonance.
Magnetic Resonance Imaging. MRI utilizes a strong magnetic field in
conjunction with low energy electromagnetic waves which are processed by a
computer to produce high-resolution images of body tissue including the
brain, spine, abdomen, heart and extremities. Unlike CT and conventional
x-rays, MRI does not utilize ionizing radiation, which can cause tissue
damage in high doses.
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Mammography. Mammography is a specialized form of radiology utilizing
low dosage x-rays to visualize breast tissue and is the primary screening
tool for breast cancer. Mammography procedures also include the biopsy of
cells to assist in the diagnosis of breast cancer.
Ultrasound. Ultrasound imaging utilizes high-frequency sound waves to
develop images of internal organs, unborn fetuses and the vascular system.
Ultrasound has widespread applications, particularly for procedures in
obstetrics, gynecology and cardiology.
Nuclear Medicine. Nuclear medicine utilizes short-lived radioactive
isotopes which release small amounts of radiation that can be recorded by a
gamma camera and processed by a computer to produce an image of various
anatomical structures or to assess the function of various organs such as
the heart, kidneys, thyroid and bones. Nuclear medicine is used primarily
to study anatomic and metabolic functions.
TRENDS IN RADIOLOGY
Technological Advancements. The Company believes that advances in
technology, including the development and continued enhancements of MRI, CT,
nuclear medicine, ultrasound and interventional radiology have contributed to
the growth of the diagnostic imaging industry. These technological advances have
resulted in increased professional and technical utilization and have produced
diagnostic procedures that are safer, more accurate and less-invasive than
techniques previously utilized. While traditional x-rays continue to be the
primary imaging modality based on the number of procedures performed, the use of
advanced diagnostic imaging modalities such as MRI and CT has increased rapidly
in recent years because these modalities allow physicians to diagnose a wide
variety of diseases and injuries quickly and accurately without exploratory
surgery or other surgical or invasive procedures, which are usually more
expensive, involve greater risk to the patient and result in longer
rehabilitation time. As a result, hospital days are shortened or eliminated and
time lost from work is significantly reduced. In addition, diagnostic imaging is
increasingly used as a screening tool for preventive care. The Company believes
that future technological advances will enhance the ability of radiologists to
diagnose and direct treatment, thereby lowering overall health care costs.
Recent technological advancements include: magnetic resonance spectroscopy,
which can differentiate malignant from benign lesions; magnetic resonance
angiography, which can produce three-dimensional images of body parts and assess
the status of blood vessels; spiral computed tomography, which permits three-
dimensional images of body parts; monoclonal antibody studies utilizing nuclear
medicine to localize certain cancers that would otherwise be difficult to detect
or treat; and the development of teleradiology, which digitally transmits
radiological images from one location to another for interpretation. The Company
believes that the utilization of both the diagnostic and therapeutic
capabilities of radiology will continue to increase because of its
cost-effective, time-efficient and risk/benefit advantages over alternative
procedures (including surgery) and that newer technologies and future
technological advancements will result in further subspecialization and
increased utilization of professional and technical radiological services.
Reimbursement Patterns. Payment for radiology services comes primarily
from third-party payors such as private insurers (including traditional
indemnity insurance plans), managed care plans (including HMOs and PPOs) and
governmental payors (including Medicare and Medicaid). Historically,
radiologists and other physicians generally provided medical services on a
fee-for-service basis. The fee-for-service model provides few incentives for the
efficient utilization of resources and has contributed to increases in health
care costs at rates significantly higher than inflation. As managed care
entities and other payors have focused on providing care in a more
cost-effective manner, they have demanded and received significant discounts
from fee-for-service rates charged for radiological procedures. As a result,
physicians have seen a decrease in per procedure reimbursements from managed
care and governmental entities for such procedures. More recently, payors have
focused on shifting more of the financial risk for the provision of
cost-effective services to providers through capitation and other risk-sharing
arrangements. Significant changes of this type will require the Company to
become more actively involved in assisting its Affiliated Practices in
developing practice guidelines and appropriateness criteria and managing the
utilization of radiological procedures.
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The Company believes that the shift in financial risk from payors to
providers decreases the attractiveness of under-utilized imaging equipment
within a general practitioner's office and will accelerate the centralization of
resources to high-volume centers. According to an article published in the
American Journal of Radiology in 1993, approximately 64% of all radiological
procedures (primarily x-rays and ultrasound) performed in freestanding ICs and
physicians' offices were performed by non-radiologist physicians including
internists, family and general practitioners and orthopedists. The Company
believes that the general diagnostic imaging services performed by
non-radiologists may be directed to radiologists by managed care entities
seeking to have services performed at the lowest overall cost. As a result, the
Company believes that managed care entities provided with utilization reports
will focus on reducing costs by shifting radiological procedures performed by
non-radiologists to radiologists.
Consolidation of ICs. Concurrent with the growth of managed care and strict
controls on Medicare reimbursement for inpatient costs, diagnostic imaging
services began to shift from hospital settings to ICs in the early 1980s. While
many of these ICs were developed by physicians and hospitals, a subsequent
change in federal law restricted the referral of patients by a physician to a
facility in which the physician maintained an ownership interest. As a result,
many physicians sold their interests in ICs to hospitals, radiologists and
companies engaged exclusively in the ownership, operation and management of ICs.
The Company believes that many of these entities have and will continue to
consolidate the ownership of ICs.
Referral Sources. Non-radiologists, including specialists and primary care
physicians, direct the utilization of radiology services. Most industry
marketing has been focused on developing relationships with these referring
physicians. As more patients move to managed care plans, the Company believes
physicians will have fewer referral options for diagnostic imaging procedures.
In addition, the Company believes that managed care entities will increasingly
demand that providers of radiology services share in the financial risks
associated with providing services for the lives covered by the managed care
entities. As the choices for radiology referrals decrease, the Company believes
that quality of care, subspecialty expertise and patient and referring physician
satisfaction will be important factors in determining referral patterns.
Trends in Radiology Organizations. The trends toward managed care, cost
containment and health care consolidation have combined to limit the number of
positions available and the salaries paid to radiologists. In addition, small
independent physician groups and individual practices are typically at a
competitive disadvantage to larger associations or networks of physicians
because they lack the capital necessary to (i) expand the geographic coverage of
the practice and the imaging modalities offered, (ii) develop state-of-the-art
information systems and (iii) purchase costly new imaging technologies, each of
which can improve quality of care and reduce costs. Generally, they also lack
the cost accounting and quality management systems necessary to allow physicians
to price and monitor complex risk-sharing arrangements with third-party payors.
Additionally, small to medium-sized groups and individual practices often do not
have contractual ties with other providers nor do they have the ability to offer
a broad range of subspecialty imaging services. Small practices often have
higher operating costs (since overhead must be spread over a relatively small
revenue base) and minimal vendor purchasing power. In order to remain
competitive in the changing medical service environment, radiologists are
beginning to affiliate with or create larger organizations by adding
radiologists to their groups, creating or joining a network or an independent
physician association or affiliating with a physician practice management entity
such as the Company.
BUSINESS STRATEGY
The Company's objective is to develop integrated networks of radiology
groups and ICs that can provide wide geographic coverage and subspecialty
expertise. The Company intends to provide the networks with sophisticated
management, state-of-the-art information systems and appropriate capital for
expansion. The Company's strategy is to (i) emphasize quality service, (ii)
expand within its selected markets, (iii) improve operating efficiencies within
the Affiliated Practices and (iv) expand into new regional markets through
acquisitions of or affiliations with additional radiology practices and ICs.
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EMPHASIZE QUALITY SERVICE
The Company plans to make patient service and referring physician
satisfaction a key element of its strategy. The Company intends to form regional
service networks and invest in advanced teleradiology technologies to provide
greater geographic coverage, improve response time and increase overall patient
accessibility. The Company will seek to offer, through its Affiliated Practices,
subspecialty expertise such as interventional radiology and radiation oncology
to address the full range of radiology service needs of patients, referring
physicians, hospitals and payors. The Company also intends to provide capital to
the Affiliated Practices to upgrade existing imaging equipment and purchase
equipment for newer modalities. In addition, the Company plans to implement
information systems which will provide the Company's payors and referral sources
with outcomes data, cost analyses, utilization management data and other
analyses, in each case with the objective of maximizing patient, referring
physician, hospital and payor satisfaction.
EXPAND WITHIN EXISTING REGIONAL MARKETS
A key element of the Company's strategy is to expand and leverage the
resources and capabilities of its Affiliated Practices to offer high-quality,
comprehensive and competitively priced diagnostic, interventional and
therapeutic radiology programs within selected markets. The Company believes
that cost-conscious payors, particularly those interested in utilizing or
implementing risk sharing or global capitation arrangements, will prefer to
contract with a single provider for a full range of radiology services within
select geographic markets. The Company plans to acquire and affiliate with
additional complementary radiology practices and, when feasible, acquire,
operate and manage ICs to broaden the range of, and increase the capacity to
deliver, services within its markets. The Company intends to market its
comprehensive service offerings and geographic coverage to obtain payor
contracts.
IMPROVE OPERATING EFFICIENCIES
The Company intends to utilize its management infrastructure and the
collective knowledge of and information generated by its Affiliated Practices to
identify and promote practice operating efficiencies that benefit all Affiliated
Practices. The Company believes that information technology is critical to such
efforts and plans to implement sophisticated management and financial
information systems to obtain and disseminate information relating to practice
patterns, equipment utilization, facilities and personnel and operating
profitability. The Company believes such information will enable Affiliated
Practices to enhance quality of care, increase revenue, improve cash management
and more effectively control costs. The Company believes that the establishment
of systems that promote "best practices" and operating efficiencies can provide
the Company and its Affiliated Practices with a competitive advantage in
negotiating and obtaining managed care contracts. In addition, the Company
intends to capitalize on the size and purchasing power of the combined
Affiliated Practices to take advantage of economies of scale and to reduce the
cost of administering and operating such practices.
EXPAND INTO NEW MARKETS
The Company plans to expand into new geographic markets by acquiring and
affiliating with profitable radiology practices that have strong reputations and
competitive positions in their local markets. The Company intends to focus on
markets where there are significant prospects for physician networking and
practice consolidation, high patient-provider ratios and favorable overall
economic conditions. The Company intends to focus on acquiring and affiliating
with platform practices allowing the Company to pursue the expansion strategy
discussed above. The Company believes that it will be attractive to potential
Affiliated Practices because of its (i) exclusive focus on radiology, (ii)
governance structure which promotes physician input, (iii) service fee structure
which aligns the Company's revenue growth incentives with those of the
Affiliated Practices and (iv) transaction structure which permits physicians to
become stockholders of the Company and further aligns the interests of the
Company and the Affiliated Practices. The Company expects that its Affiliated
Practices will be instrumental in identifying potential acquisitions and
affiliations with future Affiliated Practices or ICs.
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<PAGE> 166
AFFILIATION STRUCTURE
APPI was formed to provide physician practice management and administrative
services to radiology practices and to own, operate and manage ICs. The
Company's business model is based on a "partnership" with its Affiliated
Practices in which the Company manages the non-medical functions of the
Affiliated Practices in a manner that promotes physician participation and input
in areas such as practice enhancement and operating efficiencies, marketing and
long-term strategy development. The Company believes that its partnering
approach (i.e., shared ownership, economic interest and governance) enables
physicians to provide input in the management and affairs of their practice and
aligns the interests of physicians in the Affiliated Practices with those of the
Company in promoting practice growth and operating efficiencies. The Company
believes its model will be attractive to potential practice acquisition
candidates. For a discussion of the contractual arrangements between the Company
and its Affiliated Practices, see "APPI -- APPI's Operation, Management and
Business Following the Merger and Exchanges -- Service Agreements."
In connection with the Mergers and Exchanges, the Company will acquire
certain tangible and intangible assets and assume certain liabilities of the
Founding Affiliated Practices. The Company will pay the purchase price for such
transactions in shares of its Common Stock and, to a lesser extent, cash. At the
time of the Mergers and Exchanges, the Company will enter into a 40-year Service
Agreement with each Founding Affiliated Practice pursuant to which the Company
will provide a wide range of management, administrative, technical and
non-medical services. For providing services under the Service Agreement, the
Company will receive a fee which is structured to align the interests of the
Company and the Founding Affiliated Practices. Additionally, the Service
Agreements restrict the Founding Affiliated Practices from competing with the
Company and other Affiliated Practices within a specified geographic area during
the term of the Service Agreements and also require each Affiliated Practice to
obtain and enforce similar restrictive covenants with the full-time physicians
affiliated with their practices. As part of its growth strategy, the Company
intends to acquire the assets of and enter into similar long-term Service
Agreements with additional radiology practices based on the partnership model it
has established with the Founding Affiliated Practices.
Additionally, pursuant to the Mergers and Exchanges, the Company will
acquire interests in certain joint venture arrangements currently held by the
Founding Affiliated Practices and certain physicians associated with the
Founding Affiliated Practices. The joint venture arrangements represent
partnerships with various hospitals or health systems serviced by certain of the
Founding Affiliated Practices and were formed for the purpose of owning and
operating ICs. Professional services at the joint venture ICs are performed by
certain of the Founding Affiliated Practices. With respect to the six joint
venture interests acquired from Advanced Radiology, LLC, the Company will
acquire a 50% interest in five joint ventures and a controlling interest in one
joint venture. With respect to M&S X-Ray Practices, the Company will acquire a
controlling interest in two joint ventures and a minority interest in three
joint ventures. With respect to RNM, the Company will acquire a minority
interest in one joint venture.
The Company believes a shared governance approach is critical to the
long-term success of a physician practice management company. While the Company
will have the primary responsibility for managing the non-medical functions of
its Affiliated Practices, it will operate within a governance structure which
promotes physician involvement in the direction and management of the Affiliated
Practices and the Company. This will be accomplished by the Company and each
Affiliated Practice establishing a Joint Planning Board consisting of three to
six members. The Joint Planning Boards will have responsibility for (i)
establishing payor contracting guidelines, (ii) making recommendations with
respect to operating budgets and capital expenditures and (iii) developing
marketing strategies and long-term objectives for their respective practices.
The Company believes the Joint Planning Boards will promote participation by
physicians in the overall management of their practices and serve as a means for
the Company and its Affiliated Practices to communicate effectively and exchange
information. In addition, the Company intends to establish a Physician Advisory
Board, the primary focus of which will be to enhance the quality of services
provided by the Company and its Affiliated Practices. The Physician Advisory
Board will consist of 9 to 12 practicing physicians from the Affiliated
Practices and will be chaired by the Company's Senior Vice President of
Physician Affairs. This board will serve as a forum in which members can discuss
and make recommendations regarding clinical applications, practice protocols,
appropriateness criteria, utilization guidelines, best practices
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<PAGE> 167
and managed care issues. Recommendations will be communicated to all Affiliated
Practice physicians; however, the adoption of such recommendations will be at
the discretion of the Affiliated Practices.
OPERATIONS AND DEVELOPMENT
General
The Founding Affiliated Practices consist of seven radiology practices,
comprised of 223 radiologists, located in five states. All of the Founding
Affiliated Practices provide professional services, which consist of the
supervision, performance and interpretation of radiological procedures in
hospitals, ICs or other settings. As a result of the Mergers and Exchanges, the
Company will own and operate 54 ICs and operate and manage 11 additional ICs
through joint venture relationships. In addition, the Founding Affiliated
Practices currently provide professional radiology services to 42 hospitals. In
the aggregate, the Founding Affiliated Practices will provide all subspecialty
diagnostic and interventional radiology and radiation oncology services.
Substantially all of the 223 radiologists are board certified.
The number and type of modalities offered at the Company's owned, operated
or managed ICs are determined by the demand for such services within their
respective market areas. Presently, 55 of these ICs offer multiple modalities
including various combinations of MRI, CT, mammography, ultrasound, nuclear
medicine, fluoroscopy and traditional radiography. By offering a wide spectrum
of imaging modalities, the Company intends to market itself as a full-service
provider of diagnostic imaging services. In addition to the ICs, the Founding
Affiliated Practices provide professional services to hospitals, hospital
outpatient facilities, physicians' offices, mobile imaging units and nursing
homes.
The Company intends to expand its operations into new markets principally
through the acquisition of platform practices. Prior to entering a new market,
the Company will consider various factors including the population,
demographics, market potential, competitive environment, degree of managed care
penetration, supply of radiologists, existing imaging services and general
economic conditions within the market. The Company will seek to identify and
affiliate with group practices which have a significant market presence or which
the Company believes can achieve such a presence in the near term. The Company
will identify potential acquisition candidates through a variety of means,
including targeted contacts of radiologists by the Company, participation in
professional conferences, referrals from Affiliated Practices and direct
inquiries by radiologists.
Set forth below are the locations and certain other information with
respect to the Founding Affiliated Practices as of June 30, 1997:
<TABLE>
<CAPTION>
IMAGING CENTERS
------------------------------------------------------------------------------
OWNED AND TOTAL
PRACTICE HOSPITAL OPERATED JOINT NON-PHYSICIAN
LOCATION PHYSICIANS AFFILIATIONS(1) SITES VENTURES(2) PERSONNEL
- -------------------- ---------- --------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Baltimore, MD....... 87 10 23 6 518
Rochester, NY....... 30 5 8 0 127
Oakland, CA......... 24 5 7 0 60
San Jose, CA........ 24 4 6 0 72
San Antonio, TX..... 20 5 3 4 107
Topeka, KS.......... 24 11 2 1 49
New City, NY........ 14 2 5 0 147
--- -- -- -- -----
Totals.... 223 42 54 11 1,080
=== == == == =====
</TABLE>
- ---------------
(1) Hospital affiliations represent contractual or other relationships with
hospitals where the Founding Affiliated Practices provide diagnostic and
interventional radiology or radiation oncology services. In 41 of the 42
hospitals, the Founding Affiliated Practices provide substantially all of
the diagnostic and interventional radiology services provided by
radiologists at such hospitals.
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(2) Joint ventures represent partnerships with various hospitals or health
systems serviced by certain of the Founding Affiliated Practices and were
formed for the purpose of owning and operating ICs. Professional services at
the joint venture ICs are performed by certain of the Founding Affiliated
Practices.
The Founding Affiliated Practices were selected based on a variety of
factors, including: physician and practice credentials and reputation;
competitive market position; subspecialty mix of physicians; historical
financial performance and growth potential; and willingness to embrace the
Company's vision and philosophy regarding the provision of radiology services.
SERVICES
The Company intends to provide its Affiliated Practices with management
expertise and the capital necessary to compete in a managed care environment.
Specifically, the Company intends to support the Affiliated Practices with
management expertise in the following areas:
<TABLE>
<CAPTION>
MANAGEMENT EXPERTISE APPLICATION
- ----------------------------------- --------------------------------------------------------
<S> <C>
Strategic.......................... Management provision of strategic advice and guidance
through the proactive management of practice operations
and pursuit of new market opportunities.
Reimbursement...................... Management implementation of billing, collection,
reporting and negotiation processes, procedures and
performance standards in order to maximize practice
revenue and create new or improved contracting
opportunities.
Information Management............. Use of advanced technology, networking, communications,
systems integration and data base development/management
tools and skills to increase physician and practice
productivity and effectiveness.
Practice Management................ Identification of operational savings opportunities and
implementation of programs to enhance practice revenue
and operating performance.
Practice Marketing................. Implementation of radiology marketing techniques and
concepts to focus on increasing imaging revenue and
customer satisfaction.
Technical Operations Management.... Implementation of systems, procedures, management
techniques and standards to increase the effectiveness,
efficiency and profitability of a practice's technical
operations and to improve productivity and relationships
with patients, physicians and payors.
Materials Management/Purchasing.... Development and implementation of a national group
purchasing arrangement to provide cost savings related
to equipment purchasing, leasing and maintenance and the
purchase of supplies.
</TABLE>
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The Company intends to provide its Affiliated Practices with capital for
(i) technological advances, including teleradiology and upgraded diagnostic
imaging equipment, (ii) information systems and (iii) additional ICs and imaging
equipment. Set forth below are specific areas in which the Company intends to
provide capital resources to the Affiliated Practices:
<TABLE>
<CAPTION>
AREA OF EXPENDITURE OBJECTIVE
- ----------------------------------- --------------------------------------------------------
<S> <C>
Advanced Imaging Equipment......... Provision of high-quality imaging and image management,
including teleradiology, to maximize facility and
equipment utilization and improve quality and service to
patients, referring physicians, hospitals and payors.
Financial and Information
Systems.......................... Integration of disparate clinical and financial systems
into one common data repository and coordination of
centralized scheduling, transcription, utilization and
patient flow functions.
Network/Communications............. Implementation of technologies to link voice, data and
image infrastructure transmission capabilities.
ICs................................ Investment in equipment and facilities, including the
construction of new facilities, the acquisition of
existing facilities or the relocation or consolidation
of existing ICs and related equipment to achieve the
most efficient use of resources.
</TABLE>
INFORMATION MANAGEMENT
The Company believes that integrated radiology networks require extensive
information management systems to effectively manage operations, compete for
managed care contracts and achieve standardization and economies of scale. The
Company intends to create a network infrastructure, including a FAS and EIS,
which may utilize components of the Founding Affiliated Practices' existing
information systems. The Company is also evaluating the feasibility of deploying
other standard information systems, including a managed care system and a
radiology information system.
The Company intends to implement its initial information management plans
in two phases. During the first phase, the Company intends to focus on building
a basic infrastructure. Specifically, the Company intends to create a network
communications infrastructure and implement the FAS during the remainder of
1997. The network communications infrastructure will provide access to the FAS
and EIS, facilitate the gathering of key operational data and increase internal
communications capabilities through the enterprise-wide deployment of standard
office automation applications. The Company expects that the network
infrastructure will provide the foundation for the sharing and utilization of
certain information among the Affiliated Practices and the Company. The network
will be created with standard components to be managed centrally in order to
minimize the need for local information systems personnel.
The Company intends to deploy the FAS to facilitate timely and accurate
financial reporting throughout the Company. Specifically, the Company intends to
deploy general ledger, accounts payable, payroll and materials management
systems at each of the Affiliated Practices. The FAS will be designed to
facilitate the consistent, efficient reporting of financial information across
all practices using one standard chart of accounts with a single set of
accounting practices and financial controls. The Company expects that the
deployment of the FAS will streamline and simplify the financial reporting
process and will provide a tool for managing practice efficiency benchmarks.
During phase two, the Company expects to focus on assimilating and
analyzing data from its Affiliated Practices' disparate information systems. In
this phase, the Company intends to deploy an EIS that will facilitate the
management reporting of key operational data. The Company anticipates that the
EIS will provide a repository to store pertinent encounter data and initially
will use the Affiliated Practices' practice management systems, radiology
information systems and the FAS as primary data sources. It is anticipated that
the EIS will provide variance, utilization, reimbursement efficiency and trend
analysis reporting capabilities. The Company believes that the EIS will enable
Affiliated Practices to enhance the quality of
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information, increase revenue, improve operating efficiencies and more
effectively control costs. There can be no assurance that the Company will be
able to implement the FAS or EIS on a timely basis, if at all, that it will not
encounter delays in implementation or that these systems will produce the
expected benefits. See "Risk Factors -- Dependence on Information Systems."
SERVICE AGREEMENTS
Upon consummation of the Mergers and Exchanges, the Company will be a party
to a Service Agreement with each Founding Affiliated Practice under which the
Company will become the exclusive manager and administrator of non-medical
services relating to the operation of the Founding Affiliated Practice. The
following summary of the Service Agreement is intended to be a brief description
of the standard form of the Service Agreement that the Company will be a party
to with each Founding Affiliated Practice. The Service Agreements may vary from
the description below depending on the requirements of local regulations and
negotiations with the individual Founding Affiliated Practices. The Company
expects to enter into agreements with similar provisions with Affiliated
Practices in the future.
The service fees payable to the Company by the Affiliated Practices under
the Service Agreements vary based on the fair market value, as determined in
arms' length negotiations, and the nature and extent of services provided. Where
state law allows, service fees due under the Service Agreements are derived from
two distinct revenue streams: (i) the Affiliated Practice pays a service fee
based on a negotiated percentage (Founding Affiliated Practice service fees
range from 20% to 25%) of the adjusted professional revenues as defined in the
Service Agreement; and (ii) the Affiliated Practice pays a service fee based on
100% of the adjusted technical revenues as defined in the Service Agreement,
which equals the fair value of the services provided. In states where the law
requires a flat fee structure, the Company has negotiated a base service fee,
which is equal to the fair market value of the services provided under the
Service Agreement and which is renegotiated each year to equal the fair market
value of the services provided under the Service Agreement. Adjusted
professional revenues and adjusted technical revenues are determined by
deducting certain contractually agreed-upon expenses (non-physician salaries and
benefits, rent, depreciation, insurance, interest and other non-physician costs)
from physician groups revenue of the Affiliated Practice. In addition, the
Company will receive income from joint ventures in which the Company will hold
ownership interests. Revenues will be billed by the Company on behalf of the
Affiliated Practices. Payments will be received by the Affiliated Practice and
transferred to the Company on a daily basis. On a monthly basis the Company will
calculate the amount of service fees due and remit to the Affiliated Practices
an amount equal to the difference between the net revenues of the Affiliated
Practice and the service fees calculated by the Company. See "APPI -- APPI's
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
Set forth below is a sample calculation of the service fees under the two
fee structures described above and the respective income statements of a
hypothetical Affiliated Practice and the Company related to such service fee
calculation. The following examples are for illustrative purposes only and do
not represent the actual or potential service fee that would be payable by any
Affiliated Practice, the operating results of any Affiliated Practice or the
relationship of revenues and expenses.
SAMPLE SERVICE FEE CALCULATION
<TABLE>
<CAPTION>
NEGOTIATED PERCENTAGE STRUCTURE BASE FEE STRUCTURE
------------------------------------- -----------------------------------
PROFESSIONAL TECHNICAL TOTAL PROFESSION TECHNICAL TOTAL
------------ --------- ------ ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Physician group revenue, net................. $1,200 $ 800 $2,000 $1,200 $ 800 $2,000
Agreed-upon expenses(1)...................... 170 594 764 170 594 764
------ ---- ------ ------ ---- ------
Adjusted Professional/Technical Revenues..... $1,030 $ 206 $1,236 $1,030 $ 206 $1,236
====== ==== ====== ====== ==== ======
Negotiated service fee%...................... 20% 100% NA NA NA
Service Fee.................................. $ 206 $ 206 $ 412 --
====== ==== ====== ====== ==== ======
Base Service Fee............................. -- $ 412
Reimbursement of expenses.................... 764 764
------ ------
Service fee revenue.......................... $1,176 $1,176
====== ======
</TABLE>
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SAMPLE INCOME STATEMENT
<TABLE>
<CAPTION>
AFFILIATED
PRACTICE APPI SUBSIDIARY
---------- ---------------
<S> <C> <C>
Physician group revenue, net...................................... $2,000 $ 2,000
Less: amounts retained by physician group......................... -- (824)
------ ------
Service fee revenue............................................... 2,000 1,176
Cost of physician services........................................ 824 --
Operating expenses(1)............................................. 764 764
APPI service fee.................................................. 412 --
------ ------
Total costs and expenses........................................ 2,000 764
Income before taxes............................................... $ -- $ 412
====== ======
</TABLE>
- ---------------
(1) Expenses include non-physician salaries and benefits, rent, depreciation,
insurance, interest, and other non-physician costs.
Pursuant to the Service Agreement, the Company will, among other things:
(i) act as the exclusive manager and administrator of non-physician services
relating to the operation of the Founding Affiliated Practice, subject to
matters reserved to the Founding Affiliated Practice or referred to the Joint
Planning Board; (ii) aid in the billing of hospitals, insurance companies and
other third-party payors and collect on behalf of the Founding Affiliated
Practice the fees for professional medical and other services rendered by the
Founding Affiliated Practice; (iii) provide, as necessary, clerical, accounting,
purchasing, payroll, legal, bookkeeping and computer services and personnel,
information management, preparation of certain tax returns and medical
transcribing services; (iv) supervise and maintain custody of substantially all
files and records; (v) provide facilities for the Founding Affiliated Practice;
(vi) prepare, in consultation with the Joint Planning Board and the Founding
Affiliated Practice, all annual operating and capital budgets; (vii) order and
purchase inventory and supplies as necessary; (viii) implement, in consultation
with the Joint Planning Board and the Founding Affiliated Practice, national and
local public relations or advertising programs; (ix) provide financial and
business assistance in the negotiation, establishment, supervision and
maintenance of contracts and relationships with managed care and other similar
providers and payors; and (x) assist the Founding Affiliated Practice with
obtaining medical malpractice insurance for its physicians and other medical
professionals.
The Service Agreements require the Company and each Founding Affiliated
Practice to establish a Joint Planning Board consisting of not less than three
nor more than six members; two designees of the Company (each with one vote) and
no less than one or more than four designee(s) of the Founding Affiliated
Practice (representing two votes in the aggregate). Each Joint Planning Board
will have responsibilities that include developing long-term strategic
objectives relating to practice expansion and payor contracting guidelines,
promoting practice efficiencies, recommending capital expenditures and generally
serving as a means by which the Company and each of the Founding Affiliated
Practices will communicate and exchange information. The Company intends to
continue to establish Joint Planning Boards in the future, some of which may be
on a regional level.
Under the Service Agreements, each Founding Affiliated Practice will remain
responsible for (i) hiring and compensating its physicians and certain other
medical professionals, (ii) the licensing, credentialling and certification
necessary to conduct its practice, (iii) obtaining and maintaining medical
malpractice insurance for the professional entity and its physician employees,
(iv) providing professional radiological services and (v) complying with federal
and state laws, regulations and other ethical standards applicable to the
practice of radiology. Pursuant to the Service Agreements, the Founding
Affiliated Practices will maintain full control over the provision of
professional radiological services. The Company will not engage in the practice
of medicine or provide professional radiological services. In addition, the
Service Agreements with the Founding Affiliated Practices also contain
provisions whereby both the Company and each Founding Affiliated Practice have
agreed to certain restrictions on accepting or pursuing radiology opportunities
within a 15-mile radius (decreasing to ten miles upon the expiration of 12
months) of any of the Company's owned, operated or
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managed ICs at which the Founding Affiliated Practice provides professional
radiology services or any hospital at which a Founding Affiliated Practice
provides on-site professional radiology services. Each Service Agreement also
restricts the applicable Founding Affiliated Practice from competing with the
Company and other Affiliated Practices within a specified geographic area during
the term of such Service Agreement. In addition, the Service Agreements require
the Founding Affiliated Practices to enter into and enforce agreements with the
stockholders and full-time radiologists at each Founding Affiliated Practice
(subject to certain exceptions) that include covenants not to compete with the
Company for a period of two years after termination of employment.
The Service Agreements are for an initial term of 40 years, with automatic
extensions of five years unless notice of termination is given. The Service
Agreements may be terminated by either party if (i) the other party (a) files a
petition in bankruptcy or other similar events occur or (b) defaults in the
performance of a material duty or obligation, which default continues for a
specified period after notice or (ii) an opinion is rendered by a law firm of
nationally-recognized expertise in health care law that a material term of the
Service Agreement is in violation of applicable law (or a court or regulatory
agency finds as such) and such violation cannot be cured.
Each Service Agreement may also be terminated by the Company if the
Founding Affiliated Practice or a physician employee engages in conduct, or is
formally accused of conduct, for which the physician employee's license to
practice medicine reasonably would be expected to be subject to revocation or
suspension or is otherwise disciplined by any licensing, regulatory or
professional entity or institution, the result of any of which (in the absence
of termination of such physician or other action to monitor or cure such act or
conduct) does or reasonably would be expected to materially adversely affect the
Founding Affiliated Practice. In addition, the Company may terminate a Service
Agreement with any Founding Affiliated Practice if, during the first five years
of the Service Agreement, more than 33 1/3% of the total number of physicians
employed or retained by such practice are no longer employed or retained by such
practice other than because of certain events, including death, permanent
disability, pre-qualified retirement or involuntary loss of hospital contracts
or privileges.
Upon termination of a Service Agreement with a Founding Affiliated
Practice, depending upon the termination event, the Company may have the right
to require such Founding Affiliated Practice to purchase and assume, or the
Founding Affiliated Practice may have the right to require the Company to sell,
assign and transfer to it, the assets and related liabilities and obligations
associated with the professional and technical radiology services provided by
the Founding Affiliated Practice immediately prior to such termination. The
purchase price for such assets, liabilities and obligations will be the lesser
of fair market value thereof or the return of the consideration received in the
Merger or Exchange as the case may be; provided, however, that the purchase
price shall not be less than the net book value of the assets being purchased.
PRACTICE MARKETING
The Company intends to focus its marketing efforts on referring physicians,
hospitals and managed care organizations. Prior to the Mergers and Exchanges,
the Founding Affiliated Practices' marketing efforts were based primarily upon
the professional reputations and individual efforts of such practices and its
radiologists. The Company believes there is an opportunity to capitalize on the
professional reputations of the Founding Affiliated Practices by applying
professional sales and marketing techniques to increase the Affiliated
Practices' volume of business and expand the potential geographic market for
each Affiliated Practice beyond its local physician community.
In addition, the Company will seek to secure new contracts and expand
existing contracts with managed care organizations for the provision of
radiology services. The Company is prepared to negotiate flexible arrangements
with managed care organizations on behalf of the Affiliated Practices.
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GOVERNMENT REGULATION AND SUPERVISION
General
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. The ability of the Company to operate profitably
will depend in part upon the Company, the Affiliated Practices and their
affiliated physicians obtaining and maintaining all necessary licenses,
certificates of need and other approvals and operating in compliance with
applicable health care regulations. The Company believes that health care
regulations will continue to change and, therefore, intends to monitor
developments in health care law and the Company expects to modify its operations
from time to time as the business and regulatory environment changes. There can
be no assurance that the Company will be able to modify its operations so as to
address changes in the regulatory environment.
Licensing and Certification Laws
Every state imposes licensing requirements on individual physicians and on
facilities operated, or services performed, by physicians and others. In
addition, federal and state laws regulate HMOs and other managed care
organizations with which Affiliated Practices or their affiliated physicians may
have contracts. Many states require regulatory approval, including certificates
of need and/or licensing, before establishing or expanding certain types of
health care facilities, offering certain services or making expenditures in
excess of statutory thresholds for health care equipment, facilities or
programs. In connection with the expansion of existing operations and the entry
into new markets, the Company, the Affiliated Practices or their affiliated
physicians may become subject to additional regulation.
In addition to existing government health care regulation, there have been
numerous initiatives on the federal and state levels for comprehensive reforms
affecting the payment for and availability of health care services. The Company
believes that such initiatives will continue during the foreseeable future.
Certain aspects of these reforms as proposed in the past, such as further
reductions in Medicare and Medicaid payments and additional prohibitions on
physician ownership, directly or indirectly, of facilities to which they refer
patients, if adopted, could adversely affect the Company. Concern about the
potential effects of such reform measures has contributed to the volatility of
stock prices of many companies in health care and related industries and may
similarly affect the market price of the Common Stock.
Federal regulatory and law enforcement authorities have recently increased
enforcement activities with respect to Medicare and Medicaid fraud and abuse
regulations and other reimbursement laws and rules, including laws and
regulations that govern the Company's activities. There can be no assurance that
the Company's activities will not be investigated, that claims will not be made
against the Company or that these increased enforcement activities will not
directly or indirectly have an adverse effect on the Company's business,
financial condition and results of operations.
Fee-Splitting; Corporate Practice of Medicine
The laws of many states (including each of the states in which the Founding
Affiliated Practices are located) prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from practicing medicine.
These laws vary from state to state and are enforced by the courts and by
regulatory authorities with broad discretion. Although the Company intends to
structure its proposed operating structures and methods as described in the Form
S-1 so as to comply with existing applicable laws, the Company's business
operations have not been the subject of judicial or regulatory interpretation.
There can be no assurance that a review of the Company's business by courts or
regulatory authorities will not result in determinations that could adversely
affect the operations of the Company or that the health care regulatory
environment will not change so as to restrict the Company's planned operations
and expansion. In addition, the regulatory framework of certain jurisdictions
may limit the Company's expansion into such jurisdictions if the Company is
unable to modify its operational structure to conform with such regulatory
framework.
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Medicare Physician Payment System
The Company believes that regulatory trends in cost containment will
continue to result in a reduction from historical levels in per-patient revenue
for medical practices. The federal government has implemented, through the
Medicare program, the RBRVS payment methodology for physician services. The
RBRVS is a fee schedule that, except for certain geographical and other
adjustments, pays similarly situated physicians the same amount for the same
services. The RBRVS is adjusted each year and is subject to increases or
decreases at the discretion of Congress. To date, the implementation of the
RBRVS has reduced payment rates for certain of the procedures historically
provided by the Founding Affiliated Practices. BBA 97 provides for reductions in
the rate of growth of payments for physician services, including services
historically provided by the Affiliated Practices, in the amount of $5.3 billion
over a five-year period ending in 2002. In addition, BBA 97 provides for the
implementation of a resource-based methodology for payment of physician practice
expenses under the physician fee schedule over a four-year period beginning in
1999. Adoption of this methodology is expected to reduce payments for services
historically provided by the Affiliated Practices. There can be no assurance
that any reduced operating margins could be offset by the Company through cost
reductions, increased volume, the introduction of additional procedures or
otherwise. Private third-party payors and Medicare and Medicaid have increased
their use of managed care as a means of cost containment. Increasingly, private
third-party payors negotiate discounts from established physician and hospital
charges or require capitation or other risk sharing arrangements as a condition
of patient referral to physician groups such as the Affiliated Practices. BBA 97
also includes provisions designed to increase the enrollment of Medicare and
Medicaid participants in managed care programs. The inability of the Company to
negotiate satisfactory arrangements with managed care companies would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Rates paid by non-governmental insurers, including those that provide
Medicare supplemental insurance, are based on established physician and hospital
charges and are generally higher than Medicare payment rates. A change in the
makeup of the patient mix of the medical practices that results in a decrease in
patients covered by private insurance plans could adversely affect the Company's
revenue and income.
Medicare and Medicaid have increased their use of managed care as a means
of cost containment. As with private third-party payors, Medicare and Medicaid
managed care contractors negotiate discounts from established physician and
hospital charges or require capitation or other risk sharing arrangements as a
condition of patient referral to physician groups such as the Affiliated
Practices. BBA 97 includes provisions designed to increase the enrollment of
Medicare and Medicaid participants in managed care programs. The inability of
the Company to negotiate satisfactory arrangements with Medicare and Medicaid
managed care contractors could have a material adverse effect on the Company's
business, financial condition and results of operations.
Medicare and Medicaid Fraud and Abuse
Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce, (i) the referral of a
person, (ii) the furnishing or arranging for the furnishing of items or services
reimbursable under Medicare, Medicaid or other governmental programs or (iii)
the purchase, lease or order or arranging or recommending purchasing, leasing or
ordering of any item or service reimbursable under the Medicare, Medicaid or
other governmental. Pursuant to this anti-kickback law, the federal government
has recently announced a policy of increased scrutiny of joint ventures and
other transactions among health care providers in an effort to reduce potential
fraud and abuse relating to Medicare costs. The applicability of these
provisions to many business transactions in the health care industry has not yet
been subject to judicial and regulatory interpretation. Noncompliance with the
federal anti-kickback legislation can result in exclusion from the Medicare,
Medicaid or other governmental programs and civil and criminal penalties.
The Company believes that although it will receive fees under the Service
Agreements for management and administrative services, it is not in a position
to make or influence referrals of patients or services reimbursed under the
Medicare, Medicaid or other governmental programs to Affiliated Practices or
their
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affiliated physicians, or to receive such referrals. Such service fees are
intended by the Company to be consistent with fair market value in arms' length
transactions for the nature and amount of management and administrative services
rendered. For these reasons, the Company does not believe that fees payable to
it should be viewed as remuneration for referring or influencing referrals of
patients or services covered by such programs as prohibited by statute. If,
however, the Company is deemed to be in a position to make, influence or receive
referrals from or to physicians, or the Company is deemed to be a provider under
the Medicare or Medicaid programs, the operations of the Company could be
subject to scrutiny under federal and state anti-kickback and anti-referral laws
and the Company's operations could be materially and adversely affected.
Significant prohibitions against physician referrals have been enacted by
Congress. These prohibitions, commonly known as "Stark II," amended prior
physician self-referral legislation known as "Stark I" by dramatically enlarging
the field of physician-owned or physician-interested entities to which the
referral prohibitions apply. Stark II prohibits a physician from referring
Medicare or Medicaid patients to an entity providing "designated health
services", including without limitation radiology services, in which the
physician has an ownership or investment interest, or with which the physician
has entered into a compensation arrangement. The penalties for violating Stark
II include a prohibition on payment by these government programs and civil
penalties of as much as $15,000 for each violative referral and $100,000 for
participation in a "circumvention scheme." The Company believes that although it
will receive fees under the Service Agreements for management and administrative
services, it is not in a position to make or influence referrals of patients. To
the extent that the Company or any Affiliated Practice is deemed to be subject
to the prohibitions contained in Stark II for services, the Company believes its
activities fall within the permissible activities defined in Stark II.
In addition, the Company intends to structure its acquisition of the assets
of existing practices so as to not violate the anti-kickback and Stark II laws
and regulations. Specifically, the Company believes the consideration paid by
the Company to physicians to acquire the tangible and intangible assets
associated with their practices is consistent with fair market value in arms'
length transactions and not intended to induce the referral of patients. Should
this practice be deemed to constitute an arrangement designed to induce the
referral of Medicare or Medicaid patients, then the Company's acquisitions could
be viewed as possibly violating anti-kickback and anti-referral laws and
regulations. A determination of liability under any such laws could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Federal regulatory and law enforcement authorities have recently increased
enforcement activities with respect to Medicare and Medicaid fraud and abuse
regulations and other reimbursement laws and rules, including laws and
regulations that govern the Company's contemplated activities will not be
investigated, that claims will not be made against the Company or that these
increased enforcement activities will not directly or indirectly have an adverse
effect on the Company's business, financial condition and results of operations.
Health Care Reform Initiatives
In addition to existing government health care regulation, there have been
numerous initiatives on the federal and state levels for comprehensive reforms
affecting the payment for and availability of health care services. The Company
believes that such initiatives will continue during the foreseeable future.
Certain aspects of these reforms as proposed in the past, such as further
reductions in Medicare and Medicaid payments and additional prohibitions on
physician ownership, directly or indirectly, of facilities to which they refer
patients, if adopted, could adversely affect the Company. Concern about the
potential effects of such reform measures has contributed to the volatility of
stock prices of many companies in health care and related industries and may
similarly affect the market price of the Common Stock.
Compliance Program
With the assistance of the Company's special health care regulatory
counsel, the Company intends to implement a program to monitor compliance with
federal and state laws and regulations applicable to health care entities. The
Company intends to appoint a compliance officer who will be charged with
implementing and supervising the Company's compliance program, which will
involve the adoption of (i) "Standards of
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Conduct" for its employees and affiliates and (ii) an "Ethics Process" that will
specify how employees, affiliates and others may report regulatory or ethical
concerns to the Company's compliance officer. As part of the Ethics Process, the
Company intends to introduce various methods designed to facilitate the
reporting of any regulatory and ethical issues to the compliance officer for
investigation or appropriate corrective action. In addition, the Company intends
to conduct or have its special health care regulatory counsel conduct periodic
audits of various aspects of its operations, including the Affiliated Practices.
The Company also intends to initiate a training program designed to familiarize
its employees with the regulatory requirements and the elements of the Company's
compliance program.
Insurance Laws and Regulation
Certain states have enacted statutes or adopted regulations affecting risk
assumption in the health care industry, including statutes and regulations that
subject any physician or physician network engaged in risk-based contracting to
applicable insurance laws and regulations, which may include, among other
things, laws and regulations providing for minimum capital requirements and
other safety and soundness requirements. The Company believes that it and the
Affiliated Practices are currently in compliance with such insurance laws and
regulations. However, implementation of additional regulations or compliance
requirements could result in substantial costs to the Company and the Affiliated
Practices. The inability to enter into capitated or other risk-sharing
arrangements or the cost of complying with certain applicable laws that would
permit expansion of the Company's risk-based contracting activities could have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
The Affiliated Practices and the Company's owned, operated or managed ICs
will compete with local radiologists and technical and imaging service
providers, including for profit and non-profit hospitals and health systems, in
each of the markets served by the Company. The Company believes that changes in
governmental and private reimbursement policies and other factors have resulted
in increased competition among providers for medical services to consumers and
that cost, accessibility, quality and scope of services provided are the
principal factors that affect competition. There can be no assurance that the
Affiliated Practices and the Company's owned, operated or managed ICs will be
able to compete effectively in the markets that they serve, which inability to
compete could adversely affect the Company.
The Company believes that the current trends in the hospital industry have
resulted in increased competition by radiology groups for hospital contracts.
Each of the Founding Affiliated Practices provides radiology services to
hospitals. These relationships can be affected through competition with other
radiology groups, the outsourcing of the radiology and imaging functions within
the hospital or closure of the hospital due to consolidation or financial
instability. There can be no assurance that each of the Founding Affiliated
Practices will maintain its current hospital relationships and be able to renew
or extend its current arrangements under favorable terms or effectively compete
for new relationships.
The Company is under competitive pressures for the acquisition and
retention of the assets of, and the provision of management, technical and
administrative services to, additional radiology practices, MSOs and ICs. There
are a number of publicly-traded companies focused on owning or managing ICs,
including U.S. Diagnostic Labs Inc., Medical Resources, Inc., TeamHealth and
Health Images (a division of HEALTHSOUTH Corporation). The Company is aware of
two privately-held physician practice management companies focused on
professional and technical radiology services. Several companies, both publicly
and privately held, that have established operating histories and, in some
instances, greater resources than the Company are pursuing the acquisition of
general and specialty physician practices (including radiology in the case of
TeamHealth) and the management of such practices. Additionally, some hospitals,
clinics, health care companies, HMOs and insurance companies engage in
activities similar to those of the Company. There can be no assurance that the
Company will be able to compete effectively with such competitors for the
acquisition of, or affiliation with, radiology practices, that additional
competitors will not enter the market, that such competition will not make it
more difficult or expensive to acquire the assets of, and provide management,
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administrative, technical and non-medical services to, radiology practices on
terms beneficial to the Company or that competitive pressures will not otherwise
adversely affect the Company.
FACILITIES AND EMPLOYEES
The Company's corporate headquarters are located at 2301 NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, in approximately 13,349 square feet
occupied under a lease which expires on September 30, 2001. As of September 12,
1997, the Company had 19 employees and, upon consummation of the Mergers and
Exchanges, the Company expects that it will have approximately 1,100 employees,
approximately 30 of which will be employed at the Company's headquarters and
regional offices and the remainder of which will be employed at the Founding
Affiliated Practices. The Company believes that its relationship with its
employees is good. See "APPI -- APPI's Operation, Management and Business
Following the Mergers and Exchanges -- Operations and Development."
CORPORATE LIABILITY AND INSURANCE
The Founding Affiliated Practices maintain professional liability insurance
coverage primarily on a claims made basis. Such insurance provides coverage for
claims asserted when the policy is in effect regardless of when the events that
caused the claim occurred. As a result of the Mergers and Exchanges, the Company
will in some cases succeed to certain liabilities of the Founding Affiliated
Practices. Therefore, claims may be asserted after the Mergers and Exchanges
against the Company for events which occurred prior to the Mergers and
Exchanges. Following the Mergers and Exchanges, the Company and the Affiliated
Practices intend to maintain insurance coverage similar to the coverage
previously maintained by the Founding Affiliated Practices. On September 1,
1997, a new law became effective in the state of Texas that permits injured
patients to sue health insurance carriers, HMOs and other managed care entities
for medical malpractice. There can be no assurance that this law will not
increase the cost of liability insurance to the Company for services provided in
Texas or any other states in which the Company does business if similar
legislation is adopted in those states.
The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. The Company's intent is to not influence
or control the practice of medicine by physicians or have responsibility for
compliance with certain regulatory and other requirements directly applicable to
physicians and physician groups. As a result of the relationship between the
Company and the Affiliated Practices, however, the Company may become subject to
medical malpractice actions under various theories, including successor
liability. There can be no assurance that claims, suits or complaints relating
to services provided by Affiliated Practices will not be asserted against the
Company in the future. The Company expects to maintain insurance coverage that
it believes will be adequate. The Company anticipates that such insurance will
extend to professional liability claims that may be asserted against employees
of the Company that work on site at Affiliated Practice locations. In addition,
pursuant to the Service Agreements, the Founding Affiliated Practices are
required (and the Company intends to require any other Affiliated Practices) to
maintain comprehensive professional liability insurance. The availability and
cost of such insurance is affected by various factors, many of which are beyond
the control of the Company and Affiliated Practices. The cost of such insurance
to the Company and the Affiliated Practices may have an adverse effect on the
Company's operations. In addition, successful malpractice or other claims
asserted against Affiliated Practices or the Company that exceed applicable
policy limits could have a material adverse effect on the Company.
In connection with the Mergers and Exchanges, the security holders of the
Founding Affiliated Practices have agreed to indemnify the Company for certain
claims. There can be no assurance that the Company will be able to receive
payments under any such indemnity agreements or that the failure to fully
recover such amounts will not have a material adverse effect on the Company's
business, financial condition or results of operations.
Following the Mergers and Exchanges, the Founding Affiliated Practices will
be required by the terms of the Service Agreements to maintain medical
malpractice liability insurance consistent with minimum limits mandated in their
hospital contracts or by applicable state law. It is anticipated that minimum
amounts to be
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maintained will be $1 million per occurrence and $3 million in the aggregate.
The Company intends to maintain general liability and umbrella coverage of $5
million per occurrence and $5 million in the aggregate. Additionally, the
Company will maintain workers' compensation insurance on all employees. Coverage
will be placed on a statutory basis and will respond to each state's specific
requirements.
LEGAL PROCEEDINGS
The Company is not a party to any suits or complaints relating to services
provided by the Company or the Founding Affiliated Practices, although there can
be no assurances that claims will not be asserted against the Company in the
future. The Company will become subject to certain pending claims as the result
of successor liability in connection with the Mergers and Exchanges; however,
the Company believes that the ultimate resolution of such claims will not have a
material adverse effect on the business, financial condition or results of
operations of the Company.
Although the Company has not been named in any of the lawsuits against a
Founding Affiliated Practice, there can be no assurance that the Company will
not subsequently be named as a defendant in one or more of these lawsuits
following consummation of the Mergers and Exchanges. Each Founding Affiliated
Practice has retained responsibility for, and agreed to indemnify the Company in
full against, the liabilities associated with these lawsuits. In the event the
Company is subsequently added as a party in any of these lawsuits, or a monetary
judgment is entered against the Company and indemnification is unavailable for
any reason, the Company's business, financial condition and results of
operations could be materially adversely affected.
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APPI SELECTED FINANCIAL DATA
(IN THOUSANDS)
The following information for APPI has been derived from the Company's
financial statements. APPI was incorporated in April 1996 and has conducted no
significant operations and generated no revenue to date other than in
conjunction with the Initial Public Offering and the pending Mergers and
Exchanges. The selected financial data presented below for the six months ended
June 30, 1997 have been prepared on the same basis as the audited financial
statements included herein and, in the opinion of management of the Company,
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information set forth therein. Results for
interim periods are not necessarily indicative of those to be expected for a
full fiscal year. The selected financial information should be read in
conjunction with "APPI Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the unaudited financial statements of
APPI and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FROM
INCEPTION
(APRIL 30,
1996) SIX MONTHS
THROUGH ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.......................................... $ -- $ --
Expenses:
Salaries, wages and benefits......................... 546 901
Depreciation and amortization........................ 3 13
Other expenses....................................... 1,101 785
-------- -------
Total expenses......................................... 1,650 1,699
-------- -------
Net loss............................................... $ (1,650) $(1,699)
======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets.......................................................... $ 2,486
Total debt............................................................ 3,500
Stockholders' deficit................................................. (3,099)
</TABLE>
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APPI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
as well as those discussed elsewhere in this Prospectus. The historical results
set forth in this discussion and analysis are not indicative of trends with
respect to any actual or projected future financial performance of the Company.
This discussion and analysis should be read in conjunction with the audited
financial statements of APPI and Notes thereto included elsewhere in this
Prospectus/Joint Proxy Statement.
OVERVIEW
APPI has conducted no significant operations to date but will be acquiring,
in connection with the Mergers, Exchanges and Reorganizations and the Initial
Public Offering, tangible and intangible assets and liabilities of, and entering
into Service Agreements with, the Founding Affiliated Practices. Through the
Service Agreements, the Company will be providing management, administrative,
technical and non-medical services to the Affiliated Practices in return for
service fees. The service fees represent the physician groups revenue, net less
amounts retained by physician groups. Physician groups revenue, net consists of
the revenue of the Affiliated Practices reported at the estimated realizable
amounts from patients, third-party payors and others for services rendered, net
of contractual and other adjustments. The service fees payable to the Company by
the Affiliated Practices under the Service Agreements vary based on the fair
market value, as determined in arms' length negotiations, and the nature and
extent of services provided. Where state law allows, the service fees due under
the Service Agreements are derived from two distinct revenue streams: (i) the
Affiliated Practice pays a service fee based on a negotiated percentage
(Founding Affiliated Practice service fees range from 20% to 25%) of the
adjusted professional revenues as defined in the Service Agreement; and (ii) the
Affiliated Practice pays a service fee based on 100% of the adjusted technical
revenues as defined in the Service Agreement, which equals the fair value of the
services provided. In states where the law requires a flat fee structure, the
Company has negotiated a base service fee, which is equal to the fair market
value of the services provided under the Service Agreement and which is
renegotiated each year to equal the fair market value of the services provided
under the Service Agreement. As structured, the base service fee will result in
the Company receiving substantially the same amount of service fee as it would
have received under its negotiated percentage fee structure. The service fees
received by the Company under either fee structure provide the Company with a
net profits or equivalent interest in the Affiliated Practices and, as a result,
the Company will display the revenues, net of the amounts retained by
physicians, and expenses of the Affiliated Practices in its historical
consolidated statement of operations once the Mergers and Exchanges have
occurred. The aggregate initial base service fees in states where the law
requires a flat fee structure are $9,261,000. Adjusted professional revenues and
adjusted technical revenues are determined by deducting certain contractually
agreed-upon expenses (non-physician salaries and benefits, rent, depreciation,
insurance, interest and other non-physician costs) from physician groups revenue
of the Affiliated Practice. In addition, the Company receives income from joint
ventures in which the Affiliated Practices hold ownership interests. Physician
compensation is determined by the Affiliated Practices pursuant to employment
arrangements between the Affiliated Practice and the individual physicians. The
Company does not participate in the negotiation of physician employment
arrangements.
The Company expects that the expenses incurred by the Company associated
with its obligations under the Service Agreements will generally be the same as
the operating costs and expenses that would have otherwise been incurred by the
Founding Affiliated Practices, including: the salaries, wages and benefits of
non-physician personnel; medical supplies expenses involved in administering
technical aspects of the practices; the office (general and administrative)
expenses of the practices; depreciation and amortization of assets acquired from
the Affiliated Practices; and certain other items. As further described in
"APPI -- APPI's Operation, Management and Business Following the Mergers and
Exchanges -- Business Strategy," the Company intends to implement measures
designed to reduce these operating costs and expenses through
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purchase discounts, economies of scale, benchmarking programs and more effective
equipment utilization. In addition to the operating costs and expenses discussed
above, the Company will be incurring additional personnel and administrative
expenses in connection with establishing and maintaining corporate and regional
offices, which will provide management, administrative, marketing and
acquisition services.
In accordance with SAB 48, "Transfers of Nonmonetary Assets by Promoters or
Shareholders," published by the SEC, the acquisition of the assets and
assumption of certain liabilities for all of the Founding Affiliated Practices
pursuant to the Mergers and Exchanges is accounted for by the Company at the
transferors' historical cost basis with the shares of Common Stock to be issued
in those transactions being valued at the historical cost of the non-monetary
assets acquired net of liabilities assumed. Each of the security holders of the
Founding Affiliated Practices is deemed to be a promoter of the Initial Public
Offering. The cash consideration will be reflected as a dividend by APPI to the
owners of the Founding Affiliated Practices. SAB 48 will not be applicable to
any acquisitions made by the Company subsequent to the Initial Public Offering.
It is currently anticipated that the Company's future acquisitions of certain
assets and liabilities of Affiliated Practices may result in substantial annual
non-cash amortization charges for intangible assets in the Company's statements
of operations.
An integral part of the Company's business strategy is to grow through
acquisitions and to expand the Affiliated Practices. Although the Company is
currently engaged in discussions with several such potential acquisition
candidates, except as disclosed in this Prospectus/Joint Proxy Statement, the
Company has not entered into any letters of intent or definitive purchase
agreements with respect to any such acquisitions. No assurance can be provided
that any such acquisitions will be consummated.
RESULTS OF OPERATIONS
APPI has conducted no significant operations to date and will not conduct
significant operations until the Mergers and Exchanges and the Initial Public
Offering are completed. APPI has incurred and continues to incur various legal,
accounting, travel and marketing costs in connection with the Mergers and
Exchanges and the Initial Public Offering. As of June 30, 1997, such expenses
had been funded primarily by the proceeds received from the issuance of $3.5
million in Convertible Notes. In addition, during 1996, APPI borrowed $0.4
million in the form of notes from its stockholders. As of June 30, 1997, these
notes were fully repaid.
APPI has recorded a full valuation allowance against its deferred tax
assets because of its current financial condition, its limited operating history
and its operating losses recorded to date. If the Company does achieve
profitability in the future, the valuation allowance will be reduced by a credit
to income.
LIQUIDITY AND CAPITAL RESOURCES
If the Mergers and Exchanges and the Initial Public Offering had occurred
on June 30, 1997, the Company would have had pro forma working capital of $17.2
million (assuming an Initial Offering Price of $15.00 per share and after giving
effect to the use of proceeds from the Initial Public Offering).
The Company anticipates making capital expenditures during the remainder of
1997 of approximately $7.0 million, primarily for the purchase of imaging and
teleradiology equipment. In addition to these capital expenditures, the Company
is working to establish relationships with third-party vendors regarding the
potential purchase and implementation of management information systems that
could involve additional expenditures of approximately $2.4 million during the
remainder of 1997 and thereafter. The Company also expects to make acquisitions
of the assets of practices during 1997 that will involve the use of cash and
Common Stock.
The Company has executed a $115.0 million Credit Facility with GECC, as
agent, and other lenders, which Credit Facility is expected to become effective
upon consummation of the Mergers and Exchanges and completion of the Initial
Public Offering. Under the terms of the Credit Facility, the Company may borrow,
repay and reborrow amounts during the first three years of the Credit Facility.
Amounts outstanding under the Credit Facility at the end of three years are
required to be repaid in quarterly installments of varying amounts commencing
September 30, 2000. The Credit Facility expires and all loans thereunder mature
on the sixth
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anniversary of the closing date of the Credit Facility. Borrowings under the
Credit Facility at any time may not exceed three times the consolidated EBITDA
of the Company giving pro forma effect to acquisitions made with such
borrowings. At the Company's option, the interest rate shall be (i) an adjusted
LIBOR rate plus an applicable margin which can vary from 1.0% to 1.75% or (ii)
the prime rate plus an applicable margin which can vary from 0 to .75%. In each
case the applicable margin varies based on financial ratios maintained by the
Company. The Credit Facility will include certain restrictive covenants
including prohibitions on the payment of dividends and the maintenance of
certain financial ratios (including minimum debt-service coverage and maximum
debt-to-EBITDA, as defined). Borrowings under the Credit Facility are secured by
all Service Agreements to which APPI is or becomes a party and a pledge of the
stock of APPI's subsidiaries.
Upon consummation of the Initial Public Offering, the Company intends to
borrow approximately $17.0 million under the Credit Facility to refinance
existing indebtedness of the Founding Affiliated Practices and fund working
capital. The Company anticipates that it will use future borrowings under the
Credit Facility to fund capital expenditures for the Affiliated Practices, make
acquisitions and for general corporate purposes.
The availability of the Credit Facility is subject to satisfaction of a
number of closing conditions, including consummation of the Initial Public
Offering with Net Proceeds to the Company of at least $60.0 million,
consummation of the Mergers and Exchanges and other closing and borrowing
conditions. There can be no assurance that borrowing capacity under the Credit
facility will be available to the Company when needed.
The Company anticipates that funds generated from the Initial Public
Offering, after giving effect to the use of proceeds from the Initial Public
Offering in the manner set forth in "Use of Proceeds" in the Form S-1, funds
generated from operations, cash and cash equivalents, and funds expected to be
available under the Credit Facility will be sufficient to meet the Company's
working capital requirements and debt obligations and to finance any necessary
capital expenditures through the end of 1998. Expansion of the Company's
business through acquisitions may require additional funds, which, to the extent
not provided by internally-generated sources, cash, and the Credit Facility,
would require the Company to seek additional debt or equity financing.
The Company intends to call the Convertible Notes for redemption upon
completion of the Initial Public Offering. Upon the call, the Convertible Notes
may, at the election of the noteholders of at least 50% of the outstanding
principal amount, be converted into shares of Common Stock at a conversion price
of $8.00 per share. The Company believes that all of the holders of the
Convertible Notes will elect to convert to Common Stock prior to the redemption.
In the event that some or all of the holders of the Convertible Notes fail to
convert their respective Convertible Notes into Common Stock, the Company
intends to make the redemption payment of up to $3.5 million plus accrued
interest with the proceeds from the proposed Credit Facility.
131
<PAGE> 183
APPI MANAGEMENT AND EXECUTIVE COMPENSATION
MANAGEMENT
The following table sets forth certain information with respect to the
executive officers and directors of APPI:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -------------------------------------------
<S> <C> <C>
Gregory L. Solomon(1)(2)......... 52 President, Chief Executive Officer and
Director
Lawrence R. Muroff, M.D.(1)(2)... 54 Chairman of the Board of Directors and
Senior Vice President of Physician Affairs
Mark S. Martin................... 37 Senior Vice President and Chief Operating
Officer
Sami S. Abbasi................... 32 Senior Vice President and Chief Financial
Officer
Paul M. Jolas.................... 33 Senior Vice President, General Counsel and
Secretary
John W. Colloton(3)(4)........... 66 Director
John Pappajohn(2)(4)............. 69 Director
Derace L. Schaffer, M.D.(1)(3)... 50 Director
Less T. Chafen, M.D.............. 55 Director Nominee
Michael L. Sherman, M.D.......... 55 Director Nominee
</TABLE>
- ---------------
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Acquisition Committee of the Board of Directors.
(3) Member of the Compensation and Stock Plan Administration Committee of the
Board of Directors.
(4) Member of the Audit Committee of the Board of Directors.
GREGORY L. SOLOMON has served as President, Chief Executive Officer and a
director of the Company since its inception. From April 1995 through September
1995, Mr. Solomon served as Chairman of the Board of Directors and Chief
Executive Officer of Physicians Resource Group, Inc., a publicly-traded
physician practice management company which provides management and
administrative services to ophthalmic and optometric practices. Physicians
Resource Group, Inc. became a public company in June 1995 and is listed on the
New York Stock Exchange. From December 1994 through April 1995, Mr. Solomon
served as a consultant to Physicians Resource Group, Inc. From February 1991
through December 1994, Mr. Solomon served as Chairman of the Board of Directors
and Chief Executive Officer of Associated Optical, Inc., a company that provided
optical laboratory services and distributed contact lenses to private
practitioners, retailers and third-party providers of eye care. From March 1983
through February 1991, he served as President, Chief Executive Officer and a
director of Allco Chemical Corporation, a manufacturer of specialty chemicals
serving the electronic and aerospace industries. Mr. Solomon received his M.B.A.
in finance from Indiana University and his B.S. in economics from Xavier
University.
LAWRENCE R. MUROFF, M.D. has served as Chairman of the Board of Directors
and Senior Vice President of Physician Affairs of the Company since its
inception. In connection with the Mergers and Exchanges, the Company will
establish a Physician Advisory Board and Dr. Muroff will serve as its chairman.
Dr. Muroff has served as President of Educational Symposia, Inc., an educational
company which provides qualified teaching credits to radiologists and certain
referring physicians, since January 1975. He has also served as President of
Imaging Consultants, Inc., a company which provides consulting services to
radiology groups, hospital corporations and other entities involved in
diagnostic imaging, since May 1994. Dr. Muroff holds appointments as Clinical
Professor of Radiology at the University of South Florida, College of Medicine
(from 1982 to the present); the University of Florida, College of Medicine (from
1988 to the present); and the H. Lee Moffitt Cancer Center & Research Institute
(from 1994 to the present). From 1974 through 1994, Dr. Muroff was a partner in
Sheer, Ahearn & Associates, a radiology group based in Florida. Dr. Muroff
received his M.D. from Harvard Medical School; his B.M.Sc. in basic medical
science from Dartmouth Medical School; and his A.B. in liberal arts from
Dartmouth College.
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<PAGE> 184
MARK S. MARTIN has served as Chief Operating Officer and Senior Vice
President of the Company since June 1996. From January 1993 through June 1996,
Mr. Martin served as Executive Vice President of Practice Management Development
and Support for Medaphis Physician Services Corporation, a subsidiary of
Medaphis Corporation, a publicly-traded company which provides business and
information services to physicians, physician group practices and hospitals.
From October 1987 through December 1992, he served as Vice President of
Financial Services for CompMed, Inc., a company which provided comprehensive
management and administrative services to hospital-based physicians and
physician groups, with a primary emphasis on radiology. From 1982 through 1987,
Mr. Martin was employed by KPMG Peat Marwick as a tax manager. Mr. Martin was
licensed as a Certified Public Accountant in 1982. He received his B.A. in
accounting from Capital University.
SAMI S. ABBASI has served as Chief Financial Officer and Senior Vice
President of the Company since August 1996. From January 1995 through July 1996,
Mr. Abbasi served as Vice President in the Health Care Group of Robertson,
Stephens & Company. His responsibilities included investment banking business
development and transaction execution with emerging growth publicly-held and
privately-held companies in the health care industry, with specific emphasis on
physician practice management companies. From 1988 through January 1995, he held
various positions with Citicorp Securities, Inc., including Vice President and
Senior Analyst -- Health Care Group. Mr. Abbasi received his M.B.A. from the
University of Rochester and his B.A. in economics from the University of
Pennsylvania.
PAUL M. JOLAS has served as General Counsel and Senior Vice President of
the Company since August 1996 and as Secretary of the Company since October
1996. From September 1989 through July 1996, Mr. Jolas was an attorney with the
law firm of Haynes and Boone, L.L.P. in Dallas, Texas, where he practiced in the
corporate finance section and was responsible for a broad range of corporate and
securities transactions including numerous initial and secondary public
offerings of equity and debt securities, mergers and acquisitions and public
company reporting requirements. Mr. Jolas received his J.D. from Duke University
School of Law and his B.A. in economics from Northwestern University.
JOHN W. COLLOTON became a director of the Company in June 1997. Mr.
Colloton served as the director of the University of Iowa Hospitals and Clinics
from 1971 to 1993, and since 1993, has been Vice President for Statewide Health
Services for the University of Iowa. He also serves as a director of the
following companies: Baxter International, Inc.; MidAmerican Energy, Inc.;
Wellmark, Inc. (Blue Cross and Blue Shield of Iowa and South Dakota); OncorMed,
Inc.; and Iowa State Bank and Trust Company. Mr. Colloton is also a trustee of
the University of Pennsylvania Medical Center. Mr. Colloton, who earned his M.A.
in Hospital and Health Administration from the University of Iowa, has been
elected to the Institute of Medicine of the National Academy of Sciences and has
received Distinguished Service Awards from both the American Hospital
Association and the Association of American Medical Colleges.
JOHN PAPPAJOHN has been a director of the Company since its inception.
Since 1969, Mr. Pappajohn has been the President and principal stockholder of
Equity Dynamics, Inc., a financial consulting firm, and the sole owner of
Pappajohn Capital Resources, a venture capital firm, both located in Des Moines,
Iowa. He also serves as a director of the following public companies: Core,
Inc.; Drug Screening Systems, Inc.; Fuisz Technologies Ltd.; OncorMed, Inc.; The
Care Group, Inc.; PACE HealthManagement Systems, Inc.; Patient InfoSystems,
Inc.; and HealthDesk Corporation. Mr. Pappajohn received his Bachelors degree in
business from the University of Iowa.
DERACE L. SCHAFFER, M.D. has been a director of the Company since its
inception. Dr. Schaffer is President of Ide, one of the Founding Affiliated
Practices, as well as the Lan Group, a venture capital firm. He also serves as a
director of the following public companies: The Care Group, Inc.; Oncor, Inc.;
and Patient InfoSystems, Inc. He is also a director of several private
companies, including Automated Dispatch Solutions, Inc., Medical Records
Corporation, NeuralMed, Inc., NeuralTech, Inc. and Preferred Oncology Networks
of America, Inc. Dr. Schaffer is a board certified radiologist. He received his
postgraduate radiology training at the Harvard Medical School and Massachusetts
General Hospital, where he served as Chief Resident. Dr. Schaffer is a member of
Alpha Omega Alpha, the national medical honor society, and is a Clinical
Professor of Radiology at the University of Rochester School of Medicine.
133
<PAGE> 185
LESS T. CHAFEN, M.D. has been nominated and approved to serve as a director
of the Company effective upon consummation of the Initial Public Offering. Since
1978, Dr. Chafen has served as the Chairman of the Board of Pacific, one of the
Founding Affiliated Practices. Dr. Chafen received his M.D. from Loma Linda
University and his B.A. in zoology and chemistry from Columbia Union College.
MICHAEL L. SHERMAN, M.D. has been nominated and approved to serve as a
director of the Company effective upon consummation of the Initial Public
Offering. Since 1995, Dr. Sherman has served as the President of Advanced, one
of the Founding Affiliated Practices. From 1992 to 1995, Dr. Sherman served as
the Managing Partner of Drs. Copeland, Hyman & Shackman. Dr. Sherman received
his M.D. from the University of Maryland Medical School and his A.B. in history
and pre-medicine from Duke University.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid by APPI for services rendered in all capacities to APPI during
the 1996 fiscal year to the Named Executive Officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION OPTIONS(#) COMPENSATION($)
- -------------------------------- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Gregory L. Solomon.............. $142,500 -- -- 250,000 $ 4,518(1)
President and Chief Executive
Officer
Lawrence R. Muroff, M.D......... 75,000 -- -- 230,000
Chairman of the Board of
Directors and Senior Vice
President of Physician Affairs
Mark S. Martin.................. 84,529 -- -- 180,000 25,274(2)
Senior Vice President and
Chief Operating Officer
Sami S. Abbasi.................. 66,667 -- -- 180,000 5,619(3)
Senior Vice President and
Chief Financial Officer
Paul M. Jolas................... 58,333 -- -- 140,000 945(4)
Senior Vice President and
General Counsel
</TABLE>
- ---------------
(1) Represents amount of health insurance premiums reimbursed by the Company.
(2) Represents amount of health insurance premiums and $24,399 in relocation
expenses reimbursed by the Company.
(3) Represents amount of health insurance premiums and $4,103 in relocation
expenses reimbursed by the Company.
(4) Represents amount of health insurance premiums reimbursed by the Company.
STOCK OPTION PLAN
In May 1996, the Board of Directors adopted, and the stockholders of the
Company subsequently approved, the Company's 1996 Stock Option Plan. The purpose
of the Plan is to provide directors, key employees and certain advisors with
additional incentives by increasing their proprietary interest in the Company.
Under the Plan, the aggregate amount of APPI Common Stock with respect to which
options may
134
<PAGE> 186
be granted may not exceed 3,000,000 shares. The Plan is intended to qualify for
favorable treatment under Section 16 of the Exchange Act, pursuant to Rule 16b-3
promulgated thereunder.
The Plan provides for the grant of ISOs, as defined in Section 422 of the
Internal Revenue Code, and non-qualified stock options. Following the
consummation of the Initial Public Offering, the Plan will be administered by
the Committee, which will be comprised of two or more non-employee directors who
are "disinterested" within the meaning of Rule 16b-3. Prior to the consummation
of the Initial Public Offering, the Plan has been administered by the Company's
full Board of Directors. The Board of Directors currently has, and the Committee
will have, following consummation of the Initial Public Offering, subject to the
terms of the Plan, the sole authority to grant Awards under the Plan, to
construe and interpret the Plan and to make all other determinations and take
any and all actions necessary or advisable for the administration of the Plan.
All of the Company's employees, non-employee directors and advisors are
eligible to receive Awards under the Plan, but only employees of the Company are
eligible to receive ISOs. Options will be exercisable during the period
specified in each option agreement and will generally be exercisable in
installments pursuant to a vesting schedule to be designated by the Committee.
Notwithstanding the provisions of any option agreement, options will become
immediately exercisable in the event of a "change in control" (as defined in the
Plan) of the Company and in the event of certain mergers and reorganizations of
the Company. No option will remain exercisable later than ten years after the
date of grant (or five years from the date of grant in the case of ISOs granted
to holders of more than 10% of the Common Stock).
The exercise price for ISOs granted under the Plan may be no less than the
fair market value of the Common Stock on the date of grant (110% of fair market
value in the case of ISOs granted to holders of more than 10% of the Company's
Common Stock). The exercise price for nonqualified options granted under the
Plan may be no less than 85% of the fair market value of the APPI Common Stock
on the date of grant.
The Plan provides for automatic grants of non-qualified options to purchase
30,000 shares of Common Stock to non-employee directors at the time a director
is first elected or appointed as a non-employee director which vest with respect
to 10,000 shares on the first anniversary of the date of the grant and the
remaining shares become exercisable in 24 equal monthly installments over the
next 24 months, provided that such person continues to serve as a director of
the Company. In addition, upon expiration of the 36-month period following the
initial option grant to such non-employee director, such non-employee director
shall automatically be granted at each annual stockholders meeting a
non-qualified option to purchase 10,000 shares of APPI Common Stock vesting over
a term of 12 months. Each such option entitles the director to purchase shares
of APPI Common Stock at an exercise price equal to the fair market value of the
APPI Common Stock on the automatic grant date. Each option shall have a ten year
term measured from the automatic grant date.
The Plan will also permit the Company to grant stock options to advisors
and consultants of the Company who are employed as physicians of an Affiliated
Practice. Generally, such options will expire upon the termination of employment
with the Affiliated Practice or the advisory or consultant relationship with the
Company or on the day prior to the tenth anniversary of the date of grant,
whichever occurs first.
The Company anticipates that upon the consummation of the Initial Public
Offering it will have outstanding options to purchase a total of approximately
1,681,000 shares of Common Stock to its employees, directors and consultants.
Generally, the outstanding options are exercisable based on a monthly vesting
schedule over 60 months. The Company anticipates that it will issue additional
options concurrently with or shortly following consummation of the Initial
Public Offering. Such options will be exercisable at the fair market value of
the Common Stock on the date of grant. The shares of APPI Common Stock received
upon the exercise of options granted to physicians who are not consultants to or
employees of the Company cannot be included on a Registration Statement on Form
S-8 of the Company. However, such securities may be registered on an alternate
form.
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<PAGE> 187
OPTION GRANTS DURING 1996
The following table presents information regarding 1996 grants of options
to purchase shares of Common Stock for each of the Company's Named Executive
Officers:
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
--------------------------------------- AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM(3)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION -----------------
NAME (1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
------------------------ ---------- ------------ ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Solomon...... 250,000(4) 21.7% $ 0.125 04/30/06 $19,653 $49,804
Lawrence R. Muroff,
M.D................... 230,000(5) 20.0 0.125 04/30/06 18,081 45,820
Mark S. Martin.......... 180,000(4) 15.6 0.125 06/11/06 14,150 35,859
Sami S. Abbasi.......... 180,000(4) 15.6 0.125 07/31/06 14,150 35,859
Paul M. Jolas........... 140,000(6) 12.2 0.125 07/31/06 11,006 27,890
</TABLE>
- ---------------
(1) All options were granted at fair market value at the date of grant, as
determined by the Company's Board of Directors. These options vest monthly
over a five-year period.
(2) The option exercise price may be paid in shares of Common Stock owned by the
executive officer, in cash, or in any other form of valid consideration as
determined by the Committee in its discretion.
(3) The dollar amounts in these columns represent the potential realizable value
that might be realized upon exercise of the options immediately prior to the
expiration of their term, assuming that the market price of Common Stock
appreciates in value from the date of grant at assumed annual rates of 5%
and 10%. These assumed rates of appreciation are prescribed by the rules and
regulations of the SEC, and therefore are not intended to forecast possible
future appreciation, if any, of the price of the APPI Common Stock. These
numbers do not take into account provisions of certain options providing for
termination of the option following termination of employment,
nontransferability or vesting over periods.
(4) Upon consummation of the Initial Public Offering, this option becomes
exercisable with respect to the greater of 50% of the shares covered thereby
or the actual number of shares that have vested. The remainder of the shares
underlying the option become exercisable in equal monthly installments over
the remaining vesting period. These numbers do not take into account
provisions of certain options providing for termination of the option
following termination of employment, nontransferability or vesting over
periods.
(5) As to 200,000 shares, upon consummation of the Initial Public Offering, this
option becomes exercisable with respect to the greater of 100,000 shares or
the actual number of shares that have vested, and the remainder of such
shares become exercisable in equal monthly installments over the remaining
vesting period. As to 30,000 shares, 10,000 shares become exercisable on the
first anniversary of the date of grant and the remaining shares become
exercisable in 24 equal monthly installments over the next 24 months. These
numbers do not take into account provisions of certain options providing for
termination of the option following termination of consulting relationships,
cessation of services as a director of the Company or nontransferability.
(6) Upon consummation of the Initial Public Offering, this option becomes
exercisable with respect to the greater of 25% of the shares covered thereby
or the actual number of shares that have vested upon consummation of the
Initial Public Offering. The remainder of the shares underlying the option
become exercisable in equal monthly installments over the remaining vesting
period. These numbers do not take into account provisions of certain options
providing for termination of the option following termination of employment,
nontransferability or vesting over periods.
136
<PAGE> 188
AGGREGATED OPTION EXERCISES DURING 1996 AND YEAR-END OPTION VALUES
No stock options were exercised by the Company's Named Executive Officers
during the fiscal year ended December 31, 1996. The following table sets forth
certain information regarding unexercised stock options held by each of the
Named Executive Officers as of December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gregory L. Solomon........................ 29,166 220,834 $ 433,844 $ 3,284,906
Lawrence R. Muroff, M.D................... 23,333 206,667 347,078 3,074,172
Mark S. Martin............................ 18,000 162,000 267,750 2,409,750
Sami S. Abbasi............................ 12,000 168,000 178,500 2,499,000
Paul M. Jolas............................. 9,333 130,667 138,828 1,943,672
</TABLE>
- ---------------
(1) Based on an assumed Initial Public Offering Price of $15.00 per share, less
the option exercise price.
CASH BONUS PROGRAM
In April 1997, the Board of Directors adopted, and the stockholders of the
Company subsequently approved, the Company's Cash Bonus Program. The purpose of
the Program is to establish a bonus plan pursuant to which eligible employees
will be entitled to receive cash bonuses based on the performance of the
Company. Those employees eligible to receive cash bonuses under the Program
include the executive officers of the Company and certain key employees whose
responsibilities and activities are closely connected to the Company's overall
performance.
Under the Program, cash bonuses are calculated as a percentage of each
eligible employee's base salary, with such percentage being determined based
upon the annual increase in the Company's earnings per share. In addition, each
eligible employee may receive a cash bonus based upon the achievement of certain
individual objectives and the Company's overall performance. The Program will
become effective upon consummation of the Initial Public Offering and will be
administered by the Committee.
EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
APPI has entered into employment agreements with Gregory L. Solomon, Mark
S. Martin, Sami S. Abbasi and Paul M. Jolas, each of whom shall receive
following the Initial Public Offering annual salaries at the rate of $225,000,
$190,000, $190,000 and $150,000, respectively. Each employment agreement has a
term of one year with automatic successive one-year renewal periods. Each
employment agreement provides that in the event of a termination of employment
by the Company (i) other than for cause, (ii) upon disability or (iii) upon
voluntary termination by employee due to an adverse change in duties, such
employee shall be entitled to receive from the Company a payment equal to
one-half of the amount of such employee's then current annual base salary, to be
paid in one lump sum, plus a payment for all accrued but unpaid wages and
expense reimbursements. Such employment agreements provide that in the event
such employee's employment terminates following a change in control transaction
(as defined in such employment agreements) of the Company, the Company shall pay
such employee two times such employee's then current annual base salary. Each
such employment agreement contains a covenant-not-to-compete with the Company
for a period of one year following termination of employment.
APPI also entered into a consulting agreement with Michael L. Sherman, M.D.
in August 1996 pursuant to which Dr. Sherman received an option grant for 20,000
shares of APPI Common Stock. In addition, the Company and Dr. Sherman have
entered into a consulting agreement which will go into effect immediately
following the Initial Public Offering for which Dr. Sherman will receive annual
compensation of $100,000. Dr. Sherman's responsibilities pursuant to such
consulting agreement will include assisting the Company in recruiting,
screening, evaluating and recommending radiology practices and imaging centers
for affiliation with
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<PAGE> 189
or acquisition by the Company. Dr. Sherman shall also assist the Company in its
efforts to develop and expand its (i) networks through the addition of hospitals
and/or managed care organizations, (ii) strategic alliances with other health
care providers and payors, (iii) relationships with equipment and supply vendors
and (iv) plan for outsourcing imaging services from hospitals.
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<PAGE> 190
APPI PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of APPI Common Stock as of September 12, 1997, and as adjusted, to
give effect to the Mergers and Exchanges, the conversion of the Convertible
Notes and completion of the Initial Public Offering, by (i) all persons known to
the Company to be the beneficial owner of 5% or more of the APPI Common Stock,
(ii) each director of the Company, (iii) each Named Executive Officer, and (iv)
all directors and executive officers as a group. This table does not include
shares of APPI Common Stock that may be purchased pursuant to options not
exercisable within 60 days of the consummation of the Initial Public Offering.
All persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(2)
------------------------------------------------------ ------------ ------------
<S> <C> <C>
Gregory L. Solomon(3)(4).............................. 135,682 6.4%
Lawrence R. Muroff, M.D.(3)(5)........................ 124,545 5.9
Mark S. Martin(3)(6).................................. 94,000 4.5
Sami S. Abbasi(3)(7).................................. 93,830 4.5
Paul M. Jolas(3)(8)................................... 39,468 1.9
Derace L. Schaffer, M.D.(3)(9)........................ 1,122,694 50.7
John Pappajohn(3)(10)................................. 1,046,250 51.1
John W. Colloton(3)................................... 0 *
Michael L. Sherman, M.D.(3)(11)....................... 85,014 1.0
Less T. Chafen, M.D.(3)(12)........................... 31,994 *
Edgewater Private Equity Fund, II, L.P.(13)........... 250,000 11.1
All directors and executive officers as a group (10
persons)(14)........................................ 2,773,477 100.0
</TABLE>
- ---------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise or conversion of stock options
or other securities currently exercisable or convertible, or exercisable or
convertible within 60 days of September 12, 1997 are deemed outstanding and
to be beneficially owned by the person holding such option or security for
purposes of computing such person's percentage ownership, but are not
deemed outstanding for the purpose of computing the percentage ownership of
any other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each stockholder identified in the table possesses
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such stockholder.
(2) Applicable percentage of ownership is based on 2,000,000 shares of Common
Stock outstanding as of September 12, 1997.
(3) The address of Messrs. Solomon, Martin, Abbasi, Jolas, Pappajohn and
Colloton and Drs. Muroff, Schaffer, Chafen and Sherman is c/o American
Physician Partners, Inc., 2301 NationsBank Plaza, 901 Main Street, Dallas,
Texas 75202.
(4) Includes 5,000 shares of Common Stock into which $40,000 in certain
Convertible Notes issued by the Company and held by Mr. Solomon are
convertible. See "Description of Capital Stock -- Convertible Notes." Also
includes 130,682 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of September 12, 1997.
(5) Includes 5,000 shares of Common Stock into which $40,000 in certain
Convertible Notes issued by the Company and held by Dr. Muroff are
convertible. See "Description of Capital Stock -- Convertible Notes." Also
includes 104,545 shares of Common Stock issuable upon exercise of options
exercisable
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<PAGE> 191
within 60 days of September 12, 1997; and exercisable options to purchase
15,000 shares of Common Stock in connection with service as a Director of
the Company.
(6) Includes 94,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of September 12, 1997.
(7) Includes 93,830 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of September 12, 1997.
(8) Includes 39,468 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of September 12, 1997.
(9) Includes 13,468 shares of Common Stock into which $107,500 in certain
Convertible Notes issued by the Company and held by Dr. Schaffer are
convertible. Also includes exercisable option to purchase 14,167 shares of
Common Stock in connection with service as a Director of the Company
exercisable within 60 days of September 12, 1997. Also includes 94,256
shares received in connection with the Ide Merger Transactions.
(10) Includes 31,250 shares of Common Stock into which $250,000 in certain
Convertible Notes issued by the Company and held by Mr. Pappajohn are
convertible. Also includes exercisable option to purchase 14,167 shares of
Common Stock in connection with service as a Director of the Company
exercisable within 60 days of September 12, 1997. Also includes 200,000
shares held by Halkis Ltd., a sole proprietorship owned by Mr. Pappajohn,
150,000 owned by Thebes Ltd., a sole proprietorship owned by Mr.
Pappajohn's spouse, Mary Pappajohn, and 150,000 shares owned directly by
Mary Pappajohn. Mr. Pappajohn disclaims beneficial ownership of the shares
owned by Thebes Ltd. and by Mary Pappajohn.
(11) Includes exercisable options to purchase 20,000 shares of Common Stock in
connection with service as a consultant to the Company. Also includes
65,014 shares received in connection with the Advanced Merger Transactions.
(12) Includes 31,994 shares of Common Stock received in connection with the
Pacific and TMI Merger Transactions.
(13) Includes 250,000 shares of Common Stock into which $2,000,000 in certain
Convertible Notes issued by the Company and held by Edgewater are
convertible.
(14) Includes 538,525 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of September 12, 1997 and 54,688 shares of
Common Stock issuable upon conversion of Convertible Notes.
140
<PAGE> 192
APPI CERTAIN TRANSACTIONS
On April 30, 1996, Derace L. Schaffer, M.D., a director of the Company,
purchased 1,000,000 shares of APPI Common Stock for $125,000 and John Pappajohn,
a director of the Company, and his affiliates purchased 1,000,000 shares of APPI
Common Stock for $125,000. During August 1996, Mr. Pappajohn and Dr. Schaffer
advanced a total of $400,000 to the Company as loans which were repaid on
October 31, 1996, out of the proceeds of the Company's private placement of the
Convertible Notes. Dr. Schaffer owns $107,500 in principal amount of the
Convertible Notes. Mr. Pappajohn owns $250,000 in principal amount of the
Convertible Notes. On July 17, 1997, Mr. Pappajohn advanced $150,000 to the
Company as a loan bearing interest at an annual rate of 6%. On July 25, 1997,
Mr. Pappajohn and Dr. Schaffer personally guaranteed a $1,000,000 line of credit
for the benefit of the Company. The Company repaid the $150,000 loan from Mr.
Pappajohn on August 21, 1997 out of the proceeds of the $1,000,000 line of
credit. On October 3, 1997, Mr. Pappajohn advanced $100,000 to the Company as a
loan bearing interest at an annual rate of 6%. Mr. Pappajohn has agreed to loan
an additional $250,000 to the Company on the same terms prior to the
consummation of the Initial Public Offering, if needed by the Company. The
Company intends to repay the $100,000 and any such additional amounts borrowed
from Mr. Pappajohn upon the consummation of the Initial Public Offering through
borrowings under the Credit Facility.
The Company and Lawrence R. Muroff, M.D., Chairman of the Board of
Directors of the Company and Senior Vice President of Physician Affairs, entered
into a consulting agreement in October 1997 pursuant to which Dr. Muroff will
receive annual compensation of $112,500 (prorated for actual months worked) in
exchange for rendering consulting services to the Company. The agreement will
become effective on the date following the consummation of the Initial Public
Offering. In 1996, Dr. Muroff received an option grant for 200,000 shares of
Common Stock in connection with his employment by the Company. In addition, he
received option grants for 30,000 shares for his services as a member of the
Company's Board of Directors. See "APPI -- APPI's Operation, Management and
Business Following the Mergers and Exchanges -- Management and Executive
Compensation." Dr. Muroff owns $40,000 in principal amount of the Convertible
Notes.
The Company and Michael L. Sherman, M.D., a director nominee of the
Company, entered into a consulting agreement in August 1996 pursuant to which
Dr. Sherman received an option grant for 20,000 shares of APPI Common Stock. In
addition, the Company and Dr. Sherman have entered into a consulting agreement
which will go into effect immediately following the Initial Public Offering for
which Dr. Sherman will receive annual compensation of $100,000. Dr. Sherman's
responsibilities pursuant to such consulting agreement will include assisting
the Company in recruiting, screening, evaluating and recommending radiology
practices and imaging centers for affiliation with or acquisition by the
Company. Dr. Sherman shall also assist the Company in its efforts to develop and
expand its (i) networks through the addition of hospitals and/or managed care
organizations, (ii) strategic alliances with other health care providers and
payors, (iii) relationships with equipment and supply vendors and (iv) plan for
outsourcing imaging services from hospitals. The Company has agreed to nominate
Dr. Sherman for election to the Board of Directors at the next two annual
meetings of stockholders.
Mr. Solomon, the President, Chief Executive Officer and a director, owns
$40,000 in principal amount of the Convertible Notes.
In connection with the Advanced Merger Transactions, Ide Merger
Transactions, Pacific Merger Transactions and TMI Merger Transactions, Dr.
Sherman will receive 65,014 shares of Common Stock and $303,395, Dr. Schaffer
will receive 94,256 shares of Common Stock and $471,278 and Dr. Less T. Chafen
will receive 31,994 shares of Common Stock and $149,307, respectively.
141
<PAGE> 193
In addition, the following table provides certain information concerning
the security holders of the Founding Affiliated Practices, including cash
distributions to be paid in connection with the Mergers and Exchanges assuming
the initial public offering price of the APPI Common Stock is $15.00 per share.
Each of the below listed security holders of the Founding Affiliated Practices
is deemed to be a promoter of the Initial Public Offering. This table excludes
the impact of fractional shares.
<TABLE>
<CAPTION>
CONSIDERATION TO
BE RECEIVED
---------------------------
ASSETS TO BE NUMBER OF CASH
FOUNDING AFFILIATED PRACTICES CONTRIBUTED(1) SHARES DISTRIBUTION
------------------------------------------------------------------ -------------- ---------- ------------
<S> <C> <C> <C>
Advanced Radiology, LLC
Neil Borelli, M.D. ............................................. $ 388,072 41,216 $ 206,079
Edward Carter, M.D. ............................................ 388,072 41,216 206,079
Valeriano Fugos, M.D. .......................................... 388,072 41,216 206,079
Richard Harr, M.D. ............................................. 388,072 41,216 206,079
Harry Knipp, M.D. .............................................. 388,072 41,216 206,079
Nathan Stofberg, M.D. .......................................... 305,891 32,488 162,439
Larry Snyder, M.D. ............................................. 612,139 65,014 325,068
Samuel Anderman, M.D. .......................................... 612,139 65,014 325,068
Sheldon Bearman, M.D. .......................................... 612,139 65,014 325,068
Michael Sherman, M.D. .......................................... 612,139 65,014 325,068
Charles Weiner, M.D. ........................................... 612,139 65,014 325,068
Bruce Berlanstein, M.D. ........................................ 612,139 65,014 325,068
John A. Reeder, M.D. ........................................... 612,139 65,014 325,068
Jack Copeland, M.D. ............................................ 428,323 45,491 227,455
Edward Mishner, M.D. ........................................... 612,139 65,014 325,067
Blair Andrew, M.D. ............................................. 612,139 65,014 325,067
Anuradha Bhasin, M.D. .......................................... 612,139 65,014 325,067
Bennett Sweren, M.D. ........................................... 612,139 65,014 325,067
Laurence Goldstein, M.D. ....................................... 612,139 65,014 325,067
James Winthrop, M.D. ........................................... 612,139 65,014 325,067
Robert Van Beisen, M.D. ........................................ 612,139 65,014 325,067
Danllo Espinola, M.D. .......................................... 612,139 65,014 325,067
Judy Destouet, M.D. ............................................ 612,139 65,014 325,067
W. David McNeely, M.D. ......................................... 601,405 63,874 319,367
Christopher Feifarek, M.D. ..................................... 601,405 63,874 319,367
Douglas Brunner, M.D. .......................................... 601,405 63,874 319,367
J. Stephen Cunat, M.D. ......................................... 601,405 63,874 319,367
J. Thayer Simmons, M.D. ........................................ 601,405 63,874 319,367
J. Dave Faison, M.D. ........................................... 601,405 63,874 319,367
Daniel Aronson, M.D. ........................................... 488,365 51,867 259,339
Paul Barnett, M.D. ............................................. 488,365 51,867 259,339
Barbara Braitman, M.D. ......................................... 488,365 51,867 259,339
Barton Cockey, M.D. ............................................ 488,365 51,867 259,339
Colleene Cooke, M.D. ........................................... 488,365 51,867 259,339
Lynn Harris-McCorkie, M.D. ..................................... 488,365 51,867 259,339
Malonnie Kinnison, M.D. ........................................ 488,365 51,867 259,339
Henry Munitz, M.D. ............................................. 488,365 51,867 259,339
Margaret Lynch-Nyhan, M.D. ..................................... 488,365 51,867 259,339
Rogello Naraval, M.D. .......................................... 488,365 51,867 259,339
Henry Wang, M.D. ............................................... 488,365 51,867 259,339
Richard Rosenbaum, M.D. ........................................ 607,108 64,479 322,395
Allan Skrenta, M.D. ............................................ 607,108 64,479 322,395
Lee Goodman, M.D. .............................................. 607,108 64,479 322,395
Fred C. Ashman, M.D. ........................................... 303,543 32,239 161,192
Luther Wells, Jr., M.D. ........................................ 607,108 64,479 322,395
Frank Giargiana, M.D. .......................................... 303,543 32,239 161,192
N. Nourmohammadi, M.D. ......................................... 607,108 64,479 322,395
Russell Gelman, M.D. ........................................... 607,108 64,479 322,395
Martin Auster, M.D. ............................................ 382,034 40,574 202,873
Philip E.B. Byrd, Jr., M.D. .................................... 382,034 40,574 202,873
David M. Elder, M.D. ........................................... 382,034 40,574 202,873
Bijan Keramati, M.D. ........................................... 382,034 40,574 202,873
Sanford D. Minkin, M.D. ........................................ 382,034 40,574 202,873
Pedro P. Purcell, M.D. ......................................... 382,034 40,574 202,873
Marcos Roffe, M.D. ............................................. 382,034 40,574 202,873
David I. Safferman, M.D. ....................................... 382,034 40,574 202,873
Lyle T. Saylor, M.D. ........................................... 382,034 40,574 202,873
Robert M. Stroud, Jr., M.D. .................................... 382,034 40,574 202,873
Jack Arnold, M.D. .............................................. 731,552 77,696 388,479
Stewart Axelbaum, M.D. ......................................... 731,552 77,696 388,479
John Bodine, M.D. .............................................. 731,552 77,696 388,479
Carlton Jenkins, M.D. .......................................... 731,552 77,696 388,479
Henry Lewis, M.D. .............................................. 731,552 77,696 388,479
Allison Oidfield, M.D. ......................................... 365,933 38,864 194,322
The Ide Group, P.C.
Ted D. Barnett, M.D. ........................................... 326,462 94,255 471,279
Laurence W. Berts, M.D. ........................................ 326,462 94,255 471,279
</TABLE>
142
<PAGE> 194
<TABLE>
<CAPTION>
CONSIDERATION TO
BE RECEIVED
ASSETS TO BE NUMBER OF CASH
FOUNDING AFFILIATED PRACTICES CONTRIBUTED(1) SHARES DISTRIBUTION
------------------------------------------------------------------ ----------- ---------- -----------
<S> <C> <C> <C>
Frederick S. Cohn, M.D. ........................................ $ 326,462 94,255 $ 471,279
Fredrick S. Erdman, M.D. ....................................... 163,232 47,127 235,641
Nancy A. Gadziala, M.D. ........................................ 326,461 94,256 471,279
Ronald L. Hainen, M.D. ......................................... 326,461 94,256 471,279
Steven G. Herbert, M.D. ........................................ 326,461 94,256 471,279
Francis M. Kelley, M.D. ........................................ 326,461 94,256 471,279
John D. Kennedy, M.D. .......................................... 326,461 94,256 471,279
Michael E. Lebowitz, M.D. ...................................... 326,461 94,256 471,279
David J. Millet, M.D. .......................................... 326,461 94,256 471,279
George W. Parker, M.D. ......................................... 326,461 94,256 471,279
Kenneth D. Pearsen, M.D. ....................................... 326,461 94,256 471,279
Victor S. Regenbogen, M.D. ..................................... 326,461 94,256 471,279
Derace L. Schaffer, M.D. ....................................... 326,461 94,256 471,279
W. Winslow Schrank, M.D. ....................................... 326,461 94,256 471,279
Robert F. Spataro, M.D. ........................................ 326,461 94,256 471,279
Bruce J. Thaler, M.D. .......................................... 326,461 94,256 471,279
Richard E. Tobin, M.D. ......................................... 326,461 94,256 471,279
Rosemary Utz, M.D. ............................................. 326,461 94,256 471,279
Herman A. Wallinga, M.D. ....................................... 326,461 94,256 471,279
David M. Wolf, M.D. ............................................ 326,461 94,256 471,279
M&S X-Ray Practices
Neil J. Bowie, M.D. ............................................ 286,737 71,387 356,938
F. Joseph Carabin, M.D. ........................................ 460,283 96,775 483,878
Robert W. Daehler, M.D. ........................................ 225,877 38,681 193,406
Morgan G. Dunne, M.D. .......................................... 225,877 38,681 193,406
Gregory C. Godwin, M.D. ........................................ 434,913 91,094 455,472
Polly B. Hansen, M.D. .......................................... 256,793 46,654 233,272
Michael D. Howard, M.D. ........................................ 466,240 98,109 490,547
Philip S. Kline, M.D. .......................................... 492,966 105,204 526,021
Julio C. Otazo, M.D. ........................................... 499,102 107,043 535,216
R.K. Daniel Peterson, M.D. ..................................... 512,614 110,069 550,344
Randall S. Preissig, M.D. ...................................... 630,039 136,364 681,812
Rise P. Ross, M.D. ............................................. 423,000 88,427 442,134
Jose A. Saldana, M.D. .......................................... 512,614 110,069 550,344
Anthony F. Smith, M.D. ......................................... 253,463 45,189 225,943
Robert L. Thompson, M.D. ....................................... 486,196 104,153 520,767
A. Kenneth Trevino, M.D. ....................................... 225,877 38,681 193,406
Howard R. Unger, Jr., M.D. ..................................... 225,877 38,681 193,406
Jeremy N. Wiersig, M.D. ........................................ 294,250 55,304 276,521
Gary L. Wilson, M.D. ........................................... 225,877 38,681 193,406
Frank Wilson, M.D. ............................................. 37,284 8,349 41,744
W. Gregory Wojcik, M.D. ........................................ 451,928 95,887 479,436
Pacific Imaging Consultants
John W. Barr, M.D. ............................................. 188,642 31,994 159,972
Richard S. Breiman, M.D. ....................................... 188,642 31,994 159,972
Less T. Chafen, M.D. ........................................... 188,642 31,994 159,972
Frederick K. Chin, M.D. ........................................ 188,642 31,994 159,972
Richard H. Culhane, M.D. ....................................... 188,642 31,994 159,972
Edward Drasin, M.D. ............................................ 188,642 31,994 159,972
Hayden Evans, M.D. ............................................. 188,642 31,994 159,972
Michael J. Faer, M.D. .......................................... 188,642 31,994 159,972
Charles E. Fiske, M.D. ......................................... 188,642 31,994 159,972
Steven B. Hammerschlag, M.D. ................................... 188,642 31,994 159,972
David C. Hansen, M.D. .......................................... 188,642 31,994 159,972
Allen V. Havener, M.D. ......................................... 188,642 31,994 159,972
Ira E. Kanter, M.D. ............................................ 188,642 31,994 159,972
Richard J. Keene, M.D. ......................................... 188,642 31,994 159,971
Carl J. Mani, M.D. ............................................. 188,642 31,994 159,971
Susan C. Marks, M.D. ........................................... 188,642 31,995 159,971
Jeremy A. McCreary, M.D. ....................................... 188,642 31,995 159,971
Patrick J. Perkins, M.D. ....................................... 188,642 31,995 159,971
Philip J. Rich, M.D. ........................................... 188,642 31,995 159,971
Douglas C. Riehle, M.D. ........................................ 188,642 31,995 159,971
Gary G. Shrago, M.D. ........................................... 188,642 31,995 159,971
Juanit O. Villanueva, M.D. ..................................... 188,643 31,995 159,971
Radiology and Nuclear Medicine, P.A.
Stephen D. Coon, M.D. .......................................... 216,743 39,938 199,688
Russell Clay Harvey, M.D. ...................................... 216,743 39,938 199,688
Richard Meidinger, M.D. ........................................ 216,743 39,938 199,688
Dennis C. Petterson, M.D. ...................................... 216,743 39,938 199,688
Peter E. Schloesser, M.D. ...................................... 216,743 39,938 199,688
William J. Walls, M.D. ......................................... 216,743 39,938 199,688
Timothy A. Allen, M.D. ......................................... 216,743 39,938 199,688
Philip L. Duniven, M.D. ........................................ 216,743 39,938 199,688
Mikel D. Elder, M.D. ........................................... 216,743 39,938 199,688
Benjamin A. Franklin, M.D. ..................................... 216,743 39,938 199,688
</TABLE>
143
<PAGE> 195
<TABLE>
<CAPTION>
CONSIDERATION TO
BE RECEIVED
ASSETS TO BE NUMBER OF CASH
FOUNDING AFFILIATED PRACTICES CONTRIBUTED(1) SHARES DISTRIBUTION
------------------------------------------------------------------ ----------- ---------- -----------
<S> <C> <C> <C>
John D. Gay, M.D. .............................................. $ 216,743 39,938 $ 199,688
Crosby L. Gernon, M.D. ......................................... 216,743 39,938 199,688
Mark Greenberg, M.D. ........................................... 216,743 39,937 199,687
Watlon S. Launey, M.D. ......................................... 216,743 39,937 199,687
James W. Owen, M.D. ............................................ 216,743 39,937 199,687
Vernon J. Peterson, M.D. ....................................... 216,743 39,937 199,687
Phillip B. Sisk, M.D. .......................................... 216,743 39,937 199,687
Jack W. Snarr, M.D. ............................................ 216,743 39,937 199,687
Stephen J. Tempero, M.D. ....................................... 216,743 39,937 199,687
James P. Werner, M.D. .......................................... 216,743 39,937 199,687
Russell E. Greene, M.D. ........................................ 216,743 39,937 199,687
Judith A. Kooser, M.D. ......................................... 216,742 39,937 199,687
Ralph D. Reymond, M.D. ......................................... 216,742 39,937 199,687
Terry J. Wall, M.D. ............................................ 216,742 39,937 199,687
Rockland Radiological Group
Herbert Z. Geller, M.D. ........................................ 855,829 111,260 556,298
Hector L. Correa, M.D. ......................................... 855,829 111,260 556,298
Nancy A. Sussman, M.D. ......................................... 855,829 111,260 556,298
Robert F. Mackey, M.D. ......................................... 855,829 111,260 556,298
Elliot V. Handler, M.D. ........................................ 855,829 111,260 556,298
Daniel J. Cohen, M.D. .......................................... 855,829 111,260 556,298
Steven I. Klein, M.D. .......................................... 855,829 111,260 556,298
Mark E. Geller, M.D. ........................................... 855,829 111,260 556,298
Leslie M. Ossip, M.D. .......................................... 855,829 111,259 556,298
Joel M. Schwarz, M.D. .......................................... 855,829 111,259 556,298
Kenneth I. Blumberg, M.D. ...................................... 855,829 111,259 556,298
Roger J. Frey, M.D. ............................................ 855,830 111,259 556,298
Clara Chudow, M.D. ............................................. 855,830 111,259 556,299
Valley Radiology Group
Richard Baxter, M.D. ........................................... 181,733 29,697 148,486
Robert Filpi, M.D. ............................................. 181,733 29,697 148,486
Keith Fraker, M.D. ............................................. 181,733 29,697 148,486
Franklin Gee, M.D. ............................................. 181,733 29,697 148,486
Bruce Hyman, M.D. .............................................. 181,733 29,697 148,486
Stephen Kahn, M.D. ............................................. 181,733 29,697 148,486
Young Kang, M.D. ............................................... 181,733 29,697 148,486
Andrew Koo, M.D. ............................................... 181,733 29,697 148,486
Edward Lebowitz, M.D. .......................................... 181,733 29,697 148,486
Peter Long, M.D. ............................................... 181,733 29,697 148,486
Cyril McDonald, M.D. ........................................... 181,733 29,697 148,486
Michael Myers, M.D. ............................................ 181,733 29,697 148,486
John Noonan, M.D. .............................................. 181,733 29,697 148,486
Harjit Sekhon, M.D. ............................................ 181,733 29,697 148,486
Richard Silberstein, M.D. ...................................... 181,733 29,697 148,486
Drew Sullivan, M.D. ............................................ 181,733 29,697 148,486
Stephen Teng, M.D. ............................................. 181,733 29,697 148,486
Eric Trefelner, M.D. ........................................... 181,733 29,697 148,486
James Vaudagna, M.D. ........................................... 181,733 29,697 148,486
William T. McLaughlin, M.D. .................................... 170,375 27,845 139,204
----------- ---------- -----------
Total..................................................... $ 72,290,768 10,853,320 $ 54,266,607
=========== ========== ===========
</TABLE>
- ---------------
(1) Assets to Be Contributed reflects the historical book value of the assets of
each Founding Affiliated Practice, including their patient receivable
balance. The non-monetary assets are reflected at historical cost in
accordance with SAB 48. All monetary assets are recorded at fair value,
which is approximated by the historical costs recorded by the Founding
Affiliated Practices.
COMPANY POLICY
It is anticipated that future transactions with affiliates of the Company
will be minimal, will be approved by a majority of the disinterested members of
the Board of Directors and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. The Company does
not intend to make any loans to, or incur any indebtedness to, any of its
executive officers or directors.
144
<PAGE> 196
ADVANCED RADIOLOGY
ADVANCED RADIOLOGY'S OPERATION, MANAGEMENT AND BUSINESS
GENERAL
Advanced Radiology operates a professional medical radiology practice and
will be organized under the laws of the State of Maryland as a C-corporation
prior to the consummation of the Advanced Merger. Advanced Radiology represents
the merger of seven radiology practices. Advanced Radiology provides two types
of services: (1) Professional Services and (2) Imaging Services, both of which
are reimbursed on a prepaid or fee-for-service basis. Advanced Radiology
operates in the Greater Baltimore Metropolitan Area. Advanced Radiology
contracts directly with hospitals, health plans, physician groups and insurance
carriers to provide Professional Services and Imaging Services to enrollees and
patients. Through contracts with various health plans, physician groups and
hospitals, Advanced provided approximately 1 million patient examinations during
1996. Advanced Radiology operates 23 Professional Service locations and ten
hospital-based locations within the Advanced Service Area.
Advanced Radiology owns all of the membership interests of Advanced
Radiology, LLC. Advanced Radiology, LLC owns a 75.353% interest in MRI at St.
Joseph Medical Center, LLC, a 50% interest in two partnerships, Franklin Imaging
Joint Venture and Advanced Imaging of Carroll County limited partnership, each
of which perform radiology and imaging healthcare services. Advanced Radiology,
LLC owns 66 2/3% of the common stock of Advanced Medical Imaging, Inc. which
enters into and administers managed care contracts for radiology services.
Advanced Radiology, LLC also is a 50% member in Poole Road Imaging, LLC and
Health Systems Imaging, LLC, each of which owns and operates diagnostic imaging
centers.
STRATEGY
Advanced Radiology's strategy is to continue penetration of its existing
markets, expand into other markets, create strategic alliances with hospitals
and other Imaging Service providers, increase the operational efficiency of, and
reduce costs associated with, the Advanced Radiology operations.
The future growth of Advanced Radiology in its existing markets is
dependent in part on the continued increase of health plan enrollees and
patients using Advanced Radiology for Professional Services. This growth may
come, with respect to Professional Services, from the development or acquisition
of additional facilities and the development of affiliations with medical groups
serving enrollees or patients in existing markets, increased enrollment in
health plans currently contracting with Advanced Radiology and its medical
affiliates, and contracts with new health plans or hospitals. It actively
recruits new providers and seeks to enter into new hospital-based or managed
care contracts in order to enlarge the potential patient base in its service
areas.
Advanced Radiology's principal strategy for expanding into new markets is
through acquisitions (through merger, purchase, or otherwise) of medical groups.
Advanced Radiology generally seeks providers that have established reputations
for providing quality medical care.
GOVERNMENT REGULATION
Advanced Radiology is subject to federal and state laws regulating the
relationships among providers of health care services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Medicare
and Medicaid statutes, which prohibit the solicitation, payment, receipt or
offering of any direct or indirect remuneration for the referral of Medicare or
Medicaid patients or for the recommending, leasing, arranging, ordering or
purchasing of Medicare or Medicaid covered services. Other laws impose
significant penalties for false or improper billings for physician services and
impose restrictions on physician referrals for designated health services
reimbursable under the Medicare or Medicaid programs to entities with which they
have financial relationships. While Advanced Radiology believes it is in
material compliance with applicable laws, there is no assurance that its present
or past operations will not be subjected to scrutiny or legal challenges.
145
<PAGE> 197
SERVICES PROVIDED
Advanced Radiology operates a total of 33 facilities that are staffed by
either Professional Service providers or Imaging Service providers. As of April
30, 1997, Advanced Radiology employed 87 Professional Service providers and 212
Imaging Service providers.
Advanced Radiology provides approximately 15% of its Professional Service
and Imaging Service under capitated contracts and 85% under fee-for-service or
hospital contracts. Under capitated contracts, Advanced Radiology provides or
arranges for all physician services and Advanced Radiology receives a fixed
monthly capitation payment from health plans for each member who utilizes an
Advanced Radiology physician.
During 1996, approximately 1 million patient examinations were performed by
Advanced Radiology. Advanced Radiology is under contract with the following
hospitals and with more than 100 health plans: Carroll County General Hospital,
Church Home Hospital, Franklin Square Hospital, Greater Baltimore Medical
Center, Harbor Hospital Medical Center, Liberty Medical Center, North Arundel
Hospital, Northwest Hospital Center, St. Agnes Hospital and St. Joseph Hospital.
Advanced conducts an extensive and ongoing utilization review program under
the direction of a committee of physician members, which program includes both
prospective and retrospective analysis of utilization.
COMPETITION
The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.
EMPLOYEES
Professional Service Provider Employees
Advanced Radiology physicians enter into employment contracts. These
contracts offer a specified guaranteed salary and an incentive bonus. Physicians
are also eligible to receive benefits such as health, dental and life insurance,
paid time off and an allowance for continuing medical education and other
professional expenses. Advanced Radiology, as of April 30, 1997, employed 87
physicians (79 full-time and eight part-time).
Imaging Service Provider Employees
As of April 30, 1997, Advanced employed 212 imaging service providers (126
full-time and 86 part-time).
Non-Provider Employees
As of April 30, 1997, Advanced Radiology had approximately 518
non-physician employees. None of Advanced Radiology's employees are represented
by a labor union. Management of Advanced Radiology believes its employee
relations are good.
INSURANCE
Advanced Radiology maintains insurance coverage for various perils and from
various carriers. In addition to property and casualty, worker's compensation,
directors and officers liability and other coverage Advanced Radiology believes
to be customary and reasonable for a business of its kind, Advanced Radiology
maintains Liability Policies with ITT Hartford, Standard Security Life, Medical
Mutual Liability, Royal Insurance and Mid-Atlantic Medical. Each professional of
Advanced Radiology, at each location, is covered under the Liability Policies.
146
<PAGE> 198
PROPERTIES AND FACILITIES
Advanced Radiology leases approximately 32 facilities. The real property
leases range from 1,000 square feet to 38,000 square feet. Advanced Radiology
leases real property for its corporate operations, Professional Services and
Imaging Services.
INFORMATION SYSTEMS
Advanced Radiology believes that the effective analysis of medical and
financial data is essential in today's managed care environment. Accordingly,
Advanced Radiology is committed to the development of a fully-integrated MIS for
practice management. Advanced Radiology's MIS capabilities include medical
charting and tracking analysis of practice management information and financial
data. Practice management functions of the current MIS include registration,
centralized scheduling and appointments, electronic claims submission and
remittance. Managed care functions include referrals, eligibility,
determination, claim management and payment functions.
TELERADIOLOGY
Advanced owns and operates a state-of-the-art teleradiology system which
currently allows for contemporaneous interpretation of all of the images
obtained in its ten hospital emergency rooms during night-time hours (10:00 p.m.
to 7:00 a.m.). Approximately 50,000 exams have been interpreted using this
system since its installation in September 1996. This system is one of the
largest operating teleradiology systems in the United States.
LEGAL PROCEEDINGS
Advanced Radiology is engaged in the defense of lawsuits arising in the
ordinary course and conduct of its business, including an employee
discrimination suit involving two former physicians. Advanced Radiology believes
that such actions will not have a material adverse effect on Advanced Radiology.
147
<PAGE> 199
ADVANCED RADIOLOGY SELECTED FINANCIAL DATA
(IN THOUSANDS)
The following information has been derived from the financial statements of
Advanced LLC, and should be read in conjunction with "Advanced Radiology
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements of Advanced Radiology and the
notes thereto included elsewhere in this document.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................ $22,451 $38,833 $52,882 $23,765 $31,560
Expenses:
Distributions to physician owners...... 8,756 12,355 20,566 8,600 12,200
Costs of affiliated physician
services............................ -- 812 2,293 1,589 2,308
Practice salaries, wages and
benefits............................ 6,325 10,051 12,318 5,567 7,684
Depreciation and amortization.......... 1,879 3,269 3,696 1,868 2,102
Other practice expenses................ 5,757 9,998 12,529 5,885 7,425
------- ------- ------- ------- -------
Total expenses........................... 22,717 36,485 51,402 23,509 31,719
------- ------- ------- ------- -------
Equity in earnings of investments........ 762 635 1,207 680 642
Minority interests in income of
consolidated subsidiaries.............. -- -- (18) 9 (26)
------- ------- ------- ------- -------
Income before income taxes............... $ 496 $ 2,983 $ 2,669 $ 945 $ 457
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $39,297
Total debt.............................................................. 11,622
Stockholders' equity.................................................... 21,853
</TABLE>
148
<PAGE> 200
ADVANCED RADIOLOGY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to the historical operations of Advanced
and should be read in conjunction with the audited financial statements of
Advanced and the notes thereto appearing elsewhere in this Prospectus/Joint
Proxy Statement. For purposes of the following discussion, medical service
revenue, net represents the estimated realizable amount to be received from
patients, third-party payors and others for the provision of medical services.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 as Compared to Six Months Ended June 30, 1996
Medical service revenue, net increased by $7.9 million or 34% to $31.1
million for the six month period ended June 30, 1997 from $23.2 million for the
six month period ended June 30, 1996. This increase was attributable to the
addition of two new radiology groups in April 1996 and January 1997, new
hospital management contracts and an increase in procedures and/or covered lives
at existing facilities.
Costs of affiliated physician services of $2.3 million and $1.6 million
(remained consistent at 7% of medical service revenue, net) for the six months
ended June 30, 1997 and 1996, respectively, included all compensation to
non-owner physicians, as well as certain benefits, educational and travel costs
paid to non-owner and owner physicians. The increase was due to additional
non-owner physician salaries paid in relation to hospital management contracts.
Distributions to physician owners represent distributions to the member
practices of Advanced, who then pay all physician owner salaries. Such amounts
were determined based on cash earnings available for distribution, including
cash to be realized from the collection of accounts receivable.
Practice salaries, wages and benefits increased by $2.1 million or 38% to
$7.7 million for the six months ended June 30, 1997 from $5.6 million for the
six months ended June 30, 1996. This change resulted from increases in the
number of employees required to support the additional radiology practices and
new hospital management contracts. The percentage of practice salaries, wages
and benefits to medical service revenue, net was 25% and 24% for the six months
ended June 30, 1997 and 1996, respectively.
Practice supplies of $1.8 million and $1.6 million for the six months ended
June 30, 1997 and 1996, respectively, were 6% and 7%, respectively, of medical
service revenue, net. Practice rent and lease expense of $1.6 million and $1.3
million for the six months ended June 30, 1997 and 1996, respectively, remained
consistent at 5% of medical service revenue, net. Depreciation and amortization
expense of $2.1 million and $1.9 million for the six months ended June 30, 1997
and 1996, respectively, reflects no material changes in the composition of fixed
assets or depreciation methods. Other practice expenses of $3.5 million and $2.7
million for the six months ended June 30, 1997 and 1996, respectively, remained
consistent at 11% of medical service revenue, net. Interest expense increased by
$0.1 million or 45% to $0.4 million for the six months ended June 30, 1997 from
$0.3 million for the six months ended June 30, 1996 due to an increase in debt
attributable to the addition of a radiology group in April 1996 and
teleradiology equipment purchased in 1996.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Medical service revenue, net increased by $14.3 million or 38% to $51.7
million for the year ended December 31, 1996 from $37.4 million for the year
ended December 31, 1995. This increase was attributable to the addition of a
radiology group in April 1996, new hospital management contracts and an increase
in procedures and/or covered lives at existing facilities.
Costs of affiliated physician services of $2.3 million (4% of medical
service revenue, net) and $0.8 million (2% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included all
compensation to non-owner physicians, as well as certain benefits, educational
and travel costs paid to non-owner and owner physicians. The increase was due to
additional non-owner physician salaries paid in relation to hospital management
contracts. In addition, during 1996, the company acquired a radiology practice
whose physicians were paid a salary during a portion of the year. Distributions
to physician owners represent
149
<PAGE> 201
distributions to the member practices of Advanced, who then pay all physician
owner salaries. Such amounts were determined based on cash earnings available
for distribution, including cash to be realized from the collection of accounts
receivable.
Practice salaries, wages and benefits increased by $2.3 million or 23% to
$12.3 million for the year ended December 31, 1996 from $10.1 million for the
year ended December 31, 1995. This increase resulted from the increase of
employees related to the addition of a radiology practice and the addition of
employees required to support new hospital management contracts. The percentage
of practice salaries, wages and benefits to medical service revenue, net was 24%
for the year ended December 31, 1996 and 27% for the year ended December 31,
1995.
Practice supplies of $3.2 million and $2.6 million for the years ended
December 31, 1996 and 1995, respectively, were 6% and 7%, respectively, of
medical service revenue, net. Practice rent and lease expense of $2.3 million
and $2.2 million for the years ended December 31, 1996 and 1995, respectively,
were 4% and 6%, respectively, of medical service revenue, net. Depreciation and
amortization expense of $3.7 million and $3.3 million for the years ended
December 31, 1996 and 1995, respectively, reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$6.3 million and $4.2 million for the years ended December 31, 1996 and 1995,
respectively, were 12% and 11%, respectively, of medical service revenue, net.
Interest expense decreased by $0.3 million or 25% to $0.8 million for the year
ended December 31, 1996 from $1.0 million for the year ended December 31, 1995
due to a decrease in the average cost of funds to Advanced.
Year Ended December 31, 1995 as Compared to Year Ended December 31, 1994
Advanced was formed through the merger of five existing radiology practices
and began operations on January 1, 1995. Each practice contributed certain
assets (primarily fixed assets and investments in joint ventures) and the debt
related to those assets in exchange for ownership interests in Advanced. The
initial formation was accounted for using purchase accounting under the
provisions of APB No. 16. Based on the asset sizes of the individual contributed
radiology practices, one practice was identified as the acquirer, and,
accordingly, all balances prior to January 1, 1995, represent the activities of
this practice on a stand-alone basis. All significant changes in operations for
the year ended December 31, 1995 as compared to the year ended December 31,
1994, other than as discussed below are the result of this organizational
change.
ADVANCED PAST COMPENSATION FOR CONTINUING DIRECTORS
If the Mergers and Exchanges close, Michael L. Sherman, M.D. will be
appointed to the APPI Board of Directors. During 1996, Dr. Sherman entered into
a consulting agreement with APPI pursuant to which Dr. Sherman received an
option to purchase 20,000 shares of APPI Common Stock at $0.125 per share,
expiring July 31, 2006. See "APPI -- APPI's Operation, Management and Business
Following the Mergers and Exchanges -- APPI Certain Transactions."
150
<PAGE> 202
ADVANCED RADIOLOGY PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the proposed
beneficial ownership of Advanced Common Stock as of September 12, 1997 as to (i)
each person who will beneficially own more than 5% of the outstanding shares of
Advanced Common Stock, (ii) each person will be a director of Advanced, (iii)
each person who will be a Named Executive Officer of Advanced and (iv) all
directors and executive officers as a group. Except as noted the persons named
in the table have sole voting and investment power with respect to the shares
owned by them, subject to community property laws.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Harry Knipp, M.D., Director.................................. 5,497 1.2
Michael Sherman, M.D., President and Director................ 8,626 1.8
Blair Andrew, M.D., Director................................. 8,626 1.8
James Winthrop, M.D., Director............................... 8,626 1.8
W. David McNeely, M.D., Director............................. 8,516 1.8
Barton Cockey, M.D., Director................................ 6,914 1.5
Henry Munitz, M.D., Secretary and Director................... 6,914 1.5
Lee Goodman, M.D., Director.................................. 8,598 1.8
Lyle T. Saylor, M.D., Director............................... 5,410 1.1
Jack Arnold, M.D., Treasurer and Director.................... 10,362 2.2
All directors and executive officers as a group (10
persons)................................................... 78,089 16.4
</TABLE>
- ---------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise or conversion of stock options or
other securities currently exercisable or convertible, or exercisable or
convertible within 60 days of September 12, 1997 are deemed outstanding and
to be beneficially owned by the person holding such option or security for
purposes of computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each stockholder identified in the table possesses
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such stockholder.
(2) Applicable percentage of ownership is based on 475,000 shares of Common
Stock outstanding as of September 12, 1997.
151
<PAGE> 203
THE IDE GROUP
IDE'S OPERATION, MANAGEMENT AND BUSINESS
GENERAL
The Ide Group is a professional medical radiology group formed in 1980 and
organized as a New York professional corporation. The Ide Group provides two
types of services: (1) Professional Services and (2) Imaging Services, both of
which are reimbursed on a prepaid or fee-for-service basis. The Ide Group
operates in the greater Rochester, New York area. The Ide Group contracts
directly with hospitals, health plans and physician groups to provide
Professional Services and Imaging Services to enrollees and patients. The Ide
Group operates eight Professional Service and Imaging Service locations and five
hospital-based locations within the Ide Service Area.
The Ide Group has grown through the recruitment of individual associate
physicians in needed practice areas.
STRATEGY
The Ide Group's strategy is to continue penetration of its existing
markets, expand into other markets, create strategic alliances with hospitals
and other Imaging Service providers, increase the operational efficiency of, and
reduce costs associated with, The Ide Group operations.
The future growth of The Ide Group in its existing markets is dependent in
part on the continued increase of health plan enrollees and patients using The
Ide Group for Professional Services. This growth may come, with respect to
Professional Services, from the development or acquisition of additional
facilities and the development of affiliations with medical groups serving
enrollees or patients in existing markets, increased enrollment in health plans
currently contracting with The Ide Group and its medical affiliates, and
contracts with new health plans or hospitals. It actively recruits new providers
and seeks to enter into new hospital-based or managed care contracts in order to
enlarge the potential patient base in its service areas.
GOVERNMENT REGULATION
The Ide Group is subject to federal and state laws regulating the
relationships among providers of health care services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Medicare
and Medicaid statutes, which prohibit the solicitation, payment, receipt or
offering of any direct or indirect remuneration for the referral of Medicare or
Medicaid patients or for the recommending, leasing, arranging, ordering or
purchasing of Medicare or Medicaid covered services. Other laws impose
significant penalties for false or improper billings for physician services and
impose restrictions on physician referrals for designated health services
reimbursable under the Medicare or Medicaid programs to entities with which they
have financial relationships. While The Ide Group believes it is in material
compliance with applicable laws, there is no assurance that its present or past
operations will not be subjected to scrutiny or legal challenges.
SERVICES PROVIDED
The Ide Group operates a total of 13 facilities that are staffed by The Ide
Group Professional Service providers and Imaging Service providers. As of April
30, 1997, The Ide Group employed 30 Professional Service providers.
The Ide Group provides its Professional Service and Imaging Service under
capitated contracts and fee-for-service or hospital contracts. Under capitated
contracts, The Ide Group provides or arranges for all physician services and The
Ide Group receives a fixed monthly capitation payment from health plans for each
member who utilizes a physician of The Ide Group.
The Ide Group has significant contracts with the following health plans:
Blue Cross/Blue Shield of Greater Rochester, Blue Choice, Preferred Care,
Medicare and Medicaid.
152
<PAGE> 204
COMPETITION
The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.
EMPLOYEES
Professional Service Provider Employees
The Ide Group physicians enter into employment contracts. These contracts
offer a specified guaranteed salary and an incentive bonus. Physicians are also
eligible to receive benefits such as health, dental and life insurance, paid
time off and an allowance for continuing medical education and other
professional expenses. The Ide Group, as of April 30, 1997, employed 30
physicians.
Non-Provider Employees
As of April 30, 1997, The Ide Group had approximately 127 non-physician
employees. None of The Ide Group's employees are represented by a labor union.
Management of The Ide Group believes its employee relations are good.
INSURANCE
The Ide Group maintains insurance coverage for various perils and from
various carriers. In addition to property and casualty, worker's compensation,
directors and officers liability and other coverage The Ide Group believes to be
customary and reasonable for a business of its kind, The Ide Group maintains
Liability Policies with Royal Insurance, Massachusetts Mutual and Travelers.
Each professional of The Ide Group, at each location, is covered under the
Liability Policies.
PROPERTIES AND FACILITIES
The Ide Group leases approximately eight facilities. The square footage of
these real property leases ranges from 265 square feet to 7,737 square feet.
Real property leases are used for The Ide Group's corporate operations,
Professional Services and Imaging Services.
INFORMATION SYSTEMS
The Ide Group believes that the effective analysis of medical and financial
data is essential in today's managed care environment. Accordingly, The Ide
Group is committed to the development of a fully-integrated MIS for practice
management. The Ide Group's MIS capabilities include medical charting and
tracking analysis of practice management information and financial data.
Practice management functions of the current MIS include registration,
centralized scheduling and appointments, electronic claims submission and
remittance. Managed care functions include referrals, eligibility,
determination, claim management and payment functions.
LEGAL PROCEEDINGS
The Ide Group is engaged in the defense of lawsuits arising in the ordinary
course and conduct of its business. The Ide Group believes that such actions
will not have a material adverse effect on The Ide Group.
153
<PAGE> 205
IDE SELECTED FINANCIAL DATA
(IN THOUSANDS)
The following information for Ide has been derived from the financial
statements of Ide, and should be read in conjunction with "Ide Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements of Ide and the notes thereto included elsewhere
in this document.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue......................................... $25,534 $26,020 $26,903
Expenses:
Costs of affiliated physician services.............. 10,936 11,483 15,280
Practice salaries, wages and benefits............... 3,141 3,081 3,204
Depreciation and amortization....................... 839 835 532
Other practice expenses............................. 8,598 8,716 8,534
------- ------- -------
Total expenses........................................ 23,514 24,115 27,550
------- ------- -------
Equity in earnings of investments..................... -- -- --
Minority interests in income of consolidated
subsidiaries........................................ -- -- --
------- ------- -------
Income before income taxes............................ $ 2,020 $ 1,905 $ (647)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 7,019
Total debt.............................................................. 1,858
Stockholders' equity.................................................... 1,535
</TABLE>
154
<PAGE> 206
IDE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion relates to the historical operations of Ide and
should be read in conjunction with the audited financial statements of Ide and
the notes thereto appearing elsewhere in this Prospectus/Joint Proxy Statement.
For purposes of the following discussion, medical service revenue, net
represents the estimated realizable amount to be received from patients,
third-party payors and others for the provision of medical services.
RESULTS OF OPERATIONS
Year Ended June 30, 1997 as Compared to Year Ended June 30, 1996
Revenues increased $0.9 million or 3% to $26.9 million for the year ended
June 30, 1997 from $26.0 million for the year ended June 30, 1996 due to an
increase in the number of procedures performed.
Costs of affiliated physician services of $15.3 million and $11.5 million
for the years ended June 30, 1997 and 1996, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution. Such amounts were 57% and 44%, respectively, of
medical service revenue, net for the years ended June 30, 1997 and 1996.
Practice salaries, wages and benefits of $3.2 million and $3.1 million for
the years ended June 30, 1997 and 1996 remained consistent at 12% of medical
service revenue, net. Depreciation and amortization expense of $0.5 million and
$0.8 million for the years ended June 30, 1997 and 1996, respectively, reflects
no material changes in the composition of fixed assets or depreciation methods.
Other practice expenses decreased $0.3 million or 7% to $3.1 million for the
year ended June 30, 1997 from $3.4 million for the year ended June 30, 1996 due
to cost savings from new equipment maintenance contracts.
Year Ended June 30, 1996 as Compared to Year Ended June 30, 1995
Revenues increased $0.5 million or 2% to $26.0 million for the year ended
June 30, 1996 from $25.5 million for the year ended June 30, 1995 due to an
increase in the number of procedures performed which resulted from the
establishment of a new facility.
Costs of affiliated physician services of $11.5 million and $10.9 million
for the years ended June 30, 1996 and 1995, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution. Such amounts remained consistent at 44% and 43%,
respectively, of medical service revenue, net for the years ended June 30, 1996
and 1995.
Practice salaries, wages and benefits of $3.1 million for each of the years
ended June 30, 1996 and 1995 remained consistent at 12% of medical service
revenue, net. Depreciation and amortization expense of $0.8 million for each of
the years ended June 30, 1996 and 1995 reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$3.4 million and $3.2 million for the years ended June 30, 1996 and 1995,
respectively, remained consistent at 13% of medical service revenue, net.
IDE PAST COMPENSATION FOR CONTINUING DIRECTORS
Derace L. Schaffer, M.D., a director of APPI and President of Ide,
purchased 1,000,000 shares of APPI Common Stock for $125,000. Dr. Schaffer also
owns $107,500 in principal amount of the Convertible Notes. As a director of the
Company, Dr. Schaffer will be eligible to participate in the Automatic Option
Grant Program upon consummation of the Initial Public Offering. In addition, as
part of the Ide Merger Transaction, APPI will issue 94,256 shares of APPI Common
Stock and $439,860.00 in cash to Dr. Schaffer in exchange for his ownership
interest in Ide.
155
<PAGE> 207
IDE PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Ide Common Stock as of September 12, 1997 as to (i) each person who
is known to Ide to beneficially own more than five percent of the outstanding
shares of Ide Common Stock, (ii) each director of Ide, (iii) each Named
Executive Officer of Ide and (iv) all directors and executive officers of Ide as
a group. Except as noted the persons named in the table, to Ide's knowledge,
have sole voting and investment power with respect to the shares owned by them,
subject to community property laws.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
----------------------------------------------------- ------------ -----------
<S> <C> <C>
Ted D. Barnett, M.D., Director....................... 100 4.7%
Laurence W. Betts, M.D., Director.................... 100 4.7
Frederick S. Cohn, M.D., Director.................... 100 4.7
Nancy A. Gadziala, M.D., Director.................... 100 4.7
Ronald L. Hainen, M.D., Director..................... 100 4.7
Steven G. Herbert, M.D., Director.................... 100 4.7
Francis M. Kelley, M.D., Director.................... 100 4.7
John D. Kennedy, M.D., Director...................... 100 4.7
Michael E. Lebowitz, M.D., Vice President-Finance and
Director........................................... 100 4.7
David J. Millet, M.D., Director...................... 100 4.7
George W. Parker, M.D., Executive Vice President and
Director........................................... 100 4.7
Kenneth D. Pearsen, M.D., Secretary and Director..... 100 4.7
Victor S. Regenbogen, M.D., Director................. 100 4.7
Derace L. Schaffer, M.D., President and Director..... 100 4.7
W. Winslow Schrank, M.D., Director................... 100 4.7
Robert F. Spataro, M.D., Director.................... 100 4.7
Bruce J. Thaler, M.D., Treasurer and Director........ 100 4.7
Richard E. Tobin, M.D., Director..................... 100 4.7
Rosemary Utz, M.D., Director......................... 100 4.7
Herman A. Wallinga, M.D., Director................... 100 4.7
David M. Wolf, M.D., Director........................ 100 4.7
All directors and executive officers as a group (21
persons)........................................... 2,100 98.7
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise or conversion of stock options or
other securities currently exercisable or convertible, or exercisable or
convertible within 60 days of September 12, 1997 are deemed outstanding and
to be beneficially owned by the person holding such option or security for
purposes of computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each shareholder identified in the table possesses
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such shareholder.
(2) Applicable percentage of ownership is based on 2,150 shares of Common Stock
outstanding as of September 12, 1997.
156
<PAGE> 208
M&S X-RAY PRACTICES
M&S' OPERATION, MANAGEMENT AND BUSINESS
GENERAL
M&S X-Ray Practices consist of a professional medical radiology group
formed in 1990 and organized as a Texas professional association and six other
related entities. M&S X-Ray Practices provide two types of services: (1)
Professional Services and (2) Imaging Services, both of which are reimbursed on
a prepaid or fee-for-service basis. M&S X-Ray Practices operate in the San
Antonio, Texas Metropolitan area. M&S X-Ray Practices contract directly with
hospitals and health plans to provide Professional Services and Imaging Services
to enrollees and patients. M&S X-Ray Practices operate three Professional
Service locations, four Imaging Service locations and five hospital-based
locations within the M&S Service Area.
M&S X-Ray Practices have grown through a combination of acquisitions of
medical practices that complement their services and recruitment of individual
associate physicians in needed practice areas.
M&S X-Ray Practices own three limited partnership units in Stone Oak
limited partnership and a 49% interest in Southeast Baptist Imaging Center,
Northeast Baptist Imaging Center and Baptist Imaging Center. In addition, one of
the related entities of M&S X-Ray Practices holds a 60% interest in Lexington MR
Ltd. Each of these joint ventures owns and operates diagnostic imaging centers.
STRATEGY
M&S X-Ray Practices' strategy is to continue penetration of their existing
markets, expand into other markets, create strategic alliances with hospitals
and other Imaging Service providers, increase the operational efficiency of, and
reduce costs associated with, the M&S X-Ray Practices' operations.
The future growth of M&S X-Ray Practices in its existing markets is
dependent in part on the continued increase of health plan enrollees and
patients using M&S X-Ray Practices for Professional Services. This growth may
come, with respect to Professional Services, from the development or acquisition
of additional facilities and the development of affiliations with medical groups
serving enrollees or patients in existing markets, increased enrollment in
health plans currently contracting with M&S X-Ray Practices and their medical
affiliates, and contracts with new health plans or hospitals. M&S X-Ray
Practices actively recruit new providers and seek to enter into new
hospital-based or managed care contracts in order to enlarge the potential
patient base in its service areas.
M&S X-Ray Practices' principal strategy for expanding into new markets is
through acquisitions (through purchase, merger, or otherwise) of medical groups.
M&S X-Ray Practices generally seek providers that have established reputations
for providing quality medical care.
GOVERNMENT REGULATION
M&S X-Ray Practices are subject to federal and state laws regulating the
relationships among providers of health care services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Medicare
and Medicaid statutes, which prohibit the solicitation, payment, receipt or
offering of any direct or indirect remuneration for the referral of Medicare or
Medicaid patients or for the recommending, leasing, arranging, ordering or
purchasing of Medicare or Medicaid covered services. Other laws impose
significant penalties for false or improper billings for physician services and
impose restrictions on physician referrals for designated health services
reimbursable under the Medicare or Medicaid programs to entities with which they
have financial relationships. While M&S X-Ray Practices believe that they are in
material compliance with applicable laws, there is no assurance that their
present or past operations will not be subjected to scrutiny or legal
challenges.
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SERVICES PROVIDED
M&S X-Ray Practices operate a total of 12 facilities that are staffed by
M&S X-Ray Practices Professional Service providers and M&S X-Ray Practices
Imaging Service providers. As of April 30, 1997, M&S X-Ray Practices employed 20
Professional Service providers.
M&S X-Ray Practices provide their Professional Services and Imaging
Services under capitated contracts and fee-for-service or hospital contracts.
Under capitated contracts, M&S X-Ray Practices provide or arrange for all
physician services and M&S X-Ray Practices receive a fixed monthly capitation
payment from health plans for each member who utilizes an M&S X-Ray Practices
physician.
From January 1, 1997 through April 30, 1997, over 120,000 patients were
serviced by M&S X-Ray Practices. M&S X-Ray Practices have significant contracts
with the Baptist Health System.
COMPETITION
The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.
EMPLOYEES
Professional Service Provider Employees
M&S X-Ray Practices' physicians enter into employment contracts. These
contracts offer a specified guaranteed salary and an incentive bonus. Physicians
are also eligible to receive benefits such as health, dental and life insurance,
paid time off and an allowance for continuing medical education and other
professional expenses. M&S X-Ray Practices, as of April 30, 1997, employed 20
physicians.
Imaging Service Provider Employees
As of April 30, 1997, M&S X-Ray Practices employed 34 service
technologists.
Non-Provider Employees
As of April 30, 1997, M&S X-Ray Practices had approximately 107
non-physician employees. None of M&S X-Ray Practices' employees are represented
by a labor union. Management of M&S X-Ray Practices believes its employee
relations are good.
INSURANCE
M&S X-Ray Practices maintain insurance coverage for various perils and from
various carriers. In addition to property and casualty, worker's compensation,
directors and officers liability and other coverage M&S X-Ray Practices believe
to be customary and reasonable for a business of its kind, M&S X-Ray Practices
maintain Liability Policies with EMC Mutual Assurance, Potomac Insurance,
Insurance Corp. of America and United National. Each professional of M&S X-Ray
Practices, at each location, is covered under the Liability Policies.
PROPERTIES AND FACILITIES
M&S X-Ray Practices lease approximately six facilities. The square footage
of such facilities range from 1,750 square feet to 5,662 square feet. The real
property leases of M&S X-Ray Practices are utilized for office space.
INFORMATION SYSTEMS
M&S X-Ray Practices believe that the effective analysis of medical and
financial data is essential in today's managed care environment. Accordingly,
M&S X-Ray Practices are committed to the development of a fully-integrated MIS
for practice management. M&S X-Ray Practices' MIS capabilities include medical
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charting and tracking analysis of practice management information and financial
data. Practice management functions of the current MIS include registration,
electronic claims submission and remittance. Managed care functions include
referrals, eligibility, determination, claim management and payment functions.
LEGAL PROCEEDINGS
M&S X-Ray Practices are engaged in the defense of lawsuits arising in the
ordinary course and conduct of their businesses. M&S X-Ray Practices believe
that such actions may have a material adverse effect on M&S X-Ray Practices.
M&S X-RAY PRACTICES SELECTED FINANCIAL DATA
(IN THOUSANDS)
The following information for M&S X-Ray Practices has been derived from the
financial statements of M&S X-Ray Practices, and should be read in conjunction
with "M&S X-Ray Practices Management Discussion and Analysis of Financial
Condition and Results of Operations" and the audited financial statements of M&S
X-Ray Practices and the notes thereto included elsewhere in this document. The
information for the year ended December 31, 1994 for M&S X-Ray Practices has
been derived from the unaudited financial statements which, in the opinion of
management, includes all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of such information.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------- ---------------
1994 1995 1996 1996 1997
----------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................ $17,341 $15,068 $15,198 $7,712 $7,220
Expenses:
Costs of affiliated physician
services............................ 9,240 8,866 8,703 3,939 3,485
Practice salaries, wages and
benefits............................ 2,001 1,228 1,338 402 999
Depreciation and amortization.......... 883 963 671 333 148
Other practice expenses................ 2,921 2,777 2,466 1,735 1,097
------- ------- ------- ------ ------
Total expenses........................... 15,045 13,834 13,178 6,409 5,729
------- ------- ------- ------ ------
Equity in earnings of investments........ 98 213 605 273 427
Minority interests in income of
consolidated subsidiaries.............. (220) (216) (249) (122) (160)
------- ------- ------- ------ ------
Income before income taxes............... $ 2,174 $ 1,231 $ 2,376 $1,454 $1,758
======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 7,628
Total debt.............................................................. 459
Stockholders' equity.................................................... 4,825
</TABLE>
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<PAGE> 211
M&S X-RAY PRACTICES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to the historical operations of M&S X-Ray
Practices and should be read in conjunction with the audited financial
statements of M&S X-Ray Practices and the notes thereto appearing elsewhere in
this Prospectus/Joint Proxy Statement. For purposes of the following discussion,
medical service revenue, net represents the estimated realizable amount to be
received from patients, third-party payors and others for the provision of
medical services.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 as Compared to Six Months Ended June 30, 1996
Medical service revenue, net decreased by $0.5 million or 6% to $7.0
million for the six months ended June 30, 1997 from $7.5 million for the six
months ended June 30, 1996. The decrease was attributable to a decrease in the
number of procedures performed.
Costs of affiliated physician services of $3.5 million (50% of medical
service revenue, net) and $3.9 million (53% of medical service revenue, net) for
the six months ended June 30, 1997 and 1996, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.
Practice salaries, wages and benefits increased $0.6 million or 148% to
$1.0 million for the six months ended June 30, 1997 from $0.4 million for the
six months ended June 30, 1996. For the six months ended June 30, 1996, an
outside management company paid all administrative salaries of M&S. During 1997,
these salaries were paid by M&S.
Practice rent and lease expense remained consistent at 2% of medical
service revenue, net for the six months ended June 30, 1997 and 1996.
Depreciation and amortization expense decreased $0.2 million or 56% to $0.1
million for the six months ended June 30, 1997 from $0.3 million for the six
months ended June 30, 1996 as certain assets became fully depreciated. M&S had
no material changes in the composition of fixed assets or depreciation methods.
Other practice expenses decreased $0.7 million or 53% to $0.6 million for the
six months ended June 30, 1997 from $1.3 million for the six months ended June
30, 1996 due to a reduction in fees paid to an outside management company.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Medical service revenue, net increased by $0.1 million or 0.4% to $14.8
million for the year ended December 31, 1996 from $14.7 million for the year
ended December 31, 1995 reflecting a consistent level of operations.
Investment income from joint ventures of $0.6 million and $0.2 million for
the years ended December 31, 1996 and 1995, respectively, represented M&S' 49%
interest in the earnings of three joint ventures. The increase was attributable
to increased volume at each of the joint ventures.
Other revenue increased by $0.1 million or 21% to $0.4 million for the year
ended December 31, 1996 from $0.3 million for the year ended December 31, 1995
due to increased management fees earned from joint ventures. Management fees
were computed as a percentage of cash collections; therefore, as earnings of the
joint ventures increase, the related management fees also increase.
Costs of affiliated physician services of $8.7 million (59% of medical
service revenue, net) and $8.9 million (60% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.
Practice salaries, wages and benefits increased $0.1 million or 9% to $1.3
million for the year ended December 31, 1996 from $1.2 million for the year
ended December 31, 1995. For seven months of 1995, an
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<PAGE> 212
outside management company paid all administrative salaries of M&S. During 1996,
five months of administrative salaries were paid by the outside management
company.
Practice supplies increased $0.1 million or 18% to $0.6 million for the
year ended December 31, 1996 from $0.5 million for the year ended December 31,
1995 due to increased costs of certain supplies. Practice rent and lease expense
remained consistent at 2% of medical service revenue, net for the years ended
December 31, 1996 and 1995. Depreciation and amortization expense decreased $0.3
million or 30% to $0.7 million for the year ended December 31, 1996 from $1.0
million for the year ended December 31, 1995 as certain assets became fully
depreciated. The company had no material changes in the composition of fixed
assets or depreciation methods. Other practice expenses decreased $0.4 million
or 19% to $1.5 million for the year ended December 31, 1996 from $1.9 million
for the year ended December 31, 1995 due to a reduction in fees paid to an
outside management company.
M&S PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of M&S Common Stock as of September 12, 1997 as to (i) each person who
is known to M&S to beneficially own more than five percent of the outstanding
shares of M&S Common Stock, (ii) each director of M&S, (iii) each Named
Executive Officer of M&S and (iv) all directors and executive officers of M&S as
a group. Except as noted, the persons named in the table have sole voting and
investment power with respect to the shares owned by them, subject to community
property laws.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME(1) OWNED(2) OWNED(3)
----------------------------------------------------- ------------ -----------
<S> <C> <C>
F. Joseph Carabin, M.D., Director.................... 10 5.3%
Robert W. Daehler, M.D., Director.................... 10 5.3
Morgan G. Dunne, M.D., Director...................... 10 5.3
Gregory C. Godwin, M.D. Director..................... 10 5.3
Polly B. Hansen, M.D., Director...................... 10 5.3
Michael D. Howard, M.D., Director.................... 10 5.3
Philip S. Kline, M.D., Director...................... 10 5.3
Julio C. Otazo, M.D., Director....................... 10 5.3
R.K. Daniel Peterson, M.D., Director................. 10 5.3
Randall S. Preissig, M.D., Director.................. 10 5.3
Rise P. Ross, M.D., Director......................... 10 5.3
Jose A. Saldana, M.D., Director...................... 10 5.3
Anthony F. Smith, M.D., Director..................... 10 5.3
Robert L. Thompson, M.D., Director................... 10 5.3
A. Kenneth Trevino, M.D., Director................... 10 5.3
Howard R. Unger, Jr., M.D., Director................. 10 5.3
Jeremy N. Wiersig, M.D., Director.................... 10 5.3
Gary L. Wilson, M.D., Director....................... 10 5.3
W. Gregory Wojcik, M.D., Director.................... 10 5.3
Terry A. Brown, Chief Executive Officer.............. -- --
Kathy Jordan, Chief Financial Officer................ -- --
All directors and executive officers as a group (21
persons)........................................... 190 100.0
</TABLE>
- ---------------
(1) The address for each of the persons listed in the table is M&S X-Ray
Associates, P.A., 730 North Main Street, Suite B109, San Antonio, Texas
78205.
(2) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise or
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<PAGE> 213
conversion of stock options or other securities currently exercisable or
convertible, or exercisable or convertible within 60 days of September 12,
1997 are deemed outstanding and to be beneficially owned by the person
holding such option or security for purposes of computing such person's
percentage ownership, but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person. Except for shares
held jointly with a person's spouse or subject to applicable community
property laws, or as indicated in the footnotes to this table, each
shareholder identified in the table possesses sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned
by such shareholder.
(3) Applicable percentage of ownership is based on 190 shares of Common Stock
outstanding as of September 12, 1997.
LEXINGTON PARTNERSHIP INTEREST HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of partnership interests in Lexington as of September 12, 1997. Except
as noted, the persons named in the table have sole voting and investment power
with respect to the partnership interests owned by them, subject to community
property laws.
<TABLE>
<CAPTION>
PERCENT OF
NAME TOTAL INTERESTS
---------------------------------------------------------------- ---------------
<S> <C>
Neil J. Bowie, M.D., limited partner............................ 2.10%(2)
Polly B. Hansen, M.D., limited partner.......................... 1.40(2)
Philip S. Kline, M.D., limited partner.......................... 1.48(2)
Julio C. Otazo, M.D., limited partner........................... 2.10(2)
R.K. Daniel Peterson, M.D., limited partner..................... 2.10(2)
Randall S. Preissig, M.D., limited partner...................... 2.10(2)
Jose A. Saldana, M.D., limited partner.......................... 2.10(2)
Anthony F. Smith, M.D., limited partner......................... 0.44(2)
Jeremy N. Wiersig, M.D., limited partner........................ 1.75(2)
Robert L. Thompson, M.D., limited partner....................... 2.10(2)
W. Gregory Wojeik, M.D., limited partner........................ 1.31(2)
Baptist Memorial Hospital System, limited partner............... 21.10
San Antonio No. 2, general partner(1)........................... 60.00
</TABLE>
- ---------------
(1) The address of such beneficial owner is San Antonio MRI Partnership San
Antonio No. 2, Ltd., 730 North Main Avenue, Suite B109, San Antonio, Texas
78205.
(2) Includes a .00083% ownership interest indirectly owned by such beneficial
owner in his or her capacity as a security holder of San Antonio (See "South
Texas and San Antonio Principal Shareholders").
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MADISON PARTNERSHIP INTEREST HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of partnership interests in Madison as of September 12, 1997. Except
as noted, the persons named in the table have sole voting and investment power
with respect to the partnership interests owned by them, subject to community
property laws.
<TABLE>
<CAPTION>
PERCENT OF
NAME TOTAL INTERESTS
-------------------------------------------------------- ---------------
<S> <C>
Neil Bowie, M.D., general partner(1).................... 7.8%
F. Joseph Carabin, M.D., general partner(1)............. 6.8
Gregory C. Godwin, M.D., general partner................ 2.2
Michael D. Howard, M.D., general partner(1)............. 7.8
Philip S. Kline, M.D., general partner(1)............... 6.8
Julio C. Otazo, M.D., general partner(1)................ 5.4
R.K. Daniel Peterson, M.D., general partner(1).......... 7.8
Randall S. Preissig, M.D., general partner(1)........... 29.1
Jose A. Saldana, M.D., general partner(1)............... 7.8
Anthony F. Smith, M.D., general partner................. 3.2
Robert L. Thompson, M.D., general partner............... 3.1
Jeremy N. Wiersig, M.D., general partner(1)............. 5.4
Frank Wilson, M.D., general partner(1).................. 6.8
</TABLE>
- ---------------
(1) The address of such beneficial owner is Madison Square Joint Venture, 730
North Main Avenue, Suite B109, San Antonio, Texas 78205.
SOUTH TEXAS NO. 1 PARTNERSHIP INTEREST HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of partnership interests in South Texas No. 1 as of September 12,
1997. Except as noted, to South Texas No. 1's knowledge the persons named in the
table have sole voting and investment power with respect to the partnership
interests owned by them, subject to community property laws.
<TABLE>
<CAPTION>
PERCENT OF
NAME TOTAL INTERESTS
-------------------------------------------------------- ---------------
<S> <C>
Neil Bowie, M.D., limited partner (1)................... 8.3%(2)
Joseph F. Carabin, M.D., limited partner (1)............ 8.3 (2)
Gregory C. Godwin, M.D., limited partner (1)............ 8.3 (2)
Michael D. Howard, M.D., limited partner (1)............ 8.3 (2)
Philip S. Kline, M.D., limited partner (1).............. 8.3 (2)
Julio C. Otazo, M.D., limited partner (1)............... 8.3 (2)
R.K. Daniel Peterson, M.D., limited partner (1)......... 8.3 (2)
Randall S. Preissig, M.D., limited partner (1).......... 8.3 (2)
Rise P. Ross, M.D., limited partner (1)................. 8.3 (2)
Jose A. Saldana, M.D., limited partner (1).............. 8.3 (2)
Robert L. Thompson, M.D., limited partner (1)........... 8.3 (2)
W. Gregory Wojeik, M.D., limited partner (1)............ 8.3 (2)
South Texas, general partner............................ 1.0
</TABLE>
- ---------------
(1) The address of such beneficial owner is South Texas No. 1 MRI limited
partnership, 730 North Main Avenue, Suite B109, San Antonio, Texas 78205.
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<PAGE> 215
(2) Includes an 8.25% ownership interest owned by such beneficial owner in his
capacity as a limited partner of South Texas No. 1 and a .00083% ownership
interest indirectly owned by such beneficial owner in his capacity as a
security holder of South Texas (See "South Texas and San Antonio Principal
Shareholders").
SAN ANTONIO NO. 2 PARTNERSHIP INTEREST HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of partnership interests in San Antonio No. 2 as of September 12,
1997. Except as noted, to San Antonio No. 2's knowledge the persons named in the
table have sole voting and investment power with respect to the partnership
interests owned by them, subject to community property laws.
<TABLE>
<CAPTION>
PERCENT OF
NAME TOTAL INTERESTS
-------------------------------------------------------- ---------------
<S> <C>
Neil Bowie, M.D., limited partner (1)................... 8.3%(2)
Joseph F. Carabin, M.D., limited partner (1)............ 8.3 (2)
Gregory C. Godwin, M.D., limited partner (1)............ 8.3 (2)
Michael D. Howard, M.D., limited partner (1)............ 8.3 (2)
Philip S. Kline, M.D., limited partner (1).............. 8.3 (2)
Julio C. Otazo, M.D., limited partner (1)............... 8.3 (2)
R.K. Daniel Peterson, M.D., limited partner (1)......... 8.3 (2)
Randall S. Preissig, M.D., limited partner (1).......... 8.3 (2)
Rise P. Ross, M.D., limited partner (1)................. 8.3 (2)
Jose A. Saldana, M.D., limited partner (1).............. 8.3 (2)
Robert L. Thompson, M.D., limited partner (1)........... 8.3 (2)
W. Gregory Wojeik, M.D., limited partner (1)............ 8.3 (2)
San Antonio, general partner............................ 1.0
</TABLE>
- ---------------
(1) The address of such beneficial owner is San Antonio MRI Partnership No. 2,
Ltd., 730 North Main Avenue, Suite B109, San Antonio, Texas 78205.
(2) Includes an 8.25% ownership interest owned by such beneficial owner in his
capacity as a Limited Partner of San Antonio No. 2 and a .00083% ownership
interest indirectly owned by such beneficial owner in his capacity as a
security holders of San Antonio (See "South Texas and San Antonio Principal
Shareholders").
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<PAGE> 216
SOUTH TEXAS AND SAN ANTONIO PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of South Texas and San Antonio Common Stock as of September 12, 1997
as to (i) each person who is known to each of South Texas and San Antonio to
beneficially own more than five percent of the outstanding shares of South Texas
and San Antonio Common Stock, (ii) each director of each of South Texas and San
Antonio, (iii) each Named Executive Officer of each of South Texas and San
Antonio and (iv) all directors and executive officers of South Texas and San
Antonio as a group. Except as noted, to the knowledge of South Texas and San
Antonio, the persons named in the table have sole voting and investment power
with respect to the shares owned by them, subject to community property laws.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME(1) OWNED(2) OWNED(3)
----------------------------------------------------- ------------ -----------
<S> <C> <C>
Neil Bowie, M.D., Director........................... 10 8.3%
F. Joseph Carabin, M.D., Director.................... 10 8.3
Gregory C. Godwin, M.D. Director..................... 10 8.3
Julio C. Otazo, M.D., Director....................... 10 8.3
R.K. Daniel Peterson, M.D., Director................. 10 8.3
Randall S. Preissig, M.D., Director.................. 10 8.3
Rise P. Ross, M.D., Director......................... 10 8.3
Jose A. Saldana, M.D., Director...................... 10 8.3
Anthony F. Smith, M.D., Director..................... 10 8.3
Robert L. Thompson, M.D., Director................... 10 8.3
W. Gregory Wojeik, M.D., Director.................... 10 8.3
All directors and executive officers as a group (12
persons)........................................... 120 100.0
</TABLE>
- ---------------
(1) The address for each of the persons listed in the table is South Texas MR,
Inc., or San Antonio MR, Inc., 730 North Main Avenue, Suite B109, San
Antonio, Texas 78205.
(2) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise or conversion of stock options or
other securities currently exercisable or convertible, or exercisable or
convertible within 60 days of September 12, 1997 are deemed outstanding and
to be beneficially owned by the person holding such option or security for
purposes of computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each shareholder identified in the table possesses
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such shareholder.
(3) Applicable percentage of ownership is based on 120 shares of South Texas
Common Stock and San Antonio Common Stock outstanding as of September 12,
1997.
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PACIFIC IMAGING CONSULTANTS
PACIFIC'S OPERATION, MANAGEMENT AND BUSINESS
GENERAL
Pacific Imaging Consultants is comprised of a professional medical
radiology group formed in 1978 and organized as a California professional
medical corporation and Total Medical Imaging, Inc., a California corporation.
Pacific Imaging Consultants provides two types of services: (1) Professional
Services and (2) Imaging Services, both of which are reimbursed on a prepaid and
fee-for-service basis. Pacific Imaging Consultants operates in the greater
Oakland Metropolitan area, San Francisco Bay area and in the Hi-Desert area of
Southern California. Pacific Imaging Consultants contracts directly with
hospitals and health plans to provide Professional Services and Imaging Services
to enrollees and patients. Through contracts with various health plans and
hospitals, as of April 30, 1997, Pacific Imaging Consultants physicians were
responsible for the Professional Services and Imaging Services to approximately
360,000 health plan enrollees or patients. Pacific Imaging Consultants operates
five Professional Service locations and seven Imaging Service locations.
Pacific Imaging Consultants has grown through a combination of acquisitions
of medical practices that complement its services and recruitment of individual
associate physicians in needed practice areas.
STRATEGY
Pacific Imaging Consultants' strategy is to continue penetration of its
existing markets, expand into other markets, create strategic alliances with
hospitals and other Imaging Service providers, increase the operational
efficiency of, and reduce costs associated with, the Pacific Imaging Consultants
operations.
The future growth of Pacific Imaging Consultants in its existing markets is
dependent in part on the continued increase of health plan enrollees and
patients using Pacific Imaging Consultants for Professional Services. This
growth may come, with respect to Professional Services, from the development or
acquisition of additional facilities and the development of affiliations with
medical groups serving enrollees or patients in existing markets, increased
enrollment in health plans currently contracting with Pacific Imaging
Consultants and its medical affiliates, and contracts with new health plans or
hospitals. It actively recruits new providers and seeks to enter into new
hospital-based or managed care contracts in order to enlarge the potential
patient base in the Pacific Service Area.
Pacific Imaging Consultants' principal strategy for expanding into new
markets is through acquisitions (through purchase, merger, or otherwise) of
medical groups. Pacific Imaging Consultants generally seeks providers that have
established reputations for providing quality medical care.
GOVERNMENT REGULATION
Pacific Imaging Consultants is subject to federal and state laws regulating
the relationships among providers of health care services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Medicare
and Medicaid statutes, which prohibit the solicitation, payment, receipt or
offering of any direct or indirect remuneration for the referral of Medicare or
Medicaid patients or for the recommending, leasing, arranging, ordering or
purchasing of Medicare or Medicaid covered services. Other laws impose
significant penalties for false or improper billings for physician services and
impose restrictions on physician referrals for designated health services
reimbursable under the Medicare or Medicaid programs to entities with which they
have financial relationships. While Pacific Imaging Consultants believes it is
in material compliance with applicable laws, there is no assurance that its
present or past operations will not be subjected to scrutiny or legal
challenges.
SERVICES PROVIDED
Pacific Imaging Consultants operates a total of 12 facilities that are
staffed by Pacific Imaging Consultants Professional Service providers and
Pacific Imaging Consultants Imaging Service providers. As of April 30, 1997,
Pacific Imaging Consultants employed 24 Professional Service providers and 28
Imaging Service providers. Pacific Imaging Consultants provides the following
specialty radiology services: diagnostic and interpretive, x-ray, fluoroscopy,
computed tomography, mammography, CT, magnetic resonance imaging, nuclear
medicine, ultrasound and interventional.
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<PAGE> 218
Pacific Imaging Consultants provides approximately 20% of its Professional
Service and Imaging Service under capitated contracts and 80% under
fee-for-service or hospital contracts. Under capitated contracts, Pacific
Imaging Consultants provides or arranges for all physician services and Pacific
Imaging Consultants receives a fixed monthly capitation payment from health
plans for each member who utilizes a Pacific Imaging Consultants physician.
At April 30, 1997, over 360,000 patients were serviced by Pacific Imaging
Consultants. Pacific Imaging Consultants is under contract with the following
significant hospitals or health plans: Summit Medical Center, St. Luke's
Hospital, St. Rose Hospital, San Ramon Regional Medical Center, Hill Physicians,
Blue Cross and Blue Shield.
COMPETITION
The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.
EMPLOYEES
Professional Service Provider Employees
Pacific Imaging Consultants physicians enter into employment contracts.
These contracts offer a specified guaranteed salary and an incentive bonus.
Physicians are also eligible to receive benefits such as health, dental and life
insurance, paid time off and an allowance for continuing medical education and
other professional expenses. Pacific Imaging Consultants, as of April 30, 1997,
employed 24 full-time physicians and engaged four or five physicians as
independent contractors on a part-time basis.
Imaging Service Provider Employees
Pacific Imaging Consultants employs approximately 28 Imaging Service
providers, of which 12 are employed on a full-time basis and 16 are employed on
a part-time basis.
Non-Provider Employees
As of April 30, 1997, Pacific Imaging Consultants had approximately 60
non-physician employees, of which 41 were employed on a full-time basis and 19
were employed on a part-time basis. None of Pacific Imaging Consultants'
employees are represented by a labor union. Management of Pacific Imaging
Consultants believes its employee relations are good.
INSURANCE
Pacific Imaging Consultants maintains insurance coverage for various perils
and from various carriers. In addition to property and casualty, worker's
compensation and other coverage Pacific Imaging Consultants believes to be
customary and reasonable for a business of its kind, Pacific Imaging Consultants
maintains Liability Policies with Medical Insurance Exchange, Employers First
Insurance, Unigard, Safeco, Aetna, Unum and Hofferman. Each professional of
Pacific Imaging Consultants, at each location, is covered under the Liability
Policies.
PROPERTIES AND FACILITIES
Pacific Imaging Consultants leases approximately seven facilities. Such
real property leases are utilized for corporate operations, Professional
Services and Imaging Services.
INFORMATION SYSTEMS
Pacific Imaging Consultants believes that the effective analysis of medical
and financial data is essential in today's managed care environment.
Accordingly, Pacific Imaging Consultants is committed to the development of a
fully-integrated MIS for practice management. Pacific Imaging Consultants' MIS
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<PAGE> 219
capabilities include medical charting and tracking analysis of practice
management information and financial data. Practice management functions of the
current MIS include registration, centralized scheduling and appointments,
electronic claims submission and remittance. Managed care functions include
referrals, eligibility, determination, claim management and payment functions.
LEGAL PROCEEDINGS
Pacific is engaged in the defense of lawsuits arising in the ordinary
course and conduct of its business. Pacific believes that such actions will not
have a material adverse effect on Pacific.
PACIFIC IMAGING CONSULTANTS SELECTED FINANCIAL DATA
(IN THOUSANDS)
The following information for Pacific Imaging Consultants has been derived
from the financial statements of Pacific Imaging Consultants, and should be read
in conjunction with "Pacific Imaging Consultants Management's discussion and
Analysis of Financial Condition and Results of Operations" and the audited
financial statements of Pacific Imaging Consultants and the notes thereto
included elsewhere in this document. The information for the year ended December
31, 1994 for Pacific Imaging Consultants has been derived from the unaudited
financial statements which, in the opinion of management, includes all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of such information.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue...................... $ 8,806 $11,448 $13,295 $5,634 $7,052
Expenses:
Costs of affiliated physician
services...................... 2,992 5,897 7,215 2,860 4,056
Practice salaries, wages and
benefits...................... 1,004 1,604 1,840 842 966
Depreciation and amortization.... 1,082 996 981 488 475
Other practice expenses.......... 4,269 3,055 3,204 1,479 1,595
------- ------- ------- ------ ------
Total expenses..................... 9,347 11,552 13,240 5,669 7,092
------- ------- ------- ------ ------
Equity in earnings of
investments...................... -- -- -- -- --
Minority interests in income of
consolidated subsidiaries........ -- -- -- -- --
------- ------- ------- ------ ------
Income (loss) before income
taxes............................ $ (541) $ (104) $ 55 $ (35) $ (40)
======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 6,332
Total debt.............................................................. 3,645
Stockholders' equity.................................................... 255
</TABLE>
168
<PAGE> 220
PACIFIC IMAGING CONSULTANTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to the historical operations of Pacific
Imaging Consultants and should be read in conjunction with the audited financial
statements of Pacific Imaging Consultants and the notes thereto appearing
elsewhere in this Prospectus/Joint Proxy Statement. For purposes of the
following discussion, medical service revenue, net represents the estimated
realizable amount to be received from patients, third-party payors and others
for the provision of medical services.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 As Compared to Six Months Ended June 30, 1996
Medical service revenue, net increased $1.4 million or 26% to $7.0 million
for the six months ended June 30, 1997 from $5.6 million for the six months
ended June 30, 1996. This increase is largely attributable to the addition of a
new hospital contract which resulted in an increase in the number of procedures
performed.
Costs of affiliated physician services of $4.1 million (58% of medical
service revenue, net) and $2.9 million (52% of medical service revenue, net) for
the six months ended June 30, 1997 and 1996, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on
earnings available for distribution. This increase is primarily due to the
hiring of three new physicians and two other employees subsequent to June 30,
1996.
Practice salaries, wages and benefits of $1.0 million and $0.8 million for
the six months ended June 30, 1997 and 1996, respectively, were 14% and 15%,
respectively, of medical service revenue, net. Practice supplies of $0.2 million
for each of the six months ended June 30, 1997 and 1996 remained consistent at
4% of medical service revenue, net. Depreciation and amortization expense of
$0.5 million for each of the six months ended June 30, 1997 and 1996 reflects no
material changes in the composition of fixed assets or depreciation methods.
Other practice expenses of $1.0 million and $0.8 million for the six months
ended June 30, 1997 and 1996, respectively, were 14% and 15%, respectively, of
medical service revenue, net. Interest expense of $0.2 million for each of the
six months ended June 30, 1997 and 1996, was 2% and 4%, respectively, of medical
service revenue, net.
Year Ended December 31, 1996 As Compared to Year Ended December 31, 1995
Medical service revenue, net increased $1.9 million or 17% to $13.1 million
for the year ended December 31, 1996 from $11.2 million for the year ended
December 31, 1995 due primarily to increased revenue under capitated contracts.
In September 1995, Pacific signed a significant capitation contract. Revenues
under this contract were $1.4 million greater for the year ended December 31,
1996 as compared to the year ended December 31, 1995. The remaining increase in
revenue was the result of an increased number of procedures performed and
covered lives.
Costs of affiliated physician services of $7.2 million (55% of medical
service revenue, net) and $5.9 million (52% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on
earnings available for distribution.
Practice salaries, wages and benefits were $1.8 million and $1.6 million
for the years ended December 31, 1996 and 1995, respectively, representing 14%
of medical service revenue, net for each year. Practice supplies of $0.6 million
and $0.5 million for the years ended December 31, 1996 and 1995, respectively,
remained consistent at 4% of medical service revenue, net. Practice rent and
lease expense of $0.4 million for each of the years ended December 31, 1996 and
1995 remained consistent at 3% of medical service revenue, net. Depreciation and
amortization expense of $1.0 million for each of the years ended December 31,
1996 and 1995 reflects no material changes in the composition of fixed assets or
depreciation methods. Other practice expenses of $1.9 million and $1.7 million
for the years ended December 31, 1996 and 1995, respectively,
169
<PAGE> 221
remained consistent at 15% of medical service revenue, net. Interest expense
decreased $0.2 million or 34% to $0.3 million for the year ended December 31,
1996 from $0.5 million for the year ended December 31, 1995 due to a decrease in
the average debt outstanding, as well as a reduction in the average interest
rates applied. These reductions were achieved through a debt refinancing which
occurred in August 1996.
PACIFIC IMAGING CONSULTANTS PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Pacific Common Stock as of September 12, 1997 as to (i) each person
who is known to Pacific to beneficially own more than five percent of the
outstanding shares of Pacific Common Stock, (ii) each director of Pacific, (iii)
each Named Executive Officer of Pacific and (iv) all directors and executive
officers of Pacific as a group. Except as noted, the persons named in the table,
have sole voting and investment power with respect to the shares owned by them,
subject to community property laws.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
------------------------------------------------------------- ------------ -----------
<S> <C> <C>
John W. Barr, M.D., Director................................. 500 4.6%
Richard S. Breiman, M.D., Director........................... 500 4.6
Less T. Chafen, M.D., Chairman and Director.................. 500 4.6
Frederick K. Chin, M.D., Director............................ 500 4.6
Richard H. Culhane, M.D., Director........................... 500 4.6
Edward Drasin, M.D., Director................................ 500 4.6
Hayden Evans, M.D., Director................................. 500 4.6
Michael J. Faer, M.D., Vice President and Director........... 500 4.6
Charles E. Fiske, M.D., Director............................. 500 4.6
Steven B. Hammerschlag, M.D., Director....................... 500 4.6
David C. Hansen, M.D., Director.............................. 500 4.6
Allen V. Havener, M.D., Director............................. 500 4.6
Ira E. Kanter, M.D., Director................................ 500 4.6
Richard J. Keene, M.D., Director............................. 500 4.6
Carl J. Mani, M.D., Director................................. 500 4.6
Susan C. Marks, M.D., Director............................... 500 4.6
Jeremy A. McCreary, M.D., Assistant Vice President and
Director................................................... 500 4.6
Patrick J. Perkins, M.D., President and Director............. 500 4.6
Philip J. Rich, M.D., Assistant Vice President and
Director................................................... 500 4.6
Douglas C. Riehle, M.D., Director............................ 500 4.6
Gary G. Shrago, M.D., Director............................... 500 4.6
Juanit O. Villanueva, M.D., Director......................... 500 4.6
All directors and executive officers as a group (22
Persons)................................................... 11,000 100.0
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise or conversion of stock options or
other securities currently exercisable or convertible, or exercisable or
convertible within 60 days of September 12, 1997 are deemed outstanding and
to be beneficially owned by the person holding such option or security for
purposes of computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each shareholder identified in the table possesses
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such shareholder.
(2) Applicable percentage of ownership is based on 11,000 shares of Pacific
Common Stock outstanding as of September 12, 1997.
170
<PAGE> 222
TMI PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of TMI Common Stock as of September 12, 1997 as to (i) each person who
is known to TMI to beneficially own more than five percent of the outstanding
shares of TMI Common Stock, (ii) each director of TMI, (iii) each Named
Executive Officer of TMI and (iv) all directors and executive officers of TMI as
a group. Except as noted, the persons named in the table to the knowledge of TMI
have sole voting and investment power with respect to the shares owned by them,
subject to community property laws.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
------------------------------------------------------------- ------------ -----------
<S> <C> <C>
John W. Barr, M.D., Director................................. 5,000 4.6%
Richard S. Breiman, M.D., Director........................... 5,000 4.6
Less T. Chafen, M.D., Chairman and Director.................. 5,000 4.6
Frederick K. Chin, M.D., Director............................ 5,000 4.6
Richard H. Culhane, M.D., Director........................... 5,000 4.6
Edward Drasin, M.D., Director................................ 5,000 4.6
Hayden Evans, M.D., Director................................. 5,000 4.6
Michael J. Faer, M.D., Vice President and Director........... 5,000 4.6
Charles E. Fiske, M.D., Director............................. 5,000 4.6
Steven B. Hammerschlag, M.D., Director....................... 5,000 4.6
David C. Hansen, M.D., Director.............................. 5,000 4.6
Allen V. Havener, M.D., Director............................. 5,000 4.6
Ira E. Kanter, M.D., Director................................ 5,000 4.6
Richard J. Keene, M.D., Director............................. 5,000 4.6
Carl J. Mani, M.D., Director................................. 5,000 4.6
Susan C. Marks, M.D., Director............................... 5,000 4.6
Jeremy A. McCreary, M.D., Assistant Vice President and
Director................................................... 5,000 4.6
Patrick J. Perkins, M.D., President and Director............. 5,000 4.6
Philip J. Rich, M.D., Assistant Vice President and
Director................................................... 5,000 4.6
Douglas C. Riehle, M.D., Director............................ 5,000 4.6
Gary G. Shrago, M.D., Director............................... 5,000 4.6
Juanit O. Villanueva, M.D., Director......................... 5,000 4.6
All directors and executive officers as a group (22
persons)................................................... 110,000 100.0
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise or conversion of stock options or
other securities currently exercisable or convertible, or exercisable or
convertible within 60 days of September 12, 1997 are deemed outstanding and
to be beneficially owned by the person holding such option or security for
purposes of computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each shareholder identified in the table possesses
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such shareholder.
(2) Applicable percentage of ownership is based on 110,000 shares of TMI Common
Stock outstanding as of September 12, 1997.
171
<PAGE> 223
RADIOLOGY AND NUCLEAR MEDICINE
RNM'S OPERATION, MANAGEMENT AND BUSINESS
GENERAL
RNM is a professional association. RNM was formed in 1959 as "Radiology and
Nuclear Medicine, an association," the entity as it exists today is the result
of a 1967 merger of the original entity into a Kansas professional association
named "Radiology and Nuclear Medicine, a Professional Association." RNM provides
two types of services: (1) Professional Services and (2) Imaging Services, both
of which are reimbursed on a prepaid or fee-for-service basis. RNM operates in
the greater Topeka, Kansas area. RNM contracts directly with hospitals and
health plans to provide Professional Services and Imaging Services to enrollees
and patients. RNM operates two Imaging Service locations and provides
Professional Services at those locations and at 11 hospital-based locations
within the RNM Service Area.
RNM has grown through expansion of its service area and extending services
to additional outreach locations within the RNM Service Area.
RNM owns a 22% interest in Magnetic Resonance Imaging Center of Kansas, a
Kansas limited partnership.
STRATEGY
RNM's strategy is to continue penetration of its existing markets, expand
into other markets, create strategic alliances with hospitals and other Imaging
Service providers, increase the operational efficiency of, and reduce costs
associated with, the RNM operations.
The future growth of RNM in its existing markets is dependent in part on
the continued increase of health plan enrollees and patients using RNM
physicians for Professional Services. This growth may come, with respect to
Professional Services, from the development or acquisition of additional
facilities, and the development of associations with medical groups serving
enrollees or patients in existing markets, increased enrollment in health plans
currently contracting with RNM or parties with which RNM is associated and
contracts with new health plans or hospitals. It actively recruits new providers
and seeks to enter into new hospital-based or managed care contracts in order to
enlarge the potential patient base in its service areas.
RNM's principal strategy for expanding into new markets is through
acquisitions (through purchase, merger, or otherwise) of medical groups. RNM
generally seeks providers that have established reputations for providing
quality medical care.
GOVERNMENT REGULATION
RNM is subject to federal and state laws regulating the relationships among
providers of health care services, physicians and other clinicians. These laws
include the fraud and abuse provisions of the Medicare and Medicaid statutes,
which prohibit the solicitation, payment, receipt or offering of any direct or
indirect remuneration for the referral of Medicare or Medicaid patients or for
the recommending, leasing, arranging, ordering or purchasing of Medicare or
Medicaid covered services. Other laws impose significant penalties for false or
improper billings for physician services and impose restrictions on physician
referrals for designated health services reimbursable under the Medicare or
Medicaid programs to entities with which they have financial relationships.
While RNM believes it is in material compliance with applicable laws, there is
no assurance that its present or past operations will not be subjected to
scrutiny or legal challenges.
SERVICES PROVIDED
RNM provides physician staffing to a total of 14 facilities, including its
two wholly-owned ICs. As of April 30, 1997, RNM employed 19 diagnostic
radiologists. RNM also provides radiation oncology services and, as of April 30,
1997, employed five professional service providers (radiation oncologists). RNM
provides all of its Professional Service and Imaging Service under
fee-for-service or hospital contracts.
At April 30, 1997, approximately 140,000 patients were serviced by RNM. RNM
is under contract with the following significant hospitals or health plans:
MediCare, Kansas Medicaid, Heartland/Horizons Health
172
<PAGE> 224
Plan, Blue Shield of Kansas, Premier Blue, Prudential, CHAMPUS, Century Health
Solutions, St. Francis Hospital P.H.O. and HealthNet.
RNM undertakes concurrent review of cases which are reevaluated for
radiologic interpretation, adequate film technique and positioning, and typing
accuracy. A follow-up file of cases with significant pathology, including
suspected malignancy, is maintained to determine outcome.
MARKETING AND DEVELOPMENT
Radiology and Nuclear Medicine's marketing and development plans include
participation in health fairs and business fairs, brochure advertising,
sponsorship of local activities and events and direct marketing to referring
physicians and their staffs by providing educational materials of use and
interest to them in their practices.
COMPETITION
The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.
RNM is the leading provider of diagnostic imaging and radiation therapy
services within its service area. There is one other professional radiology
group operating in each of the Kansas cities of Atchison, Manhattan, Lawrence
and Emporia. In Topeka and other portions of the service area, RNM's competition
is limited to non-specialists.
EMPLOYEES
Professional Service Provider Employees
RNM physicians enter into employment contracts. These contracts offer a
specified guaranteed salary and an incentive bonus. Physicians are also eligible
to receive benefits such as health, dental and life insurance, paid time off and
an allowance for continuing medical education and other professional expenses.
RNM, as of April 30, 1997, employed 24 full-time physicians.
Non-Provider Employees
As of April 30, 1997, RNM had approximately 45 non-physician employees (40
full-time and five part-time). None of RNM's employees are represented by a
labor union. Management of RNM believes its employee relations are good.
INSURANCE
RNM maintains insurance coverage for various perils and from various
carriers. In addition to property and casualty, worker's compensation and other
coverage, RNM believes to be customary and reasonable for a business of its
kind, RNM maintains Liability Policies with Kansas Medical Mutual and Cincinnati
Insurance. Each professional of RNM at each location is covered under the
Liability Policies.
PROPERTIES AND FACILITIES
RNM leases two facilities for office space. The square footage of such real
property leases are 3,572 square feet and 13,865 square feet, respectively.
INFORMATION SYSTEMS
RNM believes that the effective analysis of medical and financial data is
essential in today's managed care environment. Accordingly, RNM is committed to
the development of a fully-integrated MIS for practice management. RNM's MIS
capabilities include tracking analysis of practice management information and
financial data. Practice management functions of the current MIS include patient
registration, referral tracking, physician scheduling and productivity, and
electronic claims submission and remittance.
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<PAGE> 225
LEGAL PROCEEDINGS
RNM is engaged in the defense of lawsuits arising in the ordinary course
and conduct of its business. RNM believes that such actions will not have a
material adverse effect on RNM.
RNM SELECTED FINANCIAL DATA
(IN THOUSANDS)
The following information for RNM has been derived from the financial
statements of RNM, and should be read in conjunction with "RNM Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements of RNM and the notes thereto included elsewhere
in this document. The information for the year ended December 31, 1994 for RNM
has been derived from the unaudited financial statements which, in the opinion
of management, includes all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of such information.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ---------------
1994 1995 1996 1996 1997
----------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................ $13,379 $13,849 $13,572 $6,620 $6,961
Expenses:
Costs of affiliated physician
services............................ 9,662 10,700 10,265 3,965 4,132
Practice salaries, wages and
benefits............................ 1,718 1,807 1,744 658 682
Depreciation and amortization.......... 133 188 202 89 90
Other practice expenses................ 1,921 1,530 1,459 759 768
------- ------- ------- ------ ------
Total expenses........................... 13,434 14,225 13,670 5,471 5,672
------- ------- ------- ------ ------
Equity in earnings of investments........ 273 311 292 190 192
Minority interests in income of
consolidated subsidiaries.............. -- -- -- -- --
------- ------- ------- ------ ------
Income (loss) before income taxes........ $ 218 $ (65) $ 194 $1,339 $1,481
======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 5,202
Total debt.............................................................. 1,119
Stockholders' equity.................................................... 2,449
</TABLE>
174
<PAGE> 226
RNM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion relates to the historical operations of RNM and
should be read in conjunction with the audited financial statements of RNM and
the notes thereto appearing elsewhere in this Prospectus/Joint Proxy Statement.
For purposes of the following discussion, medical service revenue, net
represents the estimated realizable amount to be received from patients,
third-party payors and others for the provision of medical services.
Six Months Ended June 30, 1997 as Compared to Six Months Ended June 30, 1996
Medical service revenue, net increased $0.3 million or 5% to $6.9 million
for the six months ended June 30, 1997 from $6.6 million for the six months
ended June 30, 1996. This increase was attributable to the addition, in July
1996, of a new hospital at which RNM provided services.
Costs of affiliated physician services of $4.1 million and $4.0 million
remained consistent at 60% of medical service revenue, net) for the six months
ended June 30, 1997 and 1996, respectively, included compensation and benefits
paid or payable to owner and non-owner physicians during the period. The
physician owners determined such payments based on physician performance, taking
into account the amount of cash available for such payments.
Practice salaries, wages and benefits remained consistent at $0.7 million
for each of the six months ended June 30, 1997 and 1996. Such amounts remained
consistent at 10% of medical service revenue, net. Other practice expenses of
$0.4 million for each of the six months ended June 30, 1997 and 1996 remained
consistent at 6% of medical service revenue, net.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Medical service revenue, net decreased $0.3 million or 2% to $13.4 million
for the year ended December 31, 1996 from $13.7 million for the year ended
December 31, 1995. Although RNM had a slight increase in volume of services
rendered, reimbursement rates from certain payor groups declined.
Costs of affiliated physician services of $10.3 million (76% of medical
service revenue, net) and 10.7 million (78% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.
Practice salaries, wages and benefits of $1.7 million and $1.8 million for
the years ended December 31, 1996 and 1995, respectively, remained consistent as
13% of medical service revenue, net. Practice supplies of $0.3 million and $0.4
million for the years ended December 31, 1996 and 1995, respectively, were 2%
and 3% of medical service revenue, net, respectively. Depreciation and
amortization expense of $0.2 million for each of the years ended December 31,
1996 and 1995 reflects no material changes in the composition of fixed assets or
depreciation methods. Other practice expenses of $0.8 million for each of the
years ended December 31, 1996 and 1995 remained consistent at 6% of medical
service revenue, net.
175
<PAGE> 227
RNM PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of RNM Common Stock as of September 12, 1997 as to (i) each person who
is known to RNM to beneficially own more than five percent of the outstanding
shares of RNM Common Stock, (ii) each director of RNM, (iii) each Named
Executive Officer of RNM and (iv) all directors and executive officers of RNM as
a group. Except as noted, to RNM's knowledge, the persons named in the table
have sole voting and investment power with respect to the shares owned by them,
subject to community property laws.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
----------------------------------------------------- ------------ -----------
<S> <C> <C>
Stephen D. Coon, M.D., Director and First Vice
President.......................................... 129 4.2%
Russell Clay Harvey, M.D., Director.................. 129 4.2
Richard Meidinger, M.D., Director.................... 129 4.2
Dennis C. Petterson, M.D., Director and
Secretary-Treasurer................................ 129 4.2
Peter E. Schloesser, M.D., Director(3)............... 129 4.2
William J. Walls, M.D., President.................... 129 4.2
All directors and executive officers as a group (6
persons)........................................... 774 25.0
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise or conversion of stock options or
other securities currently exercisable or convertible, or exercisable or
convertible within 60 days of September 12, 1997 are deemed outstanding and
to be beneficially owned by the person holding such option or security for
purposes of computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each stockholder identified in the table possesses
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such stockholder.
(2) Applicable percentage of ownership is based on 3,096 shares of RNM Common
Stock outstanding as of September 12, 1997.
(3) All such shares of RNM Common Stock are held by Peter E. Schloesser, M.D. in
his capacity as Trustee of the Peter E. Schloesser Trust u/t/a dated October
16, 1996, the owner of record of such shares.
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<PAGE> 228
ROCKLAND RADIOLOGICAL GROUP
ROCKLAND'S OPERATION, MANAGEMENT AND BUSINESS
GENERAL
Rockland Radiological Group is comprised of seven professional medical
radiology groups, each of which is organized as a New York professional
corporation. Rockland Radiological Group provides two types of services: (1)
Professional Services and (2) Imaging Services, both of which are reimbursed on
a prepaid or fee-for-service basis. Rockland Radiological Group operates in the
Dutchess, Orange, Rockland, Ulster and Westchester County areas of the State of
New York and the Bergen County area of the State of New Jersey. Rockland
Radiological Group contracts directly with hospitals and health plans to provide
Professional Services and Imaging Services to enrollees and patients. Rockland
Radiological Group operates five Professional Service and Imaging Service
locations and two hospital-based locations within the Rockland Service Area.
Rockland Radiological Group has grown through a combination of acquisitions
of medical practices that complement its services and recruitment of individual
associate physicians in needed practice areas. On March 11, 1997, Wallkill
Radiology Associates, P.C. and Mid-Hudson Radiology Associates, P.C. agreed to
contribute all of their assets to Rockland Radiological Group. In April 1997,
Rockland Radiological Group entered into an agreement to purchase certain assets
of Kingston Diagnostic Radiology, P.C.
STRATEGY
Rockland Radiological Group's strategy is to continue penetration of its
existing markets, expand into other markets, create strategic alliances with
hospitals and other Imaging Service providers, increase the operational
efficiency of, and reduce costs associated with, the Rockland Radiological Group
operations.
The future growth of Rockland Radiological Group in its existing markets is
dependent in part on the continued increase of health plan enrollees and
patients using Rockland Radiological Group for Professional Services. This
growth may come, with respect to Professional Services, from the development or
acquisition of additional facilities; and the development of affiliations with
medical groups serving enrollees or patients in existing markets, increased
enrollment in health plans currently contracting with Rockland Radiological
Group and its medical affiliates, and contracts with new health plans or
hospitals. It actively recruits new providers and seeks to enter into new
hospital-based or managed care contracts in order to enlarge the potential
patient base in its Service Area.
Rockland Radiological Group's principal strategy for expanding into new
markets is through acquisitions (through purchase, merger, or otherwise) of
medical groups. Rockland Radiological Group generally seeks providers that have
established reputations for providing quality medical care.
GOVERNMENT REGULATION
Rockland Radiological Group is subject to federal and state laws regulating
the relationships among providers of health care services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Medicare
and Medicaid statutes, which prohibit the solicitation, payment, receipt or
offering of any direct or indirect remuneration for the referral of Medicare or
Medicaid patients or for the recommending, leasing, arranging, ordering or
purchasing of Medicare or Medicaid covered services. Other laws impose
significant penalties for false or improper billings for physician services and
impose restrictions on physician referrals for designated health services
reimbursable under the Medicare or Medicaid programs to entities with which they
have financial relationships. While Rockland Radiological Group believes it is
in material compliance with applicable laws, there is no assurance that its
present or past operations will not be subjected to scrutiny or legal
challenges.
SERVICES PROVIDED
Rockland Radiological Group operates a total of seven facilities that are
staffed by Rockland Radiological Group Professional Service providers and
Rockland Radiological Group Imaging Service providers. As of April 30, 1997,
Rockland Radiological Group employed 14 Professional Service providers.
177
<PAGE> 229
Rockland Radiological Group provides approximately 11% of its Professional
Services and Imaging Services under capitated contracts and 8% under
fee-for-service or hospital contracts. Under capitated contracts, Rockland
Radiological Group provides or arranges for all physician services and Rockland
Radiological Group receives a fixed monthly capitation payment from health plans
for each member who utilizes a Rockland Radiological Group physician.
At April 30, 1997, over 18,000 patients were serviced by Rockland
Radiological Group under a capitated plan.
Rockland Radiological Group provides an extensive and ongoing utilization
review process under the direction of a committee of physician members. The
program includes both prospective and retrospective analysis of utilization.
MARKETING AND DEVELOPMENT
Rockland Radiological Group employs a staff of full-time and part-time
marketing and development personnel. This staff works with physicians and
physician groups, health plans and hospitals to familiarize them with the
facilities and services of the Rockland Radiological Group. The Rockland
Radiological Group actively solicits statewide regional contracts in health
plans and other third-party payors.
COMPETITION
The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.
EMPLOYEES
Professional Service Provider Employees
Rockland Radiological Group physicians enter into employment contracts.
These contracts offer a specified guaranteed salary. Physicians are also
eligible to receive benefits such as health, dental and life insurance, paid
time off and an allowance for continuing medical education and other
professional expenses. Rockland Radiological Group, as of April 30, 1997,
employed 14 physicians (13 full-time and one part-time).
Imaging Service Provider Employees
Rockland Radiological Group employs approximately 50 Imaging Service
providers.
Non-Provider Employees
As of April 30, 1997, Rockland Radiological Group had approximately 160
non-physician employees (140 full-time and 20 part-time). None of Rockland
Radiological Group's employees are represented by a labor union. Management of
Rockland Radiological Group believes its employee relations are good.
INSURANCE
Rockland Radiological Group maintains insurance coverage for various perils
and from various carriers. In addition to property and casualty, worker's
compensation, directors and officers liability and other insurance coverage,
Rockland Radiological Group believes it to be customary and reasonable for a
business of its kind, Rockland Radiological Group maintains Liability Policies.
Each professional of Rockland Radiological Group, at each location, is covered
under the Liability Policies.
PROPERTIES AND FACILITIES
Rockland Radiological Group leases six facilities utilized for corporate
operations, Professional Services and Imaging Services.
178
<PAGE> 230
INFORMATION SYSTEMS
Rockland Radiological Group believes that the effective analysis of medical
and financial data is essential in today's managed care environment.
Accordingly, Rockland Radiological Group is committed to the development of a
fully-integrated MIS for practice management. Rockland Radiological Group's MIS
capabilities include medical charting and tracking analysis of practice
management information and financial data. Practice management functions of the
current MIS include registration, centralized scheduling and appointments,
electronic claims submission and remittance. Managed care functions include
referrals, eligibility, determination, claim management and payment functions.
LEGAL PROCEEDINGS
Rockland Radiological Group is engaged in the defense of lawsuits arising
in the ordinary course and conduct of its business. Rockland Radiological Group
believes that such actions will not have a material adverse effect on Rockland
Radiological Group.
ROCKLAND RADIOLOGICAL GROUP SELECTED FINANCIAL DATA
(IN THOUSANDS)
The following information for Rockland Radiological Group has been derived
from the financial statements of Rockland Radiological Group, and should be read
in conjunction with "Rockland Radiological Group Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
financial statements of Rockland Radiological Group and the notes thereto
included elsewhere in this document.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................... $15,080 $17,824 $17,333 $11,764 $13,667
Expenses:
Costs of affiliated physician
services.................... 3,674 7,074 6,051 4,825 4,799
Practice salaries, wages and
benefits.................... 3,917 4,118 4,252 2,967 3,543
Depreciation and
amortization................ 1,605 1,628 1,350 975 1,110
Other practice expenses........ 5,439 6,050 5,417 3,351 4,323
------- ------- ------- ------- -------
Total expenses................... 14,635 18,870 17,070 12,118 13,775
------- ------- ------- ------- -------
Equity in earnings of
investments.................... -- -- -- -- --
Minority interests in income of
consolidated subsidiaries...... -- -- -- -- --
------- ------- ------- ------- -------
Income (loss) before income
taxes.......................... $ 445 $(1,046) $ 263 $ (354) $ (108)
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $12,237
Total debt.............................................................. 9,162
Stockholders' deficit................................................... (1,827)
</TABLE>
179
<PAGE> 231
ROCKLAND RADIOLOGICAL GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to the historical operations of RRG and
should be read in conjunction with audited financial statements of RRG and the
notes thereto appearing elsewhere in this Prospectus/Joint Proxy Statement. For
purposes of the following discussion, medical service revenue, net represents
the estimated realizable amount to be received from patients, third-party payors
and others for the provision of medical services.
RESULTS OF OPERATIONS
Nine Months Ended June 30, 1997 as Compared to Nine Months Ended June 30, 1996
Medical service revenue, net increased by $2.0 million or 17% to $13.6
million for the nine months ended June 30, 1997 from $11.6 million for the nine
months ended June 30, 1996. This increase was attributable to the addition of
new equipment at the company's imaging centers which resulted in an increase in
procedures performed.
Costs of affiliated physician services of $4.8 million for each of the nine
months ended June 30, 1997 and 1996, were 35% and 42%, respectively, of medical
service revenue, net. Such amounts included compensation and benefits paid or
payable to owner and non-owner physicians during the period. The physician
owners determined such payments based on cash earnings available for
distribution.
Practice salaries, wages and benefits of $3.5 million and $3.0 million for
the nine months ended June 30, 1997 and 1996, respectively, remained consistent
at 26% of medical service revenue, net. Practice supplies of $1.0 million and
$0.9 million for the nine months ended June 30, 1997 and 1996, respectively,
remained consistent at 7% of medical service revenue, net. Depreciation and
amortization expense of $1.1 million and $1.0 million for the nine months ended
June 30, 1997 and 1996, respectively, reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$2.6 million and $1.9 million for the nine months ended June 30, 1997 and 1996,
respectively, were 19% and 16%, respectively, of medical service revenue, net.
Year Ended September 30, 1996 as Compared to Year Ended September 30, 1995
Medical service revenue, net decreased by $0.5 million or 3% to $17.3
million for the year ended September 30, 1996 from $17.8 million for the year
ended September 30, 1995. Although the company had a slight increase in volume
of services rendered, reimbursement rates from certain payor groups declined.
Costs of affiliated physician services of $6.1 million (35% of medical
service revenue, net) and $7.1 million (40% of medical service revenue, net) for
the years ended September 30, 1996 and 1995, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.
Practice salaries, wages and benefits of $4.3 million and $4.1 million for
the years ended September 30, 1996 and 1995, respectively, were 25% and 23%,
respectively, of medical service revenue, net. Practice supplies of $1.1 million
and $1.2 million for the years ended September 30, 1996 and 1995, respectively,
remained consistent at 7% of medical service revenue, net. Practice rent and
lease expense of $0.1 million and $0.2 million for the years ended September 30,
1996 and 1995, respectively, remained consistent at 1% of medical service
revenue, net. Depreciation and amortization expense of $1.4 million and $1.6
million for the years ended September 30, 1996 and 1995, respectively, reflects
no material changes in the composition of fixed assets or depreciation methods.
Other practice expenses of $3.6 million and $4.0 million for the years ended
September 30, 1996 and 1995, respectively, were 21% and 22%, respectively, of
medical service revenue, net. Interest expense decreased $0.1 million or 17% to
$0.6 million for the year ended September 30, 1996 from $0.7 million for the
year ended September 30, 1995 due to reduced interest costs on capital lease
obligations.
180
<PAGE> 232
Year Ended September 30, 1995 as Compared to Year Ended September 30, 1994
Medical service revenue, net increased $2.7 million or 18% to $17.8 million
for the year ended September 30, 1995 from $15.1 million for the year ended
September 30, 1994. This increase was attributable to increased procedures
performed at existing facilities, as well as the addition of contracts to
perform radiological services at new facilities.
Costs of affiliated physician services of $7.1 million (40% of medical
service revenue, net) and $3.7 million (24% of medical service revenue, net) for
the years ended September 30, 1995 and 1994, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.
Practice salaries, wages and benefits increased $0.2 million or 5% to $4.1
million for the year ended September 30, 1995 from $3.9 million for the year
ended September 30, 1994. These expenses were 23% and 26% of medical service
revenue, net.
Practice supplies increased $0.6 million or 96% to $1.2 million for the
year ended September 30, 1995 from $0.6 million for the year ended September 30,
1994 due to an increased volume of procedures. Practice rent and lease expense
of $0.2 million for each of the years ended September 30, 1995 and 1994 remained
consistent at 1% of medical service revenue, net. Depreciation and amortization
expenses of $1.6 million for each of the years ended September 30, 1995 and 1994
reflects no material changes in the composition of fixed assets or depreciation
methods. Other practice expenses of $4.0 million and $3.6 million for the years
ended September 30, 1995 and 1994, respectively, were 22% and 24%, respectively,
of medical service revenue, net. Interest expense decreased $0.4 million to $0.7
million for the year ended September 30, 1995 from $1.1 million for the year
ended September 30, 1994 due to reduced interest costs on capital lease
obligations.
181
<PAGE> 233
ROCKLAND RADIOLOGICAL GROUP PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
as of September 12, 1997 as to (i) each person who is known to AIOC, CIA, MRIA,
Nyack, Pelham, RRG and WIC to beneficially own more than five percent of the
outstanding shares of Common Stock of AIOC, CIA, MRIA, Nyack, Pelham, RRG and
WIC, (ii) each director of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC, (iii)
each Named Executive Officer of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC and
(iv) all directors and executive officers of such Entities as a group. Except as
noted, to the knowledge of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC the
persons named in the table have sole voting and investment power with respect to
the shares owned by them, subject to community property laws.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME(1) OWNED(2) OWNED(3)
------------------------------------------------------ ------------ ------------
<S> <C> <C>
Herbert Z. Geller, M.D., Director..................... 10 7.7%
Hector L. Correa, M.D., Director...................... 10 7.7
Nancy A. Sussman, M.D., Director...................... 10 7.7
Robert F. Mackey, M.D., Director...................... 10 7.7
Elliot V. Handler, M.D., Director..................... 10 7.7
Daniel J. Cohen, M.D., Director....................... 10 7.7
Steven I. Klein, M.D., Director....................... 10 7.7
Mark E. Geller, M.D., Director........................ 10 7.7
Leslie M. Ossip, M.D., Director....................... 10 7.7
Joel M. Schwarz, M.D., Director....................... 10 7.7
Kenneth I. Blumberg, M.D., Director................... 10 7.7
Roger J. Frey, M.D., Director......................... 10 7.7
Clara Chudow, M.D., Director.......................... 10 7.7
All directors and executive officers as a group (13
persons)............................................ 130 100.0
</TABLE>
- ---------------
(1) The address of each of the persons listed in the table is Rockland
Radiological Group, P.C., 18 Squadron Boulevard, New City, New York 10956.
(2) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise or conversion of stock options or
other securities currently exercisable or convertible, or exercisable or
convertible within 60 days of September 12, 1997 are deemed outstanding and
to be beneficially owned by the person holding such option or security for
purposes of computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each shareholder identified in the table possesses
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such shareholder.
(3) Applicable percentage of ownership is based on 130 shares of Common Stock
outstanding as of September 12, 1997.
182
<PAGE> 234
VALLEY RADIOLOGY GROUP
VALLEY'S OPERATION, MANAGEMENT AND BUSINESS
GENERAL
Valley Radiology Group is comprised of a professional medical radiology
group formed in 1969 and organized as a California professional corporation and
LXL, LTD., a California partnership. Valley Radiology Group provides two types
of services: (1) Professional Services and (2) Imaging Services, both of which
are reimbursed on a prepaid and fee-for-service basis. Valley Radiology Group
operates in the greater San Jose Metropolitan area and the San Francisco Bay
area. Valley Radiology Group contracts directly with hospitals, health plans and
others to provide Professional Services and Imaging Services to enrollees and
patients. Valley Radiology Group provides professional services at 20
Professional Service and Imaging Service locations within the Valley Service
Area.
STRATEGY
Valley Radiology Group's strategy is to continue penetration of its
existing markets, expand into other markets, create strategic alliances with
hospitals and other Imaging Service providers, increase the operational
efficiency of, and reduce costs associated with, the Valley Radiology Group
operations.
The future growth of Valley Radiology Group in its existing markets is
dependent in part on the continued increase of health plan enrollees and
patients using Valley Radiology Group providers for Professional Services. This
growth may come, with respect to Professional Services, from the development or
acquisition of additional facilities, the development of affiliations with
medical groups serving enrollees or patients in existing markets, increased
enrollment in health plans currently contracting with Valley Radiology Group and
its medical affiliates and contracts with new health plans or hospitals. It
actively recruits new providers and seeks to enter into new hospital-based or
managed care contracts in order to enlarge the potential patient base in the
Valley Service Area.
GOVERNMENT REGULATION
Valley Radiology Group is subject to federal and state laws regulating the
relationships among providers of health care services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Medicare
and Medicaid statutes, which prohibit the solicitation, payment, receipt or
offering of any direct or indirect remuneration for the referral of Medicare or
Medicaid patients or for the recommending, leasing, arranging, ordering or
purchasing of Medicare or Medicaid covered services. Other laws impose
significant penalties for false or improper billings for physician services and
impose restrictions on physician referrals for designated health services
reimbursable under the Medicare or Medicaid programs to entities with which they
have financial relationships. While Valley Radiology Group believes it is in
material compliance with applicable laws, there is no assurance that its present
or past operations will not be subjected to scrutiny or legal challenges.
SERVICES PROVIDED
Valley Radiology Group operates a total of ten facilities that are staffed
by Valley Radiology Group Professional Service providers and Valley Radiology
Group Imaging Service providers. As of July 1, 1997, Valley Radiology Group
employed 24 Professional Service providers and 30 Imaging Service providers.
Valley Radiology Group provides all of its Professional Service and Imaging
Service under fee-for-service or hospital contracts.
At April 30, 1997, over 200,000 patients were serviced by Valley Radiology
Group annually. Valley Radiology Group is under contract with the following
significant hospitals or health plans: Santa Clara County Valley Medical Center,
Community Hospital of Los Gatos, Santa Teresa-Kaiser, Alexian Brothers Hospital,
Lifeguard, San Jose Medical Group and Blue Cross and Blue Shield.
183
<PAGE> 235
MARKETING AND DEVELOPMENT
Valley's principal marketing strategy is to combine hospitals and offices
in a larger regional setting to make the group more attractive to major payors
such as group health plans and workers' compensation programs. Valley's major
marketing efforts are aimed directly at referring physicians and emphasize
services provided, scheduling, technology and alleviation of patient concerns.
COMPETITION
The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.
The Valley Radiology Group is in a market dominated by hospitals, including
those operated by Columbia (four hospitals), Kaiser (two hospitals), and other
independent community hospitals. Valley has professional reading contracts in
four hospitals (approximately half of the hospitals in the area). Valley also
operates six out-patient offices. Most out-patient clinic providers in the area
are limited to one or two sites. Valley estimates that it has a market share of
approximately 40% of all radiology services in the area.
EMPLOYEES
Professional Service Provider Employees
Valley Radiology Group physicians enter into employment contracts. These
contracts offer a specified guaranteed salary for non-security holder
physicians, but not for security holder physicians. Physicians are also eligible
to receive benefits such as health, dental and life insurance, paid time off and
an allowance for continuing medical education and other professional expenses.
Valley Radiology Group, as of April 30, 1997, employed 24 physicians (20
full-time and four part-time).
Imaging Service Provider Employees
As of April 30, 1997, Valley Radiology Group employs 30 Imaging Service
providers.
Non-Provider Employees
As of April 30, 1997, Valley Radiology Group had approximately 72
non-physician employees (49 full time and 23 part-time). None of Valley
Radiology Group's employees are represented by a labor union. Management of
Valley Radiology Group believes its employee relations are good.
INSURANCE
Valley Radiology Group maintains insurance coverage for various perils and
from various carriers. In addition to property and casualty, worker's
compensation, directors and officers liability and other coverage Valley
Radiology Group believes to be customary and reasonable for a business of its
kind, Valley Radiology Group maintains Liability Policies with CIGNA, Republic
Indemnity, Federal Insurance and NORCAL. Each professional of Valley Radiology
Group, at each location, is covered under the Liability Policies.
PROPERTIES AND FACILITIES
Valley Radiology Group leases approximately nine facilities. The real
property leases are utilized for corporate operations, Professional Services and
Imaging Services.
LEGAL PROCEEDINGS
Valley Radiology Group is engaged in the defense of lawsuits arising in the
ordinary course and conduct of its business. Valley Radiology Group believes
that such actions will not have a material adverse effect on Valley Radiology
Group.
184
<PAGE> 236
VALLEY RADIOLOGY GROUP SELECTED FINANCIAL DATA
(IN THOUSANDS)
The following information for Valley has been derived from the financial
statements of Valley, and should be read in conjunction with "Valley
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements of Valley and the notes thereto
included elsewhere in this document. The information for the year ended December
31, 1994 for Valley has been derived from the unaudited financial statements
which, in the opinion of management, includes all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of such
information.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ---------------
1994 1995 1996 1996 1997
----------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.......................... $13,557 $10,507 $11,174 $5,570 $5,954
Expenses:
Costs of affiliated physician
services.......................... 6,012 5,511 5,384 2,549 2,708
Practice salaries, wages and
benefits.......................... 3,172 2,269 2,593 1,143 1,248
Depreciation and amortization........ 220 169 223 112 166
Other practice expenses.............. 3,765 2,100 2,149 1,148 1,171
------- ------- ------- ------ ------
Total expenses......................... 13,169 10,049 10,349 4,952 5,293
------- ------- ------- ------ ------
Equity (loss) in earnings of
investments.......................... 84 14 (19) -- --
Minority interests in income of
consolidated subsidiaries............ -- -- -- -- --
------- ------- ------- ------ ------
Income before income taxes............. $ 472 $ 472 $ 806 $ 618 $ 661
======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 4,155
Total debt.............................................................. 1,406
Stockholders' equity.................................................... 1,987
</TABLE>
185
<PAGE> 237
VALLEY RADIOLOGY GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to the historical operations of Valley and
the audited financial statements of Valley and the notes thereto appearing
elsewhere in this Prospectus/Joint Proxy Statement. For purposes of the
following discussion, medical service revenue, net represents the estimated
realizable amount to be received from patients, third party payors and others
for the provision of medical services.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 as Compared to Six Months Ended June 30, 1996
Medical service revenue, net increased $0.4 million or 8% to $5.9 million
for the six months ended June 30, 1997 from $5.5 million for the six months
ended June 30, 1996 due primarily to the opening of an imaging center in March
1996.
Costs of affiliated physician services of $2.7 million (46% of medical
service revenue, net) and $2.6 million (47% of medical service revenue, net) for
the six months ended June 30, 1997 and 1996, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The increase is related to the opening of another imaging
center in March 1996. The physician owners determined such payments based on
earnings available for distribution.
Practice salaries, wages and benefits of $1.2 million and $1.1 million for
the six months ended June 30, 1997 and 1996, respectively, remained consistent
at 21% of medical service revenue, net. Practice rent and lease expense of $0.2
million for each of the six months ended June 30, 1997 and 1996, respectively,
remained consistent at 4% of medical service revenue, net. Other practice
expenses of $0.7 million for each of the six months ended June 30, 1997 and
1996, were 12% and 13%, respectively, of medical service revenue, net.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Medical service revenue, net increased $0.8 million or 8% to $11.0 million
for the year ended December 31, 1996 from $10.2 million for the year ended
December 31, 1995 due to an increase in volume of services provided as a result
of the establishment of a new facility.
Costs of affiliated physician services of $5.4 million (49% of medical
service revenue, net) and $5.5 million (54% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on
earnings available for distribution.
Practice salaries, wages and benefits of $2.6 million and $2.3 million for
the years ended December 31, 1996 and 1995, respectively, were 24% and 22%,
respectively, of medical service revenue, net. Practice supplies of $0.4 million
and $0.2 million for the years ended December 31, 1996 and 1995, respectively,
were 3% and 2%, respectively, of medical service revenue, net. Practice rent and
lease expense of $0.4 million and $0.5 million for the years ended December 31,
1996 and 1995, respectively, were 4% and 5%, respectively, of medical service
revenue, net. Depreciation and amortization expense of $0.2 million for each of
the years ended December 31, 1996 and 1995 reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$1.3 million and $1.4 million for the years ended December 31, 1996 and 1995,
respectively, were 12% and 14%, respectively, of medical service revenue, net.
Interest expense of $0.1 million for each of the years ended December 31, 1996
and 1995, respectively, remained consistent at 1% of medical service revenue,
net.
186
<PAGE> 238
VALLEY PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Valley Common Stock as of September 12, 1997 as to (i) each person
who is known to Valley to beneficially own more than five percent of the
outstanding shares of Valley Common Stock, (ii) each director of Valley, (iii)
each Named Executive Officer of Valley and (iv) all directors and executive
officers of Valley as a group. Except as noted, the persons named in the table,
have sole voting and investment power with respect to the shares owned by them,
subject to community property laws.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME(1) OWNED(2) OWNED(3)
----------------------------------------------------- ------------ -----------
<S> <C> <C>
Richard Baxter, M.D., Director....................... 1000 5.0%
Robert Filpi, M.D., Director......................... 1000 5.0
Keith Fraker, M.D., Director......................... 1000 5.0
Franklin Gee, M.D., Director......................... 1000 5.0
Bruce Hyman, M.D., Director.......................... 1000 5.0
Stephen Kahn, M.D., Director......................... 1000 5.0
Young Kang, M.D., Vice President and Director........ 1000 5.0
Andrew Koo, M.D., Director........................... 1000 5.0
Edward Lebowitz, M.D., Director...................... 1000 5.0
Peter Long, M.D., Director........................... 1000 5.0
Cyril McDonald, M.D., Director....................... 1000 5.0
Michael Myers, M.D., Secretary and Director.......... 1000 5.0
John Noonan, M.D., Director.......................... 1000 5.0
Harjit Sekhon, M.D., Director........................ 1000 5.0
Richard Silberstein, M.D., President and Director.... 1000 5.0
Drew Sullivan, M.D., Treasurer and Director.......... 1000 5.0
Stephen Teng, M.D., Director......................... 1000 5.0
Eric Trefelner, M.D., Director....................... 1000 5.0
James Vaudagna, M.D., Director....................... 1000 5.0
William T. McLaughlin, M.D., Director................ 937.5 4.7
-------- -----
All directors and executive officers as a group (20
persons)........................................... 19,937.5 100.0
======== =====
</TABLE>
- ---------------
(1) The address of each beneficial owner is Valley Radiologists Medical Group,
Inc., 1101 South Winchester Boulevard, Suite J220, San Jose, California
95128.
(2) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise or conversion of stock options or
other securities currently exercisable or convertible, or exercisable or
convertible within 60 days of September 12, 1997 are deemed outstanding and
to be beneficially owned by the person holding such option or security for
purposes of computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each shareholder identified in the table possesses
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such shareholder.
(3) Applicable percentage of ownership is based on 19,937.5 shares of Valley
Common Stock outstanding as of September 12, 1997.
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COMPARISON OF CAPITAL STOCK
DESCRIPTION OF CAPITAL STOCK OF APPI
General
The Company's authorized capital stock consists of 50,000,000 shares of
APPI Common Stock and 10,000,000 shares of Preferred Stock.
As of the date of this Prospectus/Joint Proxy Statement and giving effect
to the Mergers and Exchanges, the conversion of the Convertible Notes, and the
completion of the Initial Public Offering, the Company will have outstanding
18,151,625 shares of APPI Common Stock (assuming an Initial Public Offering
Price of $15.00 per share) and no shares of Preferred Stock.
Common Stock
The holders of APPI Common Stock are entitled to one vote for each share on
all matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of APPI Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. Holders of APPI Common Stock are entitled to share ratably
in the net assets of the Company upon liquidation after payment or provision for
all liabilities and any preferential liquidation rights of any Preferred Stock
then outstanding. The holders of APPI Common Stock have no preemptive rights to
purchase shares of stock of the Company. Shares of APPI Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. All outstanding shares of APPI Common Stock are, and
the shares of APPI Common Stock being offered hereby will be, upon payment of
consideration therefor, fully paid and nonassessable.
Preferred Stock
Preferred Stock may be issued from time to time at the discretion of the
Board of Directors as shares of one or more series. Subject to the provisions of
the Company's Restated Certificate of Incorporation and limitations prescribed
by law, the Board of Directors is expressly authorized to adopt resolutions to
issue the shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of Preferred Stock, in each case without any further action or vote by
the stockholders.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of APPI
Common Stock. For example, Preferred Stock issued by the Company may have
priority over APPI Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of APPI Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for APPI Common Stock at a premium to, or may otherwise
adversely affect, the market price of the APPI Common Stock.
Convertible Notes
The following summaries of certain provisions of the Convertible Notes and
the Registration Rights Agreement between the Company and each of the holders of
the Convertible Notes do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all provisions of the Convertible
Notes and the Registration Rights Agreement, respectively.
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General. The Convertible Notes represent unsecured general obligations of
the Company and are convertible into APPI Common Stock as described below. The
Convertible Notes bear interest at the annual rate of 6%, and all accrued but
unpaid interest shall be due and payable upon the closing of the Initial Public
Offering. In the event the Convertible
Notes are not converted into APPI Common Stock by January 31, 1998, all
accrued interest is due and payable immediately and the interest rate will
increase to the prime rate as published in The Wall Street Journal plus 2% per
annum thereafter, payable quarterly. Interest will be computed on the basis of a
360-day year comprised of 12 30-day months. As of the date of this
Prospectus/Joint Proxy Statement, the outstanding principal amount of the
Convertible Notes was $3,500,000.
Optional Redemption. The Convertible Notes are redeemable at the option of
the Company, in whole or in part, at the time of or any time after the Initial
Public Offering on at least 15 days' written notice, together with accrued and
unpaid interest. The Company intends to call the Convertible Notes for
redemption as soon as practicable following the date of this Prospectus/Joint
Proxy Statement.
Conversion Rights. Upon receipt of written notice of redemption by the
Company, the holders may convert the principal amount of the Convertible Notes
into APPI Common Stock upon approval of the holders of at least 50% of the
outstanding principal amount of the Convertible Notes. Upon conversion, holders
of the Convertible Notes will receive shares of Common Stock at the rate of one
share of Common Stock for each $8.00 of Convertible Note principal. Proportional
adjustments shall be made to the conversion ratio for splits, dividends,
recapitalizations, and other distributions of the APPI Common Stock. The
Conversion Price shall be reduced, subject to several exceptions, if the Company
sells any of its APPI Common Stock for less than $8.00 per share, to a price
determined by dividing (i) an amount equal to the sum of (A) the number of
shares of APPI Common Stock outstanding immediately prior to such sale
(including as outstanding all shares of APPI Common Stock issuable upon
conversion of Convertible Notes) multiplied by the then existing Conversion
Price, and (B) the consideration, if any, received by the Company upon such
sale, by (ii) the total number of shares of APPI Common Stock outstanding
immediately after the sale, including those issuable upon conversion of the
Convertible Notes. No adjustment will be made to the Conversion Price for
options granted to officers, employees, directors and consultants of the Company
pursuant to any stock option plan of the Company, including the Plan.
Each Convertible Note may be converted into shares of APPI Common Stock at
the then effective Conversion Price (i) prior to January 31, 1998, upon approval
of the holders of at least 50% of the outstanding principal amount of the
Convertible Notes following the closing of an initial public offering of APPI
Common Stock pursuant to an effective registration statement under the
Securities Act in which the aggregate gross proceeds received by the Company
equals or exceeds $10,000,000, or (ii) upon approval of the holders of at least
50% of the outstanding principal amount of the Convertible Notes on or after
January 31, 1998.
If the Company sells shares of APPI Common Stock for less than $14.00 per
share in the Initial Public Offering, the conversion rate shall be adjusted so
that at the time of conversion the aggregate market value of the APPI Common
Stock into which the Convertible Notes are converted will equal the principal of
the Convertible Notes times 1.75.
Lock-Up. Each of the holders of the Convertible Notes has entered into a
lock-up agreement with the Company, pursuant to which each such holder has
agreed with the Company not to sell the Convertible Notes or the shares of APPI
Common Stock issued or issuable upon conversion thereof owned by them at the
time for a period of 24 months following issuance of such Convertible Notes
(which Convertible Notes were issued between September 30 and December 31,
1996). The Company has agreed with the Underwriters not to waive this lock-up
agreement for 180 days following the date of this Prospectus.
Registration Rights. The holders of the Convertible Notes have certain
registration rights upon conversion of the Convertible Notes into APPI Common
Stock. At any time from and after 12 months following the Initial Public
Offering, and not later than September 30, 2001, holders owning 50% or more of
the aggregate of the shares of APPI Common Stock into which any of the
Convertible Notes have been or can be converted shall have the right on one
occasion to require the Company to prepare and file a registration
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statement under the Securities Act covering such shares of APPI Common Stock,
and the Company, at its expense, will use its best efforts to cause such
registration statement to become effective as soon as possible.
In addition, the holders of Convertible Notes shall be entitled, subject to
the approval of the underwriter, to two "piggyback" registrations at the
Company's expense, as part of a registration by the Company of its shares of
APPI Common Stock at any time subsequent to 12 months after the date of the
Initial Public Offering, but prior to September 30, 2001. Holders of the
Convertible Notes are granted the right on up to two occasions at the Company's
expense, and prior to September 30, 2001, to have their shares registered on
Form S-3, if such form is available for use by the Company and such holder or
holders. The registration rights are subject to a number of terms and
conditions, including but not limited to, requirements as to minimum offering
size and reaching satisfactory underwriting terms.
DESCRIPTION OF CAPITAL STOCK OF ADVANCED
Upon incorporation, the authorized capital stock of Advanced will consist
of 1,000,000 shares of Advanced Common Stock, $.10 par value per share. At such
time, there will be 475,000 shares of Common Stock outstanding and held of
record by 64 security holders.
Common Stock
The holders of Advanced Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by security holders. The
directors of Advanced may be elected by a plurality of the votes cast by holders
of shares entitled to vote in the election of such directors at a meeting of
security holders at which a quorum is present. There is no cumulative voting
with respect to the election of directors. Accordingly, holders of a plurality
of the shares entitled to vote for the election of directors can elect all of
the directors. The holders of Advanced Common Stock are entitled to receive
dividends when, as and if declared by the Advanced Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of Advanced, the holders of Advanced Common Stock are entitled to
share ratably in all assets remaining available to distribution to them after
payment of liabilities. Holders of shares of Advanced Common Stock, as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Advanced Common Stock. All of the
outstanding shares of Advanced Common Stock are fully paid and nonassessable.
Preferred Stock
Advanced is not authorized to issue preferred stock.
DESCRIPTION OF CAPITAL STOCK OF IDE
The authorized capital stock of Ide consists of 20,000 shares of Ide Common
Stock, $1.00 par value per share. As of the date of this Prospectus/Joint Proxy
Statement, there were 2,150 shares of Ide Common Stock outstanding and held of
record by 21 security holders.
Common Stock
The holders of Ide Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by security holders. There is no
cumulative voting with respect to the election of directors. Accordingly,
holders of more than 50% of the shares entitled to vote for the election of
directors can elect all of the directors. The holders of Ide Common Stock are
entitled to receive dividends when, as and if declared by the Ide Board of
Directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of Ide, the holders of Ide Common Stock are entitled
to share ratably in all assets remaining available to distribution to them after
payment of liabilities. Holders of shares of Ide Common Stock, as such, have no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to the Ide Common Stock. All of the outstanding shares of
Ide Common Stock are fully paid and nonassessable.
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Preferred Stock
Ide is not authorized to issue preferred stock.
DESCRIPTION OF CAPITAL STOCK OF M&S, SOUTH TEXAS AND SAN ANTONIO
The authorized capital stock of M&S consists of 1,000 shares of Common
Stock, $1.00 par value per share. The authorized capital stock of each of South
Texas and San Antonio consists of 100,000 shares of South Texas Common Stock,
$0.10 par value per share and San Antonio Common Stock, $0.10 par value per
share, respectively. As of the date of this Prospectus/Joint Proxy Statement,
there were 190 shares of M&S Common Stock outstanding and held of record by 19
security holders, 120 shares of San Antonio Common Stock outstanding and held of
record by 12 security holders and 120 shares of South Texas Common Stock
outstanding and held of record by 12 security holders.
Common Stock
The holders of the Common Stock of M&S are each entitled to one vote on all
matters to be voted on all matters to be voted on the security holders of M&S,
regardless of the number of shares of M&S Common Stock held by such holders. The
holders of the Common Stock of San Antonio and South Texas, respectively, are
entitled to one vote for each share held of record on all matters to be voted on
by the respective security holders of San Antonio and South Texas. There is no
cumulative voting with respect to the election of directors of South Texas and
San Antonio. Accordingly, in any election of the respective directors of San
Antonio and South Texas, holders of more than 50% of the shares of South Texas
Common Stock and San Antonio Common Stock, respectively, can elect all of the
directors of South Texas and San Antonio, respectively. The holders of the
Common Stock of M&S, San Antonio and South Texas are entitled to receive
dividends when, as and if declared by their respective Boards of Directors out
of funds legally available therefor. In the event of liquidation, dissolution or
winding up of M&S, San Antonio and South Texas, the respective holders of the
Common Stock of M&S, San Antonio and South Texas are entitled to share ratably
in all assets remaining available to distribution to them after payment of
liabilities. Holders of shares of the Common Stock of M&S, San Antonio and South
Texas, as such, have no conversion, preemptive or other subscription rights, and
there are no redemption provisions applicable to the Common Stock of M&S, San
Antonio or South Texas. All of the outstanding shares of the Common Stock of
M&S, San Antonio and South Texas are fully paid and non assessable.
Preferred Stock
M&S, San Antonio and South Texas are not authorized to issue preferred
stock.
DESCRIPTION OF CAPITAL STOCK OF PACIFIC AND TMI
The authorized capital stock of each of Pacific and TMI consists of
1,000,000 shares of Pacific Common Stock, no par value and TMI Common Stock, no
par value, respectively. As of the date of this Prospectus/Joint Proxy
Statement, Pacific had 11,000 shares of Common Stock outstanding and held of
record by 22 security holders, and TMI had 110,000 shares of Common Stock
outstanding and held of record by 22 security holders.
Common Stock
The holders of the Common Stock of Pacific and TMI, respectively, are
entitled to one vote for each share held of record on all matters to be voted on
by the respective security holders of Pacific and TMI, and have the right to
cumulate their votes in the election of directors upon giving notice as required
by law. Accordingly, in any election of the respective directors of Pacific and
TMI, each security holder of Pacific or TMI, as the case may be, may give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of shares held by such security holder, or such
security holder may distribute such number of votes among as many candidates as
the security holder sees fit. The holders of the Common Stock of Pacific and TMI
are entitled to receive dividends when, as and if declared by their respective
Boards
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of Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of Pacific or TMI, the holders of the
Common Stock of Pacific and TMI, respectively, are entitled to share ratably in
all assets remaining available to distribution to them after payment of
liabilities. Holders of shares of the Common Stock of Pacific and TMI, as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Common Stock of either Pacific or TMI.
All of the outstanding shares of the Common Stock of Pacific and TMI are fully
paid and nonassessable.
Preferred Stock
Neither Pacific nor TMI is authorized to issue preferred stock.
DESCRIPTION OF CAPITAL STOCK OF RNM
The authorized capital stock of RNM consists of 5,000 shares of Common
Stock, $100.00 par value per share. As of the date of this Prospectus/Joint
Proxy Statement, there were 3,096 shares of Common Stock outstanding and held of
record by 24 security holders.
Common Stock
The holders of RNM Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by security holders. There is no
cumulative voting with respect to the election of directors. Accordingly,
holders of more than 50% of the shares entitled to vote for the election of
directors can elect all of the directors. The holders of RNM Common Stock are
entitled to receive dividends when, as and if declared by the RNM Board of
Directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of RNM, the holders of RNM Common Stock are entitled
to share ratably in all assets remaining available for distribution to them
after payment of liabilities. Holders of shares of RNM Common Stock, as such,
have no conversion, preemptive or other subscription rights, and, except as
provided in a shareholders' agreement, there are no redemption provisions
applicable to RNM Common Stock. All of the outstanding shares of RNM Common
Stock are fully paid and nonassessable.
Preferred Stock
RNM is not authorized to issue preferred stock.
DESCRIPTION OF CAPITAL STOCK OF AIOC, CIA, MRIA, NYACK, PELHAM, RRG AND WIC
The authorized capital stock of each of AIOC, CIA, MRIA, Nyack, Pelham, RRG
and WIC consists of 200 shares of Common Stock, no par value. As of the date of
this Prospectus/Joint Proxy Statement, each of AIOC, CIA, MRIA, Nyack, Pelham,
RRG and WIC had 130 shares of Common Stock outstanding and held of record by 13
security holders.
Common Stock
The holders of the Common Stock of AIOC, CIA, MRIA, Nyack, Pelham, RRG and
WIC, respectively, are entitled to one vote for each share held of record on all
matters to be voted on by the respective security holders of AIOC, CIA, MRIA,
Nyack, Pelham, RRG and WIC. Except as otherwise required by law, the respective
directors of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC may be elected by a
plurality of the votes cast by holders of shares entitled to vote in the
election of such directors at a meeting of security holders at which a quorum is
present. There is no cumulative voting with respect to the election of the
respective directors of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC.
Accordingly, holders of a plurality of the shares entitled to vote for the
election of the directors of AIOC, CIA, MRIA, Nyack, Pelham, RRG or WIC can
elect all of the directors of such Entity. The holders of the Common Stock of
AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC are entitled to receive dividends
when, as and if declared by their respective Boards of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC, the respective holders of
Common Stock of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC are entitled to
share ratably in all assets remaining
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available to distribution to them after payment of liabilities. Holders of
shares of the Common Stock of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC, as
such, have no conversion, preemptive or other subscription rights and there are
no redemption provisions applicable to the Common Stock of AIOC, CIA, MRIA,
Nyack, Pelham, RRG or WIC. All of the outstanding shares of Common Stock of
AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC are fully paid and non assessable.
Preferred Stock
AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC are not authorized to issue
preferred stock.
DESCRIPTION OF CAPITAL STOCK OF VALLEY
The authorized capital stock of Valley consists of 200,000 shares of Common
Stock, no par value per share. As of the date of this Prospectus/Joint Proxy
Statement, there were 18,937.5 shares of Common Stock outstanding and held of
record by 19 security holders.
Common Stock
The holders of Valley Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by security holders and have the
right to cumulate their votes in the election of directors upon giving notice as
required by law. Accordingly, in any election of directors, each security holder
may give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of shares held by such security holder, or such
security holder may distribute such number of votes among as many candidates as
the security holder sees fit. The holders of Valley Common Stock are entitled to
receive dividends when, as and if declared by the Valley Board of Directors out
of funds legally available therefor. In the event of liquidation, dissolution or
winding up of Valley, the holders of Valley Common Stock are entitled to share
ratably in all assets remaining available for distribution to them after payment
of liabilities. Holders of shares of Valley Common Stock, as such, have no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to Valley Common Stock, except that when a security holder
employee's employment with Valley terminates, Valley is required to purchase,
and the terminated employee is required to sell, all shares of Valley Common
Stock he or she then owns. All of the outstanding shares of Valley Common Stock
are fully paid and non assessable.
Preferred Stock
Valley is not authorized to issue preferred stock.
COMPARISON OF RIGHTS OF SECURITY HOLDERS OF APPI AND THE ENTITIES
Upon consummation of the Mergers and Exchanges, the holders of Advanced
Common Stock, Ide Common Stock, M&S Common Stock, Lexington partnership
interests, Madison partnership interests, South Texas Common Stock, South Texas
No. 1 partnership interests, San Antonio Common Stock, San Antonio No. 1
partnership interests, Pacific Common Stock, TMI Common Stock, RNM Common Stock,
AIOC Common Stock, CIA Common Stock, MRIA Common Stock, Nyack Common Stock,
Pelham Common Stock, RRG Common Stock, WIC Common Stock and Valley Common Stock
will become holders of APPI Common Stock. APPI is a Delaware corporation and is
bound by the DGCL, whereas each of the Entities is bound by the corporate law of
the state in which each such Entity was organized. In addition, the APPI
Certificate and APPI Bylaws differ from the Corporate Governance Documents of
each such Merger Entity and the Partnership Governance Documents of each such
Exchange Entity. The differences between the APPI Certificate and APPI Bylaws
and the Governance Documents of each Entity and between the DGCL and the
corporate law of each state in which each Entity was organized, will ultimately
result in changes in the rights of holders of Common Stock of each of the
Entities.
The following is a summary of some of the important distinctions between
the rights of the security holders of APPI and the security holders of each of
Advanced, Ide, M&S, Lexington, Madison, South Texas, South Texas No. 1, San
Antonio, San Antonio No. 2, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack,
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Pelham, RRG, WIC and Valley. Such description does not purport to be a complete
explanation of all such differences. Furthermore, the identification of specific
differences is not meant to indicate that other differences do not exist. The
following summary is also qualified in its entirety by reference to the DGCL,
the Governance Documents, the APPI Certificate and the APPI Bylaws.
Limitation of Directors' or Partners' Liability
Under the DGCL, a Delaware corporation is permitted to adopt a provision in
its certificate of incorporation reducing or eliminating the liability of a
director to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, provided that such liability does not
arise from certain prohibited conduct (including intentional misconduct and
breach of the duty of loyalty). California corporations, Kansas corporations,
Maryland corporations, New York corporations and Texas corporations are
permitted to adopt similar provisions under the CCC, KGCC, MGCL, NYBCL and TCBA,
respectively. The TRPA and the TRPLA similarly provide that Texas general
partnerships and Texas limited partnerships may limit the liability of a partner
to the partnership.
The APPI Certificate provides that the liability of the directors of APPI
will be limited to the fullest extent permitted under the DGCL. The Corporate
Governance Documents of each of Advanced, Ide, M&S, South Texas, San Antonio,
Pacific, TMI and Valley contain similar provisions limiting the liability of the
respective directors of each such Entity to the fullest extent permitted under
applicable state law. On the other hand, the Corporate Governance Documents of
each of RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC do not contain
provisions which limit the liability of the respective directors of each such
Entity.
The Partnership Governance Documents of Lexington limit the liability of
the General Partner to the partnership and partners of Lexington for any actions
taken in good faith by the General Partner. However, the General Partner of
Lexington will remain liable for its willful misconduct, gross negligence or
breach of fiduciary obligations under the Lexington partnership agreement. The
Partnership Governance Documents of Madison do not contain provisions which
limit the liability of the partners of Madison to the partnership or to one
another. The Partnership Governance Documents of each of South Texas No. 1 and
San Antonio No. 2 limit the liability of the General Partner of each such
Entity, and the respective directors and officers of the General Partner, to the
applicable partnership and the partners of such partnership to the fullest
extent permitted under Texas law. However, the General Partners of South Texas
No. 1 and San Antonio No. 2, and the respective directors and officers of such
General Partners, will remain liable to the applicable partnership and the
partners of such partnership to the extent that it is proven that such persons
actually derived an improper benefit from their actions or to the extent that a
judgment is rendered against any such person based on a finding that such
person's actions were the result of active and deliberate dishonesty.
Indemnification of Directors or Partners
Under the DGCL, a Delaware corporation may also indemnify its directors and
officers against any liabilities that they may incur in such capacities,
provided that such directors and officers have acted in good faith and in such a
manner that they reasonably believed was in, or not opposed to, the best
interests of the corporation. California corporations, Kansas corporations,
Maryland corporations, New York corporations and Texas corporations also may
indemnify the directors and officers of such corporations under the CCC, KGCC,
MGCL, NYBCL and TBCA, respectively. Under the TRPA, partners of a Texas general
partnership may adopt a provision in their partnership agreement which requires
such partnership to indemnify the partners for liabilities incurred in their
capacity as such, subject to any restrictions imposed by Texas law. Under the
TRLPA a Texas limited partnership may also indemnify the partners of such
partnership against any liabilities such partners may incur in such capacity,
provided that the partners have acted in good faith and in such manner that they
reasonably believed was in, or not opposed to, the best interests of such
limited partnership.
APPI's Bylaws provide that APPI will indemnify its directors and officers
to the fullest extent permitted by the DGCL and require APPI to advance
litigation expenses upon receipt by APPI of an undertaking by a director or
officer to repay such advances if it is ultimately determined that such director
or officer is not entitled to indemnification. The Corporate Governance
Documents of each of Advanced, Ide, M&S, South
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Texas, San Antonio, Pacific and TMI provide that each such Entity will indemnify
its respective directors and officers to the fullest extent permitted under
applicable state law. The Partnership Governance Documents of each of Lexington,
South Texas No. 1 and San Antonio No. 2 similarly provide that each such Entity
will indemnify the General Partner of each such Entity to the fullest extent
permitted under Texas law. The Madison Partnership Governance Documents provide
that Madison will indemnify its Managing Partner against reasonable expenses
incurred in connection with a pending or threatened action in which such
Managing Partner is a named defendant due to the fact that he or she is, or was,
the Managing Partner of Madison, so long as such Managing Partner is successful
in the defense of such action. On the other hand, the Corporate Governance
Documents of RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC and Valley do not
contain provisions which require the applicable Entity to indemnify its
respective directors and officers.
Voting Requirements
Under the DGCL, any action requiring the approval of the stockholders of a
Delaware corporation, other than the election of directors, must be approved by
holders of a majority of shares who are present in person or represented by
proxy at a meeting of stockholders and who are entitled to vote thereon, or by
the written consent of holders of a majority of the outstanding shares of stock
entitled to vote thereon, unless the DGCL or the corporate governance documents
of such corporation provide otherwise. Directors of a Delaware corporation may
be elected by a plurality of votes cast by holders of shares who are present in
person or represented by proxy at a meeting of stockholders and entitled to vote
on the election of directors, unless the Corporate Governance Documents of such
corporation provide otherwise. Under the CCC, any action requiring the approval
of security holders of a California corporation, including the election of
directors, must be approved by a majority of shares represented and voting at a
duly held meeting at which a quorum is present, or by the written consent of
holders of a majority of the outstanding shares entitled to vote thereon, unless
the CCC or corporate governance documents of such corporation provide otherwise.
Any action requiring the approval of the security holders of a Kansas
corporation, a Maryland corporation, a New York corporation or a Texas
corporation, other than the election of directors, must be approved by a
majority of shares present in person or represented by proxy at a meeting of
security holders entitled to vote on such action, or by the written consent of
holders of all of the outstanding shares entitled to vote thereon, unless the
applicable state law or the corporate governance documents of such corporation
provide otherwise. The directors of a Kansas corporation, a Maryland
corporation, a New York corporation or a Texas corporation may be elected by a
plurality of votes cast by holders of shares entitled to vote thereon at a duly
held meeting of security holders at which a quorum is present, unless the
corporate governance documents of such corporation provide otherwise.
Under the TRPA, the partnership agreement of a Texas general partnership
may grant voting rights on certain matters to partners and may specify the vote
required to approve such matters. The TRLPA provides that the partnership
agreement of a Texas limited partnership may grant voting rights to the limited
partners of such partnership. If the limited partners of a limited partnership
are granted any voting rights, then the partnership agreement of such
partnership may designate the vote required to approve an action and any other
matter relating to the exercise of the right to vote.
APPI's Corporate Governance Documents are consistent with the DGCL with
respect to security holder voting requirements. Likewise, the Corporate
Governance Documents of each of Advanced, South Texas, San Antonio, Pacific,
TMI, AIOC, CIA, MRIA, Nyack, Pelham, RRG, WIC and Valley are consistent with
applicable state law with respect to security holder voting requirements. In
addition to the requirements imposed by applicable law, the Corporate Governance
Documents of (i) Ide provide that, unless otherwise required by New York law, an
action requiring Ide security holder approval must be approved by three-quarters
of the outstanding shares of Ide Common Stock or by the written consent of
holders of all of the outstanding Ide Common Stock; (ii) M&S provide that,
unless otherwise required by Texas law, an action requiring M&S security holder
approval generally must be approved by a majority of the outstanding shares but
certain specified actions must be approved by two-thirds of the outstanding
shares of M&S Common Stock, or by the written consent of all holders of the
outstanding M&S Common Stock; and (iii) RNM
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provide that, unless otherwise required by Kansas law, an action requiring RNM
security holder approval must be approved by a majority of the outstanding RNM
Common Stock, except for a vote to approve amendments to RNM's Bylaws or to
remove a director from office, which actions require the approval of
three-quarters of the outstanding shares of RNM Common Stock.
Under the Partnership Governance Documents (i) the General Partner of
Lexington generally may manage the affairs of Lexington, except that such
General Partner may not take certain specified actions without the approval of
one or more limited partners who own, in the aggregate, more than 50% of the
partnership interests then owned by all limited partners; (ii) the Managing
Partner of Madison may manage the affairs of Madison, except that such Managing
Partner may not take certain specified actions without the approval of partners
holding at least 66% of the partnership interests of Madison; (iii) the General
Partner of South Texas No. 1 may manage the affairs of the partnership, except
that such General Partner may not take certain actions without the approval of
one or more limited partners who own, in the aggregate, at least 66.67% of the
partnership interests then held by all of the limited partners; and (iv) the
General Partner of San Antonio No. 2 may manage the affairs of the partnership,
except that such General Partner may not take certain actions without the
approval of one or more limited partners who own, in the aggregate, at least
66.67% of the partnership interests then held by all of the limited partners.
Special Meetings of Security Holders
Under the DGCL, a special meeting of security holders of a Delaware
corporation may be called by the board of directors of such corporation or by
any other person authorized to do so in the corporate governance documents of
such corporation. Notice of any such special meeting must be given not less than
ten nor more than 60 days before the date of the meeting to each security holder
entitled to vote at such meeting, unless otherwise provided in the corporate
governance documents. In contrast, under the CCC, a special meeting of security
holders of a California corporation may be called by the board of directors, the
chairman of the board, the president, holders of shares entitled to cast not
less than 10% of the votes at such meeting or by any other person authorized to
do so in the corporate governance documents of such corporation. Unless
otherwise provided in the corporate governance documents of such corporation,
notice of any such meeting must be given not less than ten nor more than 60 days
before the date of the meeting to each security holder entitled to vote at such
meeting. The KGCC, like the DGCL, provides that a special meeting of security
holders of a Kansas corporation may be called by the board of directors or by
any other person authorized to do so in the corporate governance documents of
such corporation. Notice of any such meeting must be given not less than ten nor
more than 60 days before the date of the meeting to each security holder
entitled to vote at such meeting, unless otherwise provided in the corporate
governance documents, except that certain special meetings, including meetings
called for the purpose of voting to approve an agreement of merger or exchange,
require at least 20 days prior notice. Under the MGCL, a special meeting of
security holders of a Maryland corporation may be called by the board of
directors, the president or any other person authorized to do so in the
corporate governance documents of such corporation, or upon the written demand
of holders of shares entitled to cast not less than 25% of the votes at such
meeting. Notice of any such meeting must be given not less than ten nor more
than 90 days before the date of the meeting to each security holder entitled to
vote at such meeting, unless otherwise provided in the corporate governance
documents. The NYBCL, like the DGCL, provides that a special meeting of security
holders of a New York corporation may be called by the board of directors or any
other person authorized to do so in the corporate governance documents of such
corporation. Notice of any such meeting must be given not less than ten nor more
than 50 days before the date of such meeting to each security holder entitled to
vote at such meeting, unless otherwise provided in the corporate governance
documents. Under the TBCA, a special meeting of security holders of a Texas
corporation may be called by the board of directors, the president, any other
person authorized to do so in the corporate governance documents of such
corporation or by holders of shares entitled to cast not less than ten percent
of the votes at such meeting, unless otherwise provided in the corporate
governance documents. Unless otherwise provided in the corporate governance
documents of such corporation, notice of any such meeting must be given not less
than ten nor more than 60 days before the date of the meeting to each security
holder entitled to vote at such meeting, except that certain special meetings,
including meetings called for the purpose of voting to approve an agreement of
merger or exchange, require at least 20 days' prior notice.
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The TRPA provides that the manner of calling a meeting of partners of a
Texas general partnership and any notice requirements for such meeting may be
established by the partners in the partnership agreement for such partnership.
Similarly, under the TRLPA, if the limited partners of a Texas limited
partnership have voting rights, then the manner of calling a meeting for the
partners of such partnership and any notice requirements for such meeting may be
set forth in the partnership agreement of such partnership.
The APPI Certificate provides that special meetings of security holders of
APPI may be called only by the APPI Board or a committee of the APPI Board
empowered to do so. Accordingly, each of the security holders of Advanced, Ide,
M&S, South Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack,
Pelham, RRG, WIC and Valley will be subject to a more restrictive standard as
security holders of APPI with respect to the calling of special meetings of
security holders after each of the Mergers. The notice requirements for any such
meeting are consistent with the notice requirements under the DGCL. The APPI
Bylaws also establish advance notice procedures with regard to the nomination,
other than by or at the direction of the board of directors, of persons for
election as directors. The APPI Bylaws require nominations for the election of
directors at an annual meeting to be in writing and received by the Secretary of
APPI, not less than 60 days prior to the meeting. The notice of nomination must
set forth certain information with respect to the security holder and each
nominee for director. Although these procedures do not give the APPIM Board any
power to approve or disapprove security holder nominations for election of
directors, they may have the effect of precluding a nomination for election of
directors, if the proper procedures are not followed, and could discourage or
deter a third party from conducting a solicitation of proxies to elect its own
slate of directors, even if such solicitation might be beneficial to APPI or its
security holders. Accordingly, these provisions may have certain anti-takeover
effects to which the security holders of each of Advanced, Ide, M&S, South
Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG, WIC
and Valley and partners of each of Lexington, Madison, South Texas No. 1 and San
Antonio No. 2 are not currently subject.
Under the Corporate Governance Documents, (i) any special meetings of
Advanced security holders may be called for any purpose upon written demand of
the holders of all of the outstanding shares entitled to vote at such meeting
and the notice of any such meeting is required to be delivered not less than 20
nor more than 60 days before the date of the meeting, (ii) any special meetings
of Ide security holders may be called for any purpose by the Ide Board, the
president or upon written demand of the holders of not less than 25% of all of
the outstanding shares entitled to vote at such meeting and the notice of any
such meeting is required to be delivered not less than ten days nor more than 50
days before the date of the meeting, (iii) any special meetings of M&S security
holders may be called for any purpose by the M&S Board, the president or by
holders of not less than ten percent of all of the outstanding shares entitled
to vote at such meeting and the notice of any such meeting is required to be
delivered not less than ten days nor more than 60 days before the date of the
meeting, except that certain special meetings, including meetings called for the
purpose of voting to approve an agreement of merger or exchange, require at
least 20 days' prior notice, (iv) any special meetings of South Texas security
holders may be called for any purpose by the South Texas Board, the president or
by holders of not less than ten percent of all of the outstanding shares
entitled to vote at such meeting and the notice of any such meeting is required
to be delivered not less than ten days nor more than 60 days before the date of
the meeting, unless otherwise provided by Texas law, (v) any special meetings of
San Antonio security holders may be called for any purpose by the San Antonio
Board, the president or by holders of not less than ten percent of all of the
outstanding shares entitled to vote at such meeting and the notice of any such
meeting is required to be delivered not less than ten days nor more than 60 days
before the date of the meeting, unless otherwise provided by Texas law, (vi) any
special meetings of Pacific security holders may be called for any purpose by
the Pacific Board, the chairman of the board, the president or any
vice-president or by holders of at least ten percent of all of the outstanding
shares entitled to vote at such meeting and the notice of any such meeting is
required to be delivered not less than ten nor more than 60 days before the date
of the meeting, (vii) any special meetings of TMI security holders may be called
for any purpose by the TMI Board, the chairman of the board, the president or
any vice-president or by holders of at least ten percent of all of the
outstanding shares entitled to vote at such meeting and the notice of any such
meeting is required to be delivered not less than ten nor more than 60 days
before the date of the meeting, (viii) any special meetings of RNM security
holders may be called for any purpose by the RNM Board, the president or in the
absence of
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the president, the vice-president or upon written demand of the holders of a
majority of all outstanding shares entitled to vote thereon and the notice of
any such meeting is required to be delivered not less than 10 nor more than 60
days before the date of the meeting except that certain special meetings,
including those called for the purpose of voting to approve an Agreement of
Merger to which RNM is a party, require at least 20 days' prior notice, (ix) any
special meetings of AIOC security holders may be called for any purpose by the
AIOC Board, the president or upon written demand of the holders of a majority of
all of the issued and outstanding shares entitled to vote at such meeting and
the notice of any such meeting is required to be delivered not less than ten
days nor more than 50 days before the date of the meeting, (x) any special
meetings of CIA security holders may be called for any purpose by the CIA Board,
the president or upon written demand of the holders of a majority of all of the
issued and outstanding shares entitled to vote at such meeting and the notice of
any such meeting is required to be delivered not less than ten days nor more
than 50 days before the date of the meeting, (xi) any special meetings of MRIA
security holders may be called for any purpose by the MRIA Board, the president
or upon written demand of the holders of a majority of all of the issued and
outstanding shares entitled to vote at such meeting and the notice of any such
meeting is required to be delivered not less than ten days nor more than 50 days
before the date of the meeting, (xii) any special meetings of Nyack security
holders may be called for any purpose by the Nyack Board, the president or upon
written demand of the holders of a majority of all of the issued and outstanding
shares entitled to vote at such meeting and the notice of any such meeting is
required to be delivered not less than ten days nor more than 50 days before the
date of the meeting, (xiii) any special meetings of Pelham security holders may
be called for any purpose by the Pelham Board, the president or upon written
demand of the holders of a majority of all of the issued and outstanding shares
entitled to vote at such meeting and the notice of any such meeting is required
to be delivered not less than ten days nor more than 50 days before the date of
the meeting, (xiv) any special meetings of RRG security holders may be called
for any purpose by the RRG Board, president or upon written demand of the
holders of a majority of all of the issued and outstanding shares entitled to
vote at such meeting and the notice of any such meeting is required to be
delivered not less than ten days nor more than 50 days before the date of the
meeting, (xv) any special meetings of WIC security holders may be called for any
purpose by the WIC Board, the president or upon written demand of the holders of
a majority of all of the issued and outstanding shares entitled to vote at such
meeting and the notice of any such meeting is required to be delivered not less
than ten days nor more than 50 days before the date of the meeting, and (xvi)
any special meetings of Valley security holders may be called for any purpose in
accordance with the provisions of the CCC and the notice of any such meeting is
required to be delivered not less than ten nor more than 60 days before the date
of the meeting.
Under the Partnership Governance Documents, (i) any meeting of the partners
of Lexington may be called by the General Partner or by one or more limited
partners who own, in the aggregate, more than 50% of the partnership interests
held by all limited partners of Lexington and notice of any such meeting must be
given not less than three nor more than 30 days from the date of such meeting;
(ii) any meeting of the partners of South Texas No. 1 may be called by the
General Partner or upon the written demand of one or more limited partners who
own at least 15% of the partnership interests of South Texas No. 1 and notice of
any such meeting must be given not less than five nor more than 60 days before
the date of such meeting; and (iii) any meeting of the partners of San Antonio
may be called by the General Partner or upon the written demand of one or more
limited partners who own, in the aggregate, at least 15% of the partnership
interests of San Antonio and notice of any such meeting must be given not less
than five nor more than 60 days before the date of such meeting. The Madison
Partnership Governance Documents do not contain any provisions relating to who
may call a special meeting of partners or what notice, if any, must be given to
partners prior to such a meeting.
Size of the Boards of Directors
The DGCL permits the board of directors of a Delaware corporation to change
the authorized number of directors by an amendment to the bylaws or in the
manner provided in the bylaws, unless the number of directors is fixed in the
certificate of incorporation of such corporation, in which case a change in the
number of directors may be made only by an amendment of the certificate of
incorporation. Under the CCC, although changes in the number of directors
generally must be approved by the shareholders, the board of directors may
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fix the exact number of directors within a stated range set forth in the
articles of incorporation or bylaws. The KGCC, like the DGCL, permits the board
of directors of a Kansas corporation to change the authorized number of
directors by an amendment to the bylaws or in the manner specified in the
bylaws, unless the number of directors is fixed in the articles of
incorporation, in which case a change in the number of directors may only be
made by an amendment of the articles of incorporation. Under the MGCL, the
bylaws of a Maryland corporation may empower a majority of the entire board of
directors to alter within specified limits the number of directors fixed in the
corporate governance documents of such corporation. Under the NYBCL, a New York
corporation may authorize its board of directors to change the number of
directors by an amendment to the bylaws of such corporation or in the manner
specified in such bylaws, provided that such change in the number of directors
is approved by a majority of the entire board of directors. The TBCA, like the
DGCL, permits the board of directors of a Texas corporation to change the
authorized number of directors by an amendment to the bylaws or in the manner
specified in the bylaws, unless the number of directors is set forth in the
articles of incorporation of such corporation, in which case a change in the
number of directors may be made only by an amendment of the articles of
incorporation.
The number of directors of APPI is currently fixed at seven. The APPI
Bylaws provide that the number of directors may be changed by resolution of the
Board of Directors or by the security holders of APPI at an annual meeting of
security holders.
The Corporate Governance Documents of each of the respective Merger
Entities provide that (i) the number of directors on the Advanced Board may be
increased or decreased by the affirmative vote of the holders of a majority of
the outstanding shares of Advanced Common Stock; (ii) the number of directors on
the Ide Board may be increased or decreased by an amendment to the Ide Bylaws
adopted by holders of three-quarters of the outstanding shares of Common Stock
or by three-quarters of the directors then in office; (iii) the number of
directors on the M&S Board may be increased or decreased by an amendment to the
M&S Bylaws adopted by the affirmative vote of the holders of two-thirds of the
shares of M&S Common Stock present or represented at such meeting and entitled
to vote thereat; (iv) the number of directors on the South Texas Board may be
increased or decreased by an amendment to the South Texas Bylaws adopted by the
affirmative vote of the holders of a majority of the shares of South Texas
Common Stock entitled to vote thereon or by the South Texas Board; (v) the
number of directors on the San Antonio Board may be increased or decreased by an
amendment to the San Antonio Bylaws adopted by the affirmative vote of the
holders of a majority of the shares of San Antonio Common Stock entitled to vote
thereon or by the San Antonio Board; (vi) the number of directors on the Pacific
Board may be fixed by a resolution of the Pacific Board so long as such number
is within the stated range set forth in the Pacific Bylaws, which stated range
may only be changed by an amendment of the Bylaws adopted by the affirmative
vote of the holders of a majority of the outstanding shares of Pacific Common
Stock or the Pacific Board; (vii) the number of directors on the TMI Board may
be fixed by a resolution of the TMI Board so long as such number is within the
stated range set forth in the TMI Bylaws, which stated range may only be changed
by an amendment of the Bylaws adopted by the affirmative vote of the holders of
a majority of the outstanding shares of TMI Common Stock or the TMI Board;
(viii) the number of directors on the RNM Board may be increased or decreased by
the affirmative vote of the holders of a majority of the outstanding shares of
RNM Common Stock to amend RNM's Corporate Governance Documents to provide for
such change; (ix) the number of directors on the AIOC Board may be increased or
decreased by an amendment of the AIOC Bylaws adopted by a majority of the
outstanding shares entitled to vote thereon, or by the AIOC Board; (x) the
number of directors on the CIA Board may be increased or decreased by an
amendment of the CIA Bylaws adopted by a majority of the outstanding shares
entitled to vote thereon, or by the CIA Board; (xi) the number of directors on
the MRIA Board may be increased or decreased by an amendment of the MRIA Bylaws
adopted by a majority of the outstanding shares entitled to vote thereon, or by
the MRIA Board; (xii) the number of directors on the Nyack Board may be
increased or decreased by an amendment of the Nyack Bylaws adopted by a majority
of the outstanding shares entitled to vote thereon, or by the Nyack Board;
(xiii) the number of directors on the Pelham Board may be increased or decreased
by an amendment of the Pelham Bylaws adopted by a majority of the outstanding
shares entitled to vote thereon, or by the Pelham Board; (xiv) the number of
directors on the RRG Board may be increased or decreased by an amendment of the
RRG Bylaws adopted by a majority of the outstanding shares entitled to vote
thereon, or by the RRG Board; (xv) the number of directors on the
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WIC Board may be increased or decreased by an amendment of the WIC Bylaws
adopted by a majority of the outstanding shares entitled to vote thereon, or by
the WIC Board; and (xvi) the number of directors on the Valley Board may be
increased or decreased by an amendment of the Valley Bylaws adopted by the
affirmative vote of the holders of a majority of the outstanding shares of
Valley Common Stock.
Cumulative Voting for Directors
Under the DGCL, security holders of a Delaware corporation do not have the
right to cumulate their votes in the election of directors unless the
certificate of incorporation of such corporation specifically provides for
cumulative voting in the election of directors. In an election of directors
under cumulative voting, each share of stock normally having one vote is
entitled to a number of votes equal to the number of directors to be elected. A
security holder may then cast all such votes for a single candidate or may
allocate them among as many candidates as the security holder sees fit. The KGCC
and NYBCL contain similar provisions to those found in the DGCL with respect to
the ability of security holders to cumulate their votes in the election of
directors. In contrast, the CCC provides that security holders of a California
corporation are entitled to cumulate their votes in the election of directors
upon proper notice to such corporation of their intention to do so. However, a
California corporation with (1) outstanding securities listed on the New York or
American Stock Exchange or (2) a class of securities designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. may eliminate security holders'
cumulative voting rights pursuant to the CCC. Security holders of a Maryland
corporation also have cumulative voting rights in the election of directors
under the MGCL. Similarly, under the TBCA, security holders of a Texas
corporation are entitled to cumulate their votes in the election of directors
upon proper notice to such corporation of their intention to do so, unless the
articles of incorporation of such corporation provide otherwise.
APPI has not provided for cumulative voting in the APPI Certificate.
Accordingly, security holders of APPI do not have cumulative voting rights with
respect to the election of directors. Similarly, Ide, RNM, AIOC, CIA, MRIA,
Nyack, Pelham, RRG and WIC have not provided for cumulative voting in their
respective Corporate Governance Documents and, thus, the security holders of
each such Entity do not have cumulative voting rights with respect to the
election of directors. The Corporate Governance Documents of M&S expressly
eliminate the ability of the holders of M&S Common Stock to cumulative votes in
the election of directors. On the other hand, security holders of Advanced,
South Texas, San Antonio, Pacific, TMI and Valley have the right to cumulate
votes with respect to the election of their respective directors under
applicable state law.
Removal of Directors
Under the DGCL, any or all of the directors of a Delaware corporation that
does not have a classified board of directors may be removed, with or without
cause, by the holders of a majority of the shares entitled to vote at an
election of directors, unless the corporate governance documents of such
corporation require a supermajority vote to remove directors. If, however, the
security holders of such corporation have cumulative voting rights with respect
to the election of directors, then no director may be removed (unless the entire
board is removed) if the number of votes cast against the removal of such
director would be sufficient to elect the director under cumulative voting. The
CCC, KGCC, MGCL and TBCA contain provisions relating to the removal of directors
that are substantially similar to the provisions of the DGCL. Under the NYBCL,
any or all of the directors of a New York corporation that does not have a
classified board of directors may be removed for cause and, if the corporate
governance documents of such corporation so provide, without cause, by the
holders of a majority of shares entitled to vote at an election of directors,
unless the corporate governance documents of such corporation require a
supermajority vote to remove directors. If, however, the security holders of
such corporation have cumulative voting rights with respect to the election of
directors, then no director may be removed (unless the entire board is removed)
if the number of votes cast against the removal of such director would be
sufficient to elect the director under cumulative voting.
The APPI Corporate Governance Documents do not require a supermajority vote
by security holders to remove directors from the APPI Board. Accordingly, the
APPI directors may be removed in accordance with
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the provisions of the DGCL. The Corporate Governance Documents of each of the
Merger Entities provide that (i) member of the Advanced Board may be removed
with [or without] cause by the holders of a majority of the shares entitled to
vote thereon; (ii) a member of the Ide Board may be removed, with or without
cause, by the affirmative vote of the holders of not less than three-quarters of
the issued and outstanding shares entitled to vote at an election of directors
or by three-quarters of the directors then in office; (iii) a member of the M&S
Board may be removed, with or without cause, by the affirmative vote of the
holders of not less than two-thirds of the outstanding shares entitled to vote
at an election of directors; (iv) a member of the South Texas Board may be
removed, with or without cause, by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote at an election of directors;
(v) a member of the San Antonio Board may be removed, with or without cause, by
the affirmative vote of the holders of a majority of the outstanding shares
entitled to vote at an election of directors; (vi) a member of the Pacific Board
may be removed, with or without cause, by the affirmative vote of the holders of
not less than a majority of the outstanding shares entitled to vote at an
election of directors, provided, however, that no director may be removed if the
votes cast against such director's removal would be sufficient to elect such
director under cumulative voting; (vii) a member of the TMI board may be
removed, with or without cause, by the affirmative vote of the holders of not
less than a majority of the outstanding shares entitled to vote at an election
of directors, provided, however, that no director may be removed if the votes
cast against such director's removal would be sufficient to elect such director
under cumulative voting; (viii) a member of the RNM Board may be removed, with
or without cause, by the affirmative vote of the holders of not less than
three-quarters of the outstanding shares entitled to vote at an election of
directors; (ix) a member of the AIOC Board may be removed with cause by the
affirmative vote of holders of a majority of shares entitled to vote thereon or
by the AIOC Board, but such member may only be removed without cause by the
affirmative vote of holders of a majority of shares entitled to vote thereon;
(x) a member of the CIA Board may be removed with cause by the affirmative vote
of holders of a majority of shares entitled to vote thereon or by the CIA Board,
but such member may only be removed without cause by the affirmative vote of
holders of a majority of shares entitled to vote thereon; (xi) a member of the
MRIA Board may be removed with cause by the affirmative vote of holders of a
majority of shares entitled to vote thereon or by the MRIA Board, but such
member may only be removed without cause by the affirmative vote of holders of a
majority of shares entitled to vote thereon; (xii) a member of the Nyack Board
may be removed with cause by the affirmative vote of holders of a majority of
shares entitled to vote thereon or by the Nyack Board, but such member may only
be removed without cause by the affirmative vote of holders of a majority of
shares entitled to vote thereon; (xiii) a member of the Pelham Board may be
removed with cause by the affirmative vote of holders of a majority of shares
entitled to vote thereon or by the Pelham Board, but such member may only be
removed without cause by the affirmative vote of holders of a majority of shares
entitled to vote thereon; (xiv) a member of the RRG Board may be removed with
cause by the affirmative vote of holders of a majority of shares entitled to
vote thereon or by the RRG Board, but such member may only be removed without
cause by the affirmative vote of holders of a majority of shares entitled to
vote thereon; (xv) a member of the WIC Board may be removed with cause by the
affirmative vote of holders of a majority of shares entitled to vote thereon or
by the WIC Board, but such member may only be removed without cause by the
affirmative vote of holders of a majority of shares entitled to vote thereon;
and (xvi) a member of the Valley Board may be removed, with or without cause, by
holders of a majority of shares entitled to vote at an election of directors.
Amendments to the Governance Documents
The DGCL provides that a Delaware corporation may amend its certificate of
incorporation so long as a proposed amendment is approved (i) first by the board
of directors and (ii) then by a majority of the total outstanding stock entitled
to vote thereon and a majority of the outstanding stock of each class entitled
to vote thereon, unless the certificate of incorporation requires a
super-majority vote. The provisions of the CCC, KGCC and NYBCL relating to
amendments of the articles or certificate of incorporation of a corporation, as
the case may be, are substantially similar to the provisions of the DGCL. In
contrast, under the MGCL and TBCA, an amendment of the articles of incorporation
must be approved (i) first by the board of directors and (ii) then by holders of
two-thirds of the total outstanding shares entitled to vote thereon and by
holders of at least two-thirds of the shares within each class of outstanding
shares entitled to vote thereon, unless the
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articles of incorporation require the vote of a larger proportion of the total
outstanding shares or any class thereof.
The APPI Certificate does not contain supermajority voting requirements
with respect to amendments of the APPI Certificate. Accordingly, holders of a
majority of the outstanding APPI Common Stock may amend the APPI Certificate.
The articles or certificate of incorporation, as the case may be, of each of
Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG, WIC and Valley also do
not contain supermajority voting requirements, and, thus, holders of a majority
of the outstanding Common Stock of each such Entity may also amend such Entity's
applicable articles or certificate of incorporation. The articles of Advanced,
M&S, South Texas and San Antonio also do not impose greater voting requirements
for the amendment of such Entity's articles than those imposed by applicable
state law. Accordingly, amendments to the articles of each such Entity may be
made by holders of two-thirds of the outstanding Common Stock of such Entity.
However, Ide's certificate of incorporation does impose a greater voting
requirement than that imposed by the NYBCL. Holders of at least three-quarters
of the outstanding shares of Ide Common Stock must approve certain amendments to
the Ide certificate of incorporation.
Under the DGCL, the bylaws of a Delaware corporation may be amended only by
the stockholders of such corporation, unless the corporate governance documents
of such corporation expressly authorize the board of directors to amend the
bylaws as well. The provisions of the KGCC, MGCL and NYBCL relating to amendment
of a corporation's bylaws are substantially similar to the provisions of the
DGCL. In contrast, bylaws of a California corporation or a Texas corporation may
be amended by either the security holders or the board of directors of such
corporation under the CCC and TBCA, respectively. However, the corporate
governance documents of a California corporation or Texas corporation may
restrict or eliminate the power of the board of directors to amend the bylaws of
such corporation.
The APPI Certificate does not expressly authorize the APPI Board to amend
the APPI Bylaws. Accordingly, only the security holders of APPI may amend the
APPI Bylaws. Under the Corporate Governance Documents of each of the Entities,
(i) the Bylaws of Advanced may be amended by the affirmative vote of the holders
of at least a majority of the outstanding shares of Advanced Common Stock with
the consent of (ii) the Ide Bylaws may be amended by the affirmative vote of the
holders of three-quarters of the outstanding shares of Ide Common Stock entitled
to vote thereon or by the vote of three-quarters of the directors then in
office, (iii) the M&S Bylaws may be amended by the affirmative vote of the
holders of two-thirds of the outstanding shares of M&S Common Stock or by the
M&S Board, (iv) the South Texas Bylaws may be amended by the affirmative vote of
the holders of a majority of the outstanding shares of South Texas Common Stock
or by the South Texas Board, (v) the San Antonio Bylaws may be amended by the
affirmative vote of the holders of a majority of the outstanding shares of San
Antonio Common Stock or by the San Antonio Board, (vi) the Pacific Bylaws may be
amended by the affirmative vote of the holders of a majority of the outstanding
shares of Pacific Common Stock or by the Pacific Board, subject to certain
restrictions, (vii) the TMI Bylaws may be amended by the affirmative vote of the
holders of a majority of the outstanding shares of TMI Common Stock or by the
TMI Board, subject to certain restrictions, (viii) the RNM Bylaws may be amended
by the affirmative vote of the holders of three-quarters of the outstanding
shares of RNM Common Stock, (ix) the AIOC Bylaws may be amended by holders of a
majority of the shares entitled to vote thereon or by the AIOC Board, (x) the
CIA Bylaws may be amended by holders of a majority of the shares entitled to
vote thereon or by the CIA Board, (xi) the MRIA Bylaws may be amended by holders
of a majority of the shares entitled to vote thereon or by the MRIA Board, (xii)
the Nyack Bylaws may be amended by holders of a majority of the shares entitled
to vote thereon or by the Nyack Board, (xiii) the Pelham Bylaws may be amended
by holders of a majority of the shares entitled to vote thereon or by the Pelham
Board, (xiv) the RRG Bylaws may be amended by holders of a majority of the
shares entitled to vote thereon or by the RRG Board, (xv) the WIC Bylaws may be
amended by holders of a majority of the shares entitled to vote thereon or by
the WIC Board, and (xvi) the Valley Bylaws may be amended by the affirmative
vote of the holders of a majority of the outstanding shares of Valley Stock.
The partnership agreement of a Texas general partnership or a Texas limited
partnership may only be amended upon the consent of all partners, unless the
partnership agreement of such partnership provides otherwise under the TRPA and
TRLPA, respectively.
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The Partnership Governance Documents of (i) Lexington provide that the
Lexington Partnership Agreement may be amended with the consent of the General
Partner and of limited partners holding a majority of the partnership interests
then held by all of the limited partners; (ii) Madison provide that the Madison
Partnership Agreement may be amended only upon the written consent of partners
holding 66% of the total partnership interests of Madison; (iii) South Texas No.
1 provide that the South Texas No. 1 Partnership Agreement may generally be
amended only upon the consent of the General Partner and of limited partners
holding two-thirds of the partnership interests then held by all of the limited
partners, although there are certain amendments which may be made by the General
Partner alone; (iv) San Antonio No. 2 provides that the San Antonio No. 2
Partnership Agreement may generally be amended only upon the consent of the
General Partner and of limited partners holding two-thirds of the partnership
interests then held by all of the limited partners, although there are certain
amendments which may be made by the General Partner alone.
Dissolution
Under the DGCL, a dissolution of a Delaware corporation must be approved by
security holders holding 100% of the total voting power of such corporation,
unless the board of directors initiated and approved the proposal to dissolve,
in which case the dissolution may be approved by a simple majority of the
outstanding shares of capital stock entitled to vote thereon. Under the CCC,
security holders holding 50% or more of the total voting power of a California
corporation may authorize the dissolution of such corporation, with or without
the approval of the board of directors, and this right may not be modified by
the articles of incorporation. The KGCC provides that the dissolution of a
Kansas corporation must be approved (i) first by a resolution adopted by a
majority of the entire board of directors declaring such dissolution to be
advisable and (ii) then by the affirmative vote of a majority of the outstanding
shares entitled to vote thereon. Similarly, the MGCL provides that a Maryland
corporation may be dissolved only if it is approved (i) first by the affirmative
vote of a majority of the entire board of directors and (ii) then by the
affirmative vote of two-thirds of all the outstanding shares entitled to vote
thereon. Under the NYBCL, a New York corporation may be dissolved only with the
approval of two-thirds of all outstanding shares entitled to vote thereon,
unless the certificate of incorporation of such corporation provides otherwise.
The certificate of incorporation may provide that any security holder, or the
holders of any specified number or proportion of shares may require the
dissolution of such corporation at will or upon the occurrence of any specified
event. Under the TBCA, a corporation may be dissolved upon the affirmative vote
of the holders of at least two-thirds of the outstanding shares of the
corporation after the board of directors adopts a resolution recommending that
the corporation be dissolved.
Under the TRPA, partners of a Texas general partnership may adopt a
provision in their partnership agreement which provides that the partnership
must dissolve upon the expiration of a specified term or the completion of a
particular undertaking or upon the occurrence of a specified event. If the
partnership agreement of such partnership does contain such a provision, then
such partnership must dissolve (i) as specified in the partnership agreement,
unless the partners vote to continue the partnership, or (ii) if all of the
partners elect to dissolve. If the partnership agreement does not contain any
such provision, then the partnership may be dissolved at the express will of
holders of a majority of the partnership interests of such partnership. Under
the TRLPA, a Texas limited partnership must dissolve on (i) the occurrence of an
event which the partnership agreement specifies will cause the dissolution of
such partnership; (ii) the written consent of all of the partners; (iii) the
withdrawal of a General Partner or such partnership; or (iv) the entry of a
decree of judicial dissolution. The Lexington partnership agreement provides
that Lexington will be dissolved upon the occurrence of certain specified events
or if all of the partners consent in writing to the dissolution of the
partnership. The Madison partnership agreement provides that Madison may be
dissolved at any time upon the agreement of partners holding at least 66% of the
partnership interests of Madison. The partnership agreement of each of South
Texas No. 1 and San Antonio No. 2 provides that each such partnership will be
dissolved upon the occurrence of certain specified events, or if the General
Partner and limited partners holding at least two-thirds of the partnership
interests then held by all limited partners of such partnership consent in
writing to the dissolution of such partnership.
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EXPERTS
The financial statements of American Physician Partners, Inc. as of
December 31, 1996 and for the period from inception (April 30, 1996) to December
31, 1996, included in this Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
The consolidated financial statements of Advanced Radiology, LLC, the
combined financial statements of M&S X-Ray Practices, the combined financial
statements of Pacific Imaging Consultants, the financial statements of Radiology
and Nuclear Medicine, P.A., the combined financial statements of Rockland
Radiological Group, and the combined financial statements of Valley Radiology
Group included in this Registration Statement, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
The combined financial statements of The Ide Group, P.C. and Ide Diagnostic
Imaging Associates included in this Registration Statement have been audited by
DeJoy, Knauf & Blood LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
LEGAL MATTERS
The validity of the APPI Common Stock issuable pursuant to the Mergers and
Exchanges will be passed on by Brobeck, Phleger & Harrison LLP. Haynes and Boone
L.L.P. has issued legal opinions to AIOC, Advanced, CIA, Ide, Lexington, M&S,
Madison, MRIA, Nyack, Pacific, Pelham, RNM, RRG, San Antonio, San Antonio No. 2,
South Texas, South Texas No. 1, Valley and WIC regarding certain federal income
tax matters.
Peter G. Angelos, P.C. is acting as counsel for Advanced in connection with
certain legal matters relating to the Advanced Merger and the transactions
contemplated thereby.
Underberg & Kessler LLP is acting as counsel for Ide in connection with
certain legal matters relating to the Ide Merger and the transactions
contemplated thereby.
Looper, Reed, Mark and McGraw Incorporated and Oppenheimer, Blend, Harrison
& Tate, Inc. are acting as counsel for the Entities comprising the M&S X-Ray
Practices in connection with certain legal matters relating to the M&S, South
Texas and San Antonio Mergers and the transactions contemplated thereby, and the
Lexington, Madison, South Texas No. 1 and San Antonio No. 2 Exchanges and the
transactions contemplated thereby.
Wendel, Rosen, Black & Dean, LLP is acting as counsel for Pacific and TMI
in connection with certain legal matters relating to the Pacific and TMI Mergers
and the transactions contemplated thereby.
Lathrop & Gage L.C. is acting as counsel for RNM in connection with certain
legal matters relating to the RNM Merger and the transactions contemplated
thereby.
Drake, Sommers, Loeb, Tarshis & Catania, P.C. is acting as counsel for the
Entities comprising the Rockland Radiological Group in connection with certain
legal matters relating to the AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
Mergers and the transactions contemplated thereby.
Hoge, Fenton, Jones & Appel, Inc., San Jose, California is acting as
counsel for Valley in connection with certain legal matters relating to the
Valley Merger and the transactions contemplated thereby.
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GLOSSARY OF TERMS
The following is a glossary of defined terms used in this Prospectus/Joint
Proxy Statement. Wherever the context may require, the singular form of each
defined term includes the plural and vice versa.
Advanced................... Ad Rad, Inc., a Maryland corporation.
Advanced Board............. The Board of Directors of Advanced.
Advanced Cash
Consideration.............. The amount of cash that will be paid for each share
of Advanced Common Stock converted pursuant to the
Advanced Merger Transactions.
Advanced Common Stock...... Common Stock of Advanced.
Advanced Exchange Ratio.... The number of shares of APPI Common Stock that will
be issued and exchanged for each share of Advanced
Common Stock converted pursuant to the Advanced
Merger Transactions.
Advanced Meeting........... A special meeting of Advanced security holders
which will be held at the principal executive
offices of Advanced located at 7253 Ambassador
Road, Baltimore, Maryland 21244 on November 3, 1997
at 6:00 p.m. to approve and adopt the Advanced
Merger Proposal.
Advanced Merger............ The merger of Advanced with and into APPI pursuant
to the Advanced Merger Agreement.
Advanced Merger
Agreement.................. The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
Advanced.
Advanced Merger Proposal... The proposal to approve the Advanced Merger
Transactions.
Advanced Merger
Transactions............... The actions APPI and Advanced will take to merge
pursuant to the Advanced Merger Agreement.
Advanced NewCo............. The NewCo formed by Advanced.
Advanced Radiology......... Ad Rad, Inc., a Maryland corporation.
Advanced Record Date....... The close of business on October 24, 1997.
Advanced Reorganization.... The reorganization of Advanced by incorporating a
NewCo, transferring to such NewCo certain assets
and liabilities and entering into a Service
Agreement with APPI.
Advanced Service Area...... Greater Baltimore Metropolitan Area.
Affiliated Practices....... The Founding Affiliated Practices and such
additional radiology practices, management service
organizations, ICs and other related businesses
that the Company may acquire in the future.
AIOC....................... Advanced Imaging of Orange County, P.C., a New York
professional corporation.
AIOC Board................. The Board of Directors of AIOC.
AIOC Common Stock.......... Common Stock of AIOC and, following the F
Reorganization of AIOC, the Common Stock of AIOC
New Sub.
AIOC Meeting............... A joint special meeting of the security holders of
each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate offices of such
Entities located at 18 Squadron Boulevard, New
City, New York on November 3, 1997, 1997 at 5:00
p.m.
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AIOC Merger................ The merger of AIOC with and into APPI pursuant to
the AIOC Merger Agreement.
AIOC Merger Agreement...... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
AIOC.
AIOC Merger Proposal....... The proposal to approve the AIOC Merger
Transactions.
AIOC Merger Transactions... The actions APPI and AIOC will take to merge
pursuant to the AIOC Merger Agreement.
AIOC New Sub............... The New Sub formed by AIOC.
AIOC NewCo................. The NewCo formed by AIOC.
AIOC Record Date........... The close of business on October 31, 1997.
AIOC Reorganization........ The reorganization of AIOC by incorporating a
NewCo, transferring to such NewCo certain assets
and liabilities and entering into a Service
Agreement with APPI.
APPI Certificate........... Certificate of Incorporation of APPI, as amended.
APPI Common Stock.......... Common stock, par value $.0001 per share, of APPI.
APPI....................... American Physician Partners, Inc., a Delaware
corporation.
Approval Notice............ A notice of the approval of the Merger of an Entity
mailed by such Entity within ten days after such
approval by such Entity's security holders to each
Dissenting Security Holder who did not vote in
favor of such Merger.
Automatic Option Grant
Program.................... The Company's 1996 Stock Option Plan automatic
option grant program.
Awards..................... ISOs and non-qualified stock options.
BBA97...................... Balanced Budget Act of 1997.
CCC........................ California Corporations Code.
CIA........................ Central Imaging Associates, P.C., a New York
professional corporation.
CIA Board.................. The Board of Directors of CIA.
CIA Common Stock........... Common Stock of CIA and, following the F
Reorganization of CIA, the Common Stock of CIA New
Sub.
CIA Meeting................ A joint special meeting of the security holders of
each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate offices of such
Entities located at 18 Squadron Boulevard, New
City, New York on November 3, 1997, 1997 at 5:00
p.m.
CIA Merger................. The merger of CIA with and into APPI pursuant to
one CIA Merger Agreement.
CIA Merger Agreement....... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
CIA.
CIA Merger Proposal........ The proposal to approve the CIA Merger
Transactions.
CIA Merger Transactions.... The actions APPI and CIA will take to merge
pursuant to the CIA Merger Agreement.
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CIA New Sub................ The New Sub formed by CIA.
CIA NewCo.................. The NewCo formed by CIA.
CIA Record Date............ The close of business on October 31, 1997.
CIA Reorganization......... The reorganization of CIA by incorporating a NewCo,
transferring to such NewCo certain assets and
liabilities and entering into a Service Agreement
with APPI.
Committee.................. Compensation and Stock Plan Administration
Committee.
Company....................
American Physician Partners, Inc., a Delaware
corporation.
Conversion Price........... The price at which holders of the Convertible Notes
will receive shares of APPI Common Stock, based on
the rate of one share of APPI Common Stock for each
$8.00 of Convertible Note principal, upon
conversion.
Convertible Notes.......... Outstanding $3,500,000 principal balance of
Convertible Promissory Notes bearing interest at 6%
per annum.
Corporate Governance
Documents.................. Articles and bylaws of each Merger Entity.
Credit Facility............ $115 million revolving credit facility with GECC
and other lenders.
CT......................... Computed tomography.
DGCL....................... Delaware General Corporation Law.
Dissenting Security
Holders.................... Collectively, holders of record of Advanced Common
Stock, Ide Common Stock, M&S Common Stock, South
Texas Common Stock, San Antonio Common Stock,
Pacific Common Stock, TMI Common Stock, RNM Common
Stock, AIOC Common Stock, CIA Common Stock, MRIA
Common Stock, Nyack Common Stock, Pelham Common
Stock, RRG Common Stock, WIC Common Stock and
Valley Common Stock who comply with the applicable
procedures to exercise their dissenters' rights
under the applicable state law.
Effective Date............. The date each of the Form S-1 and the Registration
Statement is declared effective by the SEC.
Effective Time............. The time each Merger will become effective, which
is upon the completion of the filing of a properly
executed Certificate of Merger with the appropriate
Secretaries of State as required by the applicable
Merger Agreement.
EIS........................ Executive Information System.
Entities................... Collectively, the Merger Entities and the Exchange
Entities.
Exchange Act............... Securities Exchange Act of 1934.
Exchange Agreements........ Collectively, the Lexington Exchange Agreement, the
Madison Exchange Agreement, the South Texas No. 1
Exchange Agreement and the San Antonio No. 2
Exchange Agreement.
Exchange Closing Date or
Closing Date............... The day on which the transactions contemplated by
the Exchange Agreements are closed.
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Exchange Entities.......... Collectively, Lexington, Madison, South Texas No. 1
and San Antonio No. 2.
Exchange Entity............ Each of the following: Lexington, Madison, South
Texas No. 1 and San Antonio No. 2.
Exchange Proposals......... Collectively, the Lexington Exchange Proposal, the
Madison Exchange Proposal, the South Texas No. 1
Exchange Proposal and the San Antonio No. 2
Exchange Proposal.
Exchange Transactions...... Collectively, the Lexington Exchange Transaction,
the Madison Exchange Transaction, the South Texas
No. 1 Exchange Transaction, and the San Antonio No.
2 Exchange Transaction.
Exchanges.................. The acquisition by APPI of each of Lexington,
Madison, South Texas No. 1 and San Antonio No. 2 by
undertaking the applicable Exchange Transactions.
F Reorganization........... Reorganization pursuant to Internal Revenue Code
Section 368(a)(2)(F).
FAS........................ Financial Accounting System.
Form S-1................... APPI's Registration Statement on Form S-1
(Registration No. 333-30205.
Founding Affiliated
Practice................... Each of the following: Advanced, Ide, M&S X-Ray
Practices, Pacific Imaging Consultants, RNM,
Rockland Radiological Group and Valley.
Founding Affiliated
Practices.................. Collectively, Advanced, Ide, M&S X-Ray Practices,
Pacific Imaging Consultants, RNM, Rockland
Radiological Group and Valley.
GECC....................... GE Capital Corporation.
Governance Documents....... Collectively, the Corporate Governance Documents
and the Partnership Governance Documents.
Haynes and Boone........... Haynes and Boone, L.L.P., special counsel to APPI.
HMOs....................... Health maintenance organizations.
ICs........................ Diagnostic imaging centers.
Ide........................ The Ide Group, P.C., a New York professional
corporation.
Ide Board.................. The Board of Directors of Ide.
Ide Cash Consideration..... The amount of cash that will be paid for each share
of Ide Common Stock converted pursuant to the Ide
Merger Transactions.
Ide Common Stock........... Common Stock of Ide and, following the F
Reorganization of Ide, the Common Stock of Ide New
Sub.
Ide Exchange Ratio......... The number of shares of APPI Common Stock that will
be issued and exchanged for each share of Ide
Common Stock converted pursuant to the Ide Merger
Transactions.
Ide Meeting................ A special meeting of Ide security holders which
will be held at the principal executive offices of
Ide located at 2273 South Clinton Avenue,
Rochester, New York 14618 on November 3, 1997 at
5:30 p.m. to approve and adopt the Ide Merger
Proposal.
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Ide Merger................. The merger of Ide with and into APPI pursuant to
the Ide Merger Agreement.
Ide Merger Agreement....... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
Ide.
Ide Merger Proposal........ The proposal to approve the Ide Merger
Transactions.
Ide Merger Transactions.... The actions APPI and Ide will take to merge
pursuant to the Ide Merger Agreement.
Ide New Sub................ The New Sub formed by Ide.
Ide NewCo.................. The NewCo formed by Ide.
Ide Record Date............ The close of business on September 30, 1997.
Ide Reorganization......... The reorganization of Ide by incorporating a NewCo,
transferring to such NewCo certain assets and
liabilities and entering into a Service Agreement
with APPI.
Ide Service Area........... Greater Rochester, New York area.
Imaging Services........... Imaging services, including x-ray, fluoroscopy,
computed tomography, magnetic resonance imaging,
nuclear medicine, mammography and ultrasound.
Indemnification
Agreement.................. Indemnification Agreement in substantially the form
of Appendix F to this Prospectus/Joint Proxy
Statement.
Initial Public Offering.... The initial underwritten public offering of APPI
Common Stock contemplated by the Form S-1.
Initial Public Offering
Price...................... The price per share of APPI Common Stock received
by APPI in connection with the Initial Public
Offering before deduction of any underwriting
commissions, discounts or other fees relating
thereto.
Interests.................. The general and limited partnership interests for
an Exchange Entity.
IRS........................ Internal Revenue Service.
ISOs....................... Incentive stock options, as defined in Section 422
of the Internal Revenue Code.
KGCC....................... Kansas General Corporation Code.
Lexington.................. Lexington MR Ltd., a Texas limited partnership.
Lexington Cash
Consideration.............. The aggregate amount of cash that will be paid for
the partnership interests in Lexington transferred
pursuant to the Lexington Exchange Transactions.
Lexington Exchange......... The acquisition of certain partnership interests in
Lexington by APPI pursuant to the Lexington
Exchange Agreement.
Lexington Exchange
Agreement.................. The Agreement and Plan of Exchange dated as of June
27, 1997 by and between APPI and holders of certain
limited partnership interests of Lexington.
Lexington Exchange
Proposal................... The proposal to approve the Lexington Exchange
Transactions.
Lexington Exchange Ratio... The aggregate number of shares of APPI Common Stock
that will be issued and exchanged for the
partnership interests in Lexington transferred
pursuant to the Lexington Exchange Transactions.
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Lexington Exchange
Transaction................ The acquisition of Lexington by APPI by exchanging
cash and shares of APPI Common Stock for
partnership interests of Lexington.
Lexington Meeting.......... A joint special meeting of the security holders of
each of M&S, Lexington, Madison, South Texas, South
Texas No. 1, San Antonio and San Antonio No. 2
which will be held at 215 East Quincy, One
Lexington Medical Building, Second Floor Conference
Room, San Antonio, Texas 78205 on November 3, 1997
at 5:45 p.m.
Lexington Partners......... The eleven (11) individual limited partners of
Lexington (Neil J. Bowie, M.D., Polly Hansen, M.D.,
Philips Klein, M.D., Julio C. Otazo, M.D., R.K.
Daniel Peterson, M.D., Randall Preissig, M.D., Jose
Saldana, M.D., Anthony Smith, M.D., Jeremy N.
Wiersig, M.D., Robert Thompson, M.D. and W. Gregory
Wojeik, M.D.) who, together, own 18.95% of the
total interests of Lexington.
Lexington Record Date...... The close of business on October 1, 1997.
Liability Policies......... General and professional liability insurance
policies.
LXL........................ LXL Group, Ltd., a California limited partnership.
M&S........................ M&S X-Ray Associates, P.A., a Texas professional
association.
M&S........................ Board The Board of Directors of M&S.
M&S Cash Consideration..... The amount of cash that will be paid for each share
of M&S Common Stock converted pursuant to the M&S
Merger Transactions.
M&S Common Stock........... Common Stock of M&S.
M&S Exchange Ratio......... The number of shares of APPI Common Stock that will
be issued and exchanged for each share of M&S
Common Stock converted pursuant to the M&S Merger
Transactions.
M&S Meeting................ A joint special meeting of the security holders of
each of M&S, Lexington, Madison, South Texas, South
Texas No. 1, San Antonio and San Antonio No. 2
which will be held at 215 East Quincy, One
Lexington Medical Building, Second Floor Conference
Room, San Antonio, Texas 78205 on November 3, 1997,
1997 at 5:45 p.m.
M&S Merger................. The merger of M&S with and into APPI pursuant to
the M&S Merger Agreement.
M&S Merger Agreement....... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
M&S.
M&S Merger Proposal........ The proposal to approve the M&S Merger
Transactions.
M&S Merger Transactions.... The actions APPI and M&S will take to merge
pursuant to the M&S Merger Agreement.
M&S NewCo.................. The NewCo formed by M&S.
M&S Record Date............ The close of business on October 1, 1997.
M&S Reorganization......... The reorganization of M&S by incorporating a NewCo,
transferring to such NewCo certain assets and
liabilities and entering into a Service Agreement
with APPI.
M&S Service Area........... San Antonio, Texas Metropolitan area.
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M&S X-Ray Practices........ A radiology practice which includes seven related
entities, consisting of M&S, Lexington, Madison,
South Texas, South Texas No. 1, San Antonio, and
San Antonio No. 2.
Madison.................... Madison Square Joint Venture, a Texas general
partnership.
Madison Cash
Consideration.............. The aggregate amount of cash that will be paid for
the partnership interests in Madison transferred
pursuant to the Madison Exchange Transactions.
Madison Exchange........... The acquisition of partnership interests in Madison
by APPI pursuant to the Madison Exchange Agreement.
Madison Exchange
Agreement.................. The Agreement and Plan of Exchange dated as of June
27, 1997 by and between APPI and holders of all of
the limited partnership interests of Madison.
Madison Exchange
Proposal................... The proposal to approve the Madison Exchange
Transactions.
Madison Exchange Ratio..... The aggregate number of shares of APPI Common Stock
that will be issued and exchanged for the
partnership interests in Madison transferred
pursuant to the Madison Exchange Transactions.
Madison Exchange
Transaction................ The acquisition of Madison by APPI by exchanging
cash and shares of APPI Common Stock for
partnership interests of Madison.
Madison Meeting............ A joint special meeting of the security holders of
each of M&S, Lexington, Madison, South Texas, South
Texas No. 1, San Antonio and San Antonio No. 2
which will be held at 215 East Quincy, One
Lexington Medical Building, Second Floor Conference
Room, San Antonio, Texas 78205 on November 3, 1997
at 5:45 p.m.
Madison Partners........... The thirteen (13) general partners of Madison (Neil
Bowie, M.D., F. Joseph Carabin, M.D., Gregory
Godwin, M.D., Michael Howard, M.D., Philip Kline,
M.D., Michael Howard, M.D., Philip Kline, M.D.,
Julio Otazo, M.D., R.K. Daniel Peterson, M.D.,
Randall Preissig, M.D., Jose Saldana, M.D., Anthony
Smith, M.D., Robert Thompson, M.D., Jeremy Wiersig,
M.D., and Frank Wilson, M.D.) who, together, own
100% of the total interests of Madison.
Madison Record Date........ The close of business on October 1, 1997.
MSO........................ A management service organization.
Merger Agreements.......... Collectively, the Advanced Merger Agreement, the
Ide Merger Agreement, the M&S Merger Agreement, the
South Texas Merger Agreement, the San Antonio
Merger Agreement, the Pacific Merger Agreement, the
TMI Merger Agreement, the RNM Merger Agreement, the
AIOC Merger Agreement, the CIA Merger Agreement,
the MRIA Merger Agreement, the Nyack Merger
Agreement, the Pelham Merger Agreement, the RRG
Merger Agreement, the WIC Merger Agreement and the
Valley Merger Agreement.
Merger Entities............ Collectively, Advanced, Ide, M&S, South Texas, San
Antonio, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack,
Pelham, RRG, WIC and Valley.
Merger Entity.............. Each of the following: Advanced, Ide, M&S, South
Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA,
MRIA, Nyack, Pelham, RRG, WIC and Valley.
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Merger Proposals........... Collectively, the Advanced Merger Proposal, the Ide
Merger Proposal, the M&S Merger Proposal, the South
Texas Merger Proposal, the San Antonio Merger
Proposal, the Pacific Merger Proposal, the TMI
Merger Proposal, the RNM Merger Proposal, the AIOC
Merger Proposal, the CIA Merger Proposal, the MRIA
Merger Proposal, the Nyack Merger Proposal, the
Pelham Merger Proposal, the RRG Merger Proposal,
the WIC Merger Proposal and the Valley Merger
Proposal.
Merger Transactions........ Collectively, the Advanced Merger Transactions, the
Ide Merger Transactions, the M&S Merger
Transactions, the South Texas Merger Transactions,
the San Antonio Merger Transactions, the Pacific
Merger Transactions, the TMI Merger Transactions,
the RNM Merger Transactions, the AIOC Merger
Transactions, the CIA Merger Transactions, the MRIA
Merger Transactions, the Nyack Merger Transactions,
the Pelham Merger Transactions, the RRG Merger
Transactions, the WIC Merger Transactions and the
Valley Merger Transactions.
Mergers.................... The mergers of APPI and each of Advanced, Ide, M&S,
South Texas, San Antonio, Pacific, TMI, RNM, AIOC,
CIA, MRIA, Nyack, Pelham, RRG, WIC and Valley by
undertaking the applicable Merger Transactions.
MGCL....................... Maryland General Corporation Law.
MIS........................ Management information system.
MRI........................ Magnetic resonance imaging.
MRIA....................... Mid Rockland Imaging Associates, P.C., a New York
professional corporation.
MRIA....................... Board The Board of Directors of MRIA.
MRIA Common Stock.......... Common Stock of MRIA and, following the F
Reorganization of MRIA, the Common Stock of MRIA
New Sub.
MRIA Meeting............... A joint special meeting of the security holders of
each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate offices of such
Entities located at 18 Squadron Boulevard, New
City, New York on November 3, 1997 at 5:00 p.m.
MRIA Merger................ The merger of MRIA with and into APPI pursuant to
the MRIA Merger Agreement.
MRIA Merger Agreement...... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
MRIA.
MRIA Merger Proposal....... The proposal to approve the MRIA Merger
Transactions.
MRIA Merger Transactions... The actions APPI and MRIA will take to merge
pursuant to the MRIA Merger Agreement.
MRIA....................... New Sub The New Sub formed by MRIA.
MRIA NewCo................. The NewCo formed by MRIA.
MRIA Record Date........... The close of business on October 31, 1997.
MRIA Reorganization........ The reorganization of MRIA by incorporating a
NewCo, transferring to such NewCo certain assets
and liabilities and entering into a Service
Agreement with APPI.
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MSOs....................... Management service organizations.
Named Executive Officers... The Chief Executive Officer and the four other most
highly paid executive officers of the Company.
Nasdaq National Market..... Nasdaq Stock Market's National Market.
New Sub.................... A New York business corporation subsidiary formed
to effectuate an F Reorganization.
NewCo...................... A newly-incorporated or newlyorganized entity
capable of practicing the profession of medicine in
its respective state.
NewCos..................... Collectively, Advanced NewCo, Ide NewCo, M&S NewCo,
Pacific NewCo, TMI NewCo, RNM NewCo, AIOC NewCo,
CIA NewCo, MRIA NewCo, Nyack Newco, Pelham NewCo,
RRG NewCo, WIC NewCo and Valley NewCo.
Nyack...................... Nyack Magnetic Resonance Imaging, P.C., a New York
professional corporation.
Nyack Board................ The Board of Directors of Nyack.
Nyack Common Stock......... Common Stock of Nyack and, following the F
Reorganization of Nyack, the Common Stock of Nyack
New Sub.
Nyack Meeting.............. A joint special meeting of the security holders of
each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate offices of such
Entities located at 18 Squadron Boulevard, New
City, New York on October 31, 1997 at 5:00 p.m.
Nyack Merger............... The merger of Nyack with and into APPI pursuant to
the Nyack Merger Agreement.
Nyack Merger Agreement..... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
Nyack.
Nyack Merger Proposal...... The proposal to approve the Nyack Merger
Transactions.
Nyack Merger
Transactions............... The actions APPI and Nyack will take to merge
pursuant to the Nyack Merger Agreement.
Nyack New Sub.............. The New Sub formed by Nyack.
Nyack NewCo................ The NewCo formed by Nyack.
Nyack Record Date.......... The close of business on October 31, 1997.
Nyack Reorganization....... The reorganization of Nyack by incorporating a
NewCo, transferring to such NewCo certain assets
and liabilities and entering into a Service
Agreement with APPI.
NYBCL...................... New York Business Corporation Law.
Offer Price................ The price APPI shall offer to pay in its Purchase
Offer for the shares held by Dissenting Security
Holders.
Old Partnership
Interests.................. Collectively, certain outstanding Lexington limited
partnership interests, Madison partnership
interests, South Texas No. 1 limited partnership
interests and San Antonio No. 2 limited partnership
interests.
Old Shares................. Collectively, Advanced Common Stock; M&S Common
Stock, South Texas Common Stock, San Antonio Common
Stock, Pacific Common
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Stock, TMI Common Stock, RNM Common Stock, AIOC
Common Stock, CIA Common Stock, MRIA Common Stock,
Nyack Common Stock, Pelham Common Stock, RRG Common
Stock, WIC Common Stock and Valley Common Stock.
Pacific.................... Pacific Imaging Consultants, A Medical Group, Inc.,
a California professional medical corporation.
Pacific Board.............. The Board of Directors of Pacific.
Pacific Cash
Consideration.............. The amount of cash that will be paid for each share
of Pacific Common Stock converted pursuant to the
Pacific Merger Transactions.
Pacific Common Stock....... Common Stock of Pacific.
Pacific Exchange Ratio..... The number of shares of APPI Common Stock that will
be issued and exchanged for each share of Pacific
Common Stock converted pursuant to the Pacific
Merger Transactions.
Pacific Imaging
Consultants................ A radiology practice which includes two related
entities, consisting of Pacific and TMI.
Pacific Meeting............ A joint special meeting of the security holders of
each of Pacific and TMI which will be held at the
principal executive offices of Pacific located at
350 Hawthorne Avenue, Oakland, California 94609 on
November 3, 1997 at 6:00 p.m.
Pacific Merger............. The merger of a separate subsidiary of APPI with
and into Pacific pursuant to the Pacific Merger
Agreement.
Pacific Merger Agreement... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
Pacific.
Pacific Merger Proposal.... The proposal to approve the Pacific Merger
Transactions.
Pacific Merger
Transactions............... The actions APPI and Pacific will take to merge
pursuant to the Pacific Merger Agreement.
Pacific NewCo.............. The NewCo formed by Pacific.
Pacific Record Date........ The close of business on October 16, 1997.
Pacific Reorganization..... The reorganization of Pacific by incorporating a
NewCo, transferring to such NewCo certain assets
and liabilities and entering into a Service
Agreement with APPI.
Pacific Service Area....... Greater Oakland Metropolitan area, San Francisco
Bay area and the Hi-Desert area of Southern
California.
Partnership Governance
Documents.................. The Partnership agreement and other governance
documents of each Exchange Entity.
Pelham..................... Pelham Imaging Associates, P.C., a New York
professional corporation.
Pelham Board............... The Board of Directors of Pelham.
Pelham Common Stock........ Common Stock of Pelham and, following the F
Reorganization of Pelham, the Common Stock of
Pelham New Sub.
Pelham Meeting............. A joint special meeting of the security holders of
each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the
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corporate offices of such Entities located at 18
Squadron Boulevard, New City, New York on November
3, 1997 at 5:00 p.m.
Pelham Merger.............. The merger of Pelham with and into APPI pursuant to
the Pelham Merger Agreement.
Pelham Merger Agreement.... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
Pelham.
Pelham Merger Proposal..... The proposal to approve the Pelham Merger
Transactions.
Pelham Merger
Transactions............... The actions APPI and Pelham will take to merge
pursuant to the Pelham Merger Agreement.
Pelham New Sub............. The New Sub formed by Pelham.
Pelham NewCo............... The NewCo formed by Pelham.
Pelham Record Date......... The close of business on October 31, 1997.
Pelham Reorganization...... The reorganization of Pelham by incorporating a
NewCo, transferring to such NewCo certain assets
and liabilities and entering into a Service
Agreement with APPI.
Plan....................... The Company's 1996 Stock Option Plan.
PPMs....................... Physician practice management companies.
Preferred Stock............ Preferred stock, par value $.0001 per share, of
APPI.
Professional Services...... Professional diagnostic and interpretive services.
Program.................... The Company's Cash Bonus Program.
Purchase Offer............. Written offer by APPI to each Dissenting Security
Holder to pay a specified price for the shares held
by such Dissenting Security Holder.
Radiology and Nuclear
Medicine or RNM............ Radiology and Nuclear Medicine, a Professional
Association, a Kansas professional association.
RBRVS...................... Resource-based relative value scale.
Registration Statement..... Registration Statement on Form S-4 filed by APPI
with the SEC.
Regulation S-K............. Regulation S-K of the Securities Act.
Reorganizations............ Collectively, the Advanced Reorganization, the Ide
Reorganization, the M&S Reorganization, the Pacific
Reorganization, the TMI Reorganization, the RNM
Reorganization, the AIOC Reorganization, the CIA
Reorganization, the MRIA Reorganization, the Nyack
Reorganization, the Pelham Reorganization, the RRG
Reorganization, the WIC Reorganization and the
Valley Reorganization.
RNM Board.................. The Board of Directors of RNM.
RNM Cash Consideration..... The amount of cash that will be paid for each share
of RNM Common Stock converted pursuant to the RNM
Merger Transactions.
RNM Common Stock........... Common Stock of RNM.
RNM Exchange Ratio......... The number of shares of APPI Common Stock that will
be issued and exchanged for each share of RNM
Common Stock converted pursuant to the RNM Merger
Transactions.
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RNM Meeting................ A special meeting of RNM security holders which
will be held at the principal executive offices of
RNM located at 823 SW Mulvane, Suite 1, Topeka,
Kansas 66606 on November 3, 1997 at 5:30 p.m.
RNM Merger................. The merger of RNM with and into APPI pursuant to
the RNM Merger Agreement.
RNM Merger Agreement....... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
RNM.
RNM Merger Proposal........ The proposal to approve the RNM Merger
Transactions.
RNM Merger Transactions.... The actions APPI and RNM will take to merge
pursuant to the RNM Merger Agreement.
RNM NewCo.................. The NewCo formed by RNM.
RNM Record Date............ The close of business on October 13, 1997.
RNM Reorganization......... The reorganization of RNM by incorporating a NewCo,
transferring to such NewCo certain assets and
liabilities and entering into a Service Agreement
with APPI.
RNM Service Area........... Greater Topeka, Kansas area and Northeast
Kansas/Southeast Nebraska area.
Rockland Cash
Consideration.............. The amount of cash that will be paid for each share
of AIOC Common Stock, CIA Common Stock, MRIA Common
Stock, Nyack Common stock, Pelham Common Stock, RRG
Common Stock and WIC Common Stock converted
pursuant to each Merger Entity's respective Merger
Transactions.
Rockland Exchange Ratio.... The number of shares of APPI Common Stock that will
be issued and exchanged for each share of AIOC
Common Stock, CIA Common Stock, MRIA Common Stock,
Nyack Common Stock, Pelham Common Stock, RRG Common
Stock and WIC Common Stock converted pursuant to
each Merger Entity's respective Merger
Transactions.
Rockland Radiological
Group...................... A radiology practice which includes seven related
entities, consisting of AIOC, CIA, MRIA, Nyack,
Pelham, RRG, and WIC.
Rockland Service Area...... Duchess, Orange, Rockland, Ulster and Westchester
County areas of the State of New York and the
Bergen County area of the State of New Jersey.
RRG........................ Rockland Radiological Group, P.C., a New York
professional corporation.
RRG Board.................. The Board of Directors of RRG.
RRG Common Stock........... Common Stock of RRG and, following the F
Reorganization of RRG, the Common Stock of RRG New
Sub.
RRG Meeting................ A joint special meeting of the security holders of
each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate offices of such
Entities located at 18 Squadron Boulevard, New
City, New York on November 3, 1997 at 5:00 p.m.
RRG Merger................. The merger of RRG with and into APPI pursuant to
the RRG Merger Agreement.
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RRG Merger Agreement....... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
RRG.
RRG Merger Proposal........ The proposal to approve the RRG Merger
Transactions.
RRG Merger Transactions.... The actions APPI and RRG will take to merge
pursuant to the RRG Merger Agreement.
RRG........................ New Sub The New Sub formed by RRG.
RRG NewCo.................. The NewCo formed by RRG.
RRG Record Date............ The close of business on October 31, 1997.
RRG Reorganization......... The reorganization of RRG by incorporating a NewCo,
transferring to such NewCo certain assets and
liabilities and entering into a Service Agreement
with APPI.
Rule 16b-3................. Rule 16b-3 of Section 16 of the Exchange Act.
SAB 48..................... Staff Accounting Bulletin No. 48, "Transfers of
Nonmonetary Assets by Promoters or Shareholders,"
published by the SEC.
San Antonio................
San Antonio MR, Inc., a Texas corporation.
San Antonio Board.......... The Board of Directors of San Antonio.
San Antonio Cash
Consideration.............. The amount of cash that will be paid for each share
of San Antonio Common Stock converted pursuant to
the San Antonio Merger Transactions.
San Antonio Common Stock... Common Stock of San Antonio.
San Antonio Exchange
Ratio...................... The number of shares of APPI Common Stock that will
be issued and exchanged for each share of San
Antonio Common Stock converted pursuant to the San
Antonio Merger Transactions.
San Antonio Meeting........ A joint special meeting of the security holders of
each of M&S, Lexington, Madison, South Texas, South
Texas No. 1, San Antonio and San Antonio No. 2
which will be held at 215 East Quincy, One
Lexington Medical Building, Second Floor Conference
Room, San Antonio, Texas 78205 on November 3, 1997
at 5:45 p.m.
San Antonio Merger......... The merger of San Antonio with and into APPI
pursuant to the San Antonio Merger Agreement.
San Antonio Merger
Agreement.................. The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
San Antonio.
San Antonio Merger
Proposal................... The proposal to approve the San Antonio Merger
Transactions.
San Antonio Merger
Transactions............... The actions APPI and San Antonio will take to merge
pursuant to the San Antonio Merger Agreement.
San Antonio No. 2 Exchange
Transaction................ The acquisition of San Antonio No. 2 by APPI by
exchanging cash and shares of APPI Common Stock for
partnership interests of San Antonio No. 2.
San Antonio No. 2.......... San Antonio MRI Partnership No. 2, Ltd., a Texas
limited partnership.
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San Antonio No. 2 Cash
Consideration.............. The aggregate amount of cash that will be paid for
the partnership interests in San Antonio No. 2
transferred pursuant to the San Antonio No. 2
Exchange Transactions.
San Antonio No. 2
Exchange................... The acquisition of certain partnership interests in
San Antonio No. 2 by APPI pursuant to the San
Antonio No. 2 Exchange Agreement.
San Antonio No. 2 Exchange
Agreement.................. The Agreement and Plan of Exchange dated as of June
27, 1997 by and between APPI and holders of all of
the limited partnership interests of San Antonio
No. 2.
San Antonio No. 2 Exchange
Ratio...................... The aggregate number of shares of APPI Common Stock
that will be issued and exchanged for the
partnership interests in San Antonio No. 2
transferred pursuant to the San Antonio No. 2
Exchange Transactions.
San Antonio No. 2
Meeting.................... A joint special meeting of the security holders of
each of M&S, Lexington, Madison, South Texas, South
Texas No. 1, San Antonio and San Antonio No. 2
which will be held at 215 East Quincy, One
Lexington Medical Building, Second Floor Conference
Room, San Antonio, Texas 78205 on November 3, 1997
at 5:45 p.m.
San Antonio No. 2
Partners................... The twelve (12) limited partners of San Antonio No.
2 (Neil Bowie, M.D., Joseph Carabin, M.D., Gregory
Godwin, M.D., Michael Howard, M.D., Philip Kline,
M.D., Julio Otazo, M.D., R.K. Daniel Peterson,
M.D., Randall Preissig, M.D., Rise Ross, M.D., Jose
Saldana, M.D., Robert Thompson, M.D. and Gregory
Wojeik, M.D.) who, together, own 99% of the total
interests of San Antonio No. 2.
San Antonio No. 2 Record
Date....................... The close of business on October 1, 1997.
San Antonio No. 2 Exchange
Proposal................... The proposal to approve the San Antonio No. 2
Exchange Transactions.
San Antonio Record Date.... The close of business on October 1, 1997.
SEC........................ Securities and Exchange Commission.
Section 17-6712............ Section 17-6712 of the KGCC.
Section 3-202.............. Section 3-202 of the MGCL.
Section 3-203.............. Section 3-203 of the MGCL.
Section 623................ Section 623 of the NYBCL.
Section 910................ Section 910 of the NYBCL.
Securities Act............. Securities Act of 1933, as amended.
Service Agreement.......... A 40-year Service Agreement with APPI.
Shattuck Hammond........... Shattuck Hammond Partners Inc.
South Texas................ South Texas MR, Inc., a Texas corporation.
South Texas Board.......... The Board of Directors of South Texas.
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South Texas Cash
Consideration.............. The amount of cash that will be paid for each share
of South Texas Common Stock converted pursuant to
the South Texas Merger Transactions.
South Texas Common Stock... Common Stock of South Texas.
South Texas Exchange
Ratio...................... The number of shares of APPI Common Stock that will
be issued and exchanged for each share of South
Texas Common Stock converted pursuant to the South
Texas Merger Transactions.
South Texas Meeting........ A joint special meeting of the security holders of
each of M&S, Lexington, Madison, South Texas, South
Texas No. 1, San Antonio and San Antonio No. 2
which will be held at 215 East Quincy, One
Lexington Medical Building, Second Floor Conference
Room, San Antonio, Texas 78205 on November 3, 1997
at 5:45 p.m.
South Texas Merger......... The merger of South Texas with and into APPI
pursuant to the South Texas Merger Agreement.
South Texas Merger
Agreement.................. The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
South Texas.
South Texas Merger
Proposal................... The proposal to approve the South Texas Merger
Transactions.
South Texas Merger
Transactions............... The actions APPI and South Texas will take to merge
pursuant to the South Texas Merger Agreement.
South Texas No. 1.......... South Texas No. 1 MRI Limited Partnership, a Texas
limited partnership.
South Texas No. 1 Cash
Consideration.............. The aggregate amount of cash that will be paid for
the partnership interests in South Texas No. 1
transferred pursuant to the South Texas No. 1
Exchange Transactions.
South Texas No. 1
Exchange................... The acquisition of certain partnerships in South
Texas No. 1 by APPI pursuant to the South Texas No.
1 Exchange Agreement.
South Texas No. 1 Exchange
Agreement.................. The Agreement and Plan of Exchange dated as of June
27, 1997 by and between APPI and holders of all of
the limited partnership interests of South Texas
No. 1.
South Texas No. 1 Exchange
Proposal................... The proposal to approve the South Texas No. 1
Exchange Transactions.
South Texas No. 1 Exchange
Ratio...................... The aggregate number of shares of APPI Common Stock
that will be issued and exchanged for the
partnership interests in South Texas No. 1
transferred pursuant to the South Texas No. 1
Exchange Transactions.
South Texas No. 1 Exchange
Transaction................ The acquisition of South Texas No. 1 by APPI by
exchanging cash and shares of APPI Common Stock for
partnership interests of South Texas No. 1.
South Texas No. 1
Meeting.................... A joint special meeting of the security holders of
each of M&S, Lexington, Madison, South Texas, South
Texas No. 1, San Antonio and
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San Antonio No. 2 which will be held at 215 East
Quincy, One Lexington Medical Building, Second
Floor Conference Room, San Antonio, Texas 78205 on
November 3, 1997 at 5:45 p.m.
South Texas No. 1
Partners................... The twelve (12) limited partners of South Texas No.
1 (Neil Bowie, M.D., Joseph Carabin, M.D., Gregory
Godwin, M.D., Michael Howard, M.D., Philip Kline,
M.D., Julio Otazo, M.D., R.K. Daniel Peterson,
M.D., Randall Preissig, M.D., Rise Ross, M.D., Jose
Saldana, M.D., Robert Thompson, M.D. and Gregory
Wojeik, M.D.) who, together, own 99% of the total
interests of South Texas No. 1.
South Texas No. 1 Record
Date....................... The close of business on October 1, 1997.
South Texas Record
Date....................... The close of business on October 1, 1997.
Stark I.................... Omnibus Budget Reconciliation Act of 1989.
Stark II................... Omnibus Budget Reconciliation Act of 1993.
Stark Law.................. Collectively, Stark I and Stark II.
Stockholder Representation
Letter..................... Stockholder Representation Letter in substantially
the form of Appendix E to this Prospectus/Joint
Proxy Statement.
TBCA....................... Texas Business Corporation Act.
The Ide Group or Ide....... The Ide Group, P.C., a New York professional
corporation.
TMI........................ Total Medical Imaging, Inc., a California
corporation.
TMI Board.................. The Board of Directors of TMI.
TMI Cash Consideration..... The amount of cash that will be paid for each share
of TMI Common Stock converted pursuant to the TMI
Merger Transactions.
TMI Common Stock........... Common Stock of TMI.
TMI Exchange Ratio......... The number of shares of APPI Common Stock that will
be issued and exchanged for each share of TMI
Common Stock converted pursuant to the TMI Merger
Transactions.
TMI Meeting................ A joint special meeting of the security holders of
each of Pacific and TMI which will be held at the
principal executive offices of TMI located at 350
Hawthorne Avenue, Oakland, California 94609 on
November 3, 1997 at 6:00 p.m.
TMI Merger................. The merger of a separate subsidiary of APPI with
and into TMI pursuant to the TMI Merger Agreement.
TMI Merger Agreement....... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
TMI.
TMI Merger Proposal........ The proposal to approve the TMI Merger
Transactions.
TMI Merger Transactions.... The actions APPI and TMI will take to merge
pursuant to the TMI Merger Agreement.
TMI NewCo.................. The NewCo formed by TMI.
TMI Record Date............ The close of business on October 16, 1997.
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TMI Reorganization......... The reorganization of TMI by incorporating a NewCo,
transferring to such NewCo certain assets and
liabilities and entering into a Service Agreement
with APPI.
TRPA....................... The Texas Revised Partnership Act.
TRPLA...................... The Texas Revised Limited Partnership Act.
Underwriters............... Underwriters named in the Form S-1.
Valley Board............... The Board of Directors of Valley.
Valley Cash
Consideration.............. The amount of cash that will be paid for each share
of Valley Common Stock converted pursuant to the
Valley Merger Transactions.
Valley Exchange Ratio...... The number of shares of APPI Common Stock that will
be issued and exchanged for each share of Valley
Common Stock converted pursuant to the Valley
Merger Transactions.
Valley Meeting............. A special meeting of Valley security holders which
will be held at 340 Dardanelli Lane, Suite 11A, Los
Gatos, California 95030 on November 3, 1997 at 6:30
p.m.
Valley Merger.............. The merger of a separate subsidiary of APPI with
and into Valley pursuant to the Valley Merger
Agreement.
Valley Merger Agreement.... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
Valley.
Valley Merger Proposal..... The proposal to approve the Valley Merger
Transactions.
Valley Merger
Transactions............... The actions APPI and Valley will take to merge
pursuant to the Valley Merger Agreement.
Valley NewCo............... The NewCo formed by Valley.
Valley Radiology Group or
Valley..................... Valley Radiologists Medical Group, Inc., a
California professional medical corporation.
Valley Record Date......... The close of business on October 20, 1997.
Valley Reorganization...... The reorganization of Valley by incorporating a
NewCo, transferring to such NewCo certain assets
and liabilities and entering into a Service
Agreement with APPI.
Valley Service Area........ Greater San Jose Metropolitan area and the San
Francisco Bay area.
WIC........................ Women's Imaging Consultants, P.C., a New York
professional corporation.
WIC Board.................. The Board of Directors of WIC.
WIC Common Stock........... Common Stock of WIC and, following the F
Reorganization of WIC, the Common Stock of WIC New
Sub.
WIC Meeting................ A joint special meeting of the security holders of
each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate offices of such
Entities located at 18 Squadron Boulevard, New
City, New York on November 3, 1997 at 5:00 p.m.
WIC Merger................. The merger of WIC with and into APPI pursuant to
the WIC Merger Agreement.
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WIC Merger Agreement....... The Agreement and Plan of Reorganization and Merger
dated as of June 27, 1997 by and between APPI and
WIC.
WIC Merger Proposal........ The proposal to approve the WIC Merger
Transactions.
WIC Merger Transactions.... The actions APPI and WIC will take to merge
pursuant to the WIC Merger Agreement.
WIC New Sub................ The New Sub formed by WIC.
WIC NewCo.................. The NewCo formed by WIC.
WIC Record Date............ The close of business on October 1, 1997.
WIC Reorganization......... The reorganization of WIC by incorporating a NewCo,
transferring to such NewCo certain assets and
liabilities and entering into a Service Agreement
with APPI.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AMERICAN PHYSICIAN PARTNERS, INC.
Report of Independent Public Accountants............................................ F-3
Balance Sheets as of December 31, 1996, and June 30, 1997 (unaudited)............... F-4
Statements of Income for the period from inception (April 30, 1996) to December 31,
1996, and the six months ended June 30, 1997 (unaudited)......................... F-5
Statements of Stockholders' Deficit for the period from inception (April 30, 1996)
to December 31, 1996, and the six months ended June 30, 1997 (unaudited)......... F-6
Statement of Cash Flows for the period from inception (April 30, 1996) to December
31, 1996, and the six months ended June 30, 1997 (unaudited)..................... F-7
Notes to Financial Statements....................................................... F-8
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
Report of Independent Public Accountants............................................ F-12
Consolidated Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997
(unaudited)...................................................................... F-13
Consolidated Statements of Income for the years ended December 31, 1994, 1995 and
1996, and the six months ended June 30, 1996 and 1997 (unaudited)................ F-14
Consolidated Statements of Owners' Equity for the years ended December 31, 1994,
1995 and 1996, and the six months ended June 30, 1997 (unaudited)................ F-15
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996, and the six months ended June 30, 1996 and 1997 (unaudited)............ F-16
Notes to Consolidated Financial Statements.......................................... F-17
THE IDE GROUP, P.C. AND IDE DIAGNOSTIC IMAGING ASSOCIATES
Independent Auditors' Report........................................................ F-25
Combined Balance Sheets as of June 30, 1994, 1995, and 1996 and June 30, 1997
(unaudited)...................................................................... F-26
Combined Statements of Income for the years ended June 30, 1994, 1995, and 1996 and
June 30, 1997 (unaudited)........................................................ F-27
Combined Statements of Changes in Stockholders' Equity and Partners' Capital for the
years ended June 30, 1994, 1995, and 1996, and June 30, 1997 (unaudited)......... F-28
Combined Statements of Cash Flows for the years ended June 30, 1994, 1995, and 1996,
and June 30, 1997 (unaudited).................................................... F-29
Notes to Combined Financial Statements.............................................. F-30
M & S X-RAY PRACTICES
Report of Independent Public Accountants............................................ F-36
Combined Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997
(unaudited)...................................................................... F-37
Combined Statements of Income for the years ended December 31, 1995 and 1996, and
the six months ended June 30, 1996 and 1997 (unaudited).......................... F-38
Combined Statements of Owners' Equity for the years ended December 31, 1995 and
1996, and the six months ended June 30, 1997 (unaudited)......................... F-39
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996,
and the six months ended June 30, 1996 and 1997 (unaudited)...................... F-40
Notes to Combined Financial Statements.............................................. F-41
</TABLE>
F-1
<PAGE> 275
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PACIFIC IMAGING CONSULTANTS
Report of Independent Public Accountants............................................ F-47
Combined Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997
(unaudited)...................................................................... F-48
Combined Statements of Income for the years ended December 31, 1995 and 1996, and
the six months ended June 30, 1996 and 1997 (unaudited).......................... F-49
Combined Statements of Owners' Equity (Deficit) for the years ended December 31,
1995 and 1996, and the six months ended June 30, 1997 (unaudited)................ F-50
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996,
and the six months ended June 30, 1996 and 1997 (unaudited)...................... F-51
Notes to Combined Financial Statements.............................................. F-52
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
Report of Independent Public Accountants............................................ F-58
Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997 (unaudited)...... F-59
Statements of Income for the years ended December 31, 1995 and 1996, and the six
months ended June 30, 1996 and 1997 (unaudited).................................. F-60
Statements of Owners' Equity for the years ended December 31, 1995 and 1996, and the
six months ended June 30, 1997 (unaudited)....................................... F-61
Statements of Cash Flows for the years ended December 31, 1995 and 1996, and the six
months ended June 30, 1996 and 1997 (unaudited).................................. F-62
Notes to Financial Statements....................................................... F-63
ROCKLAND RADIOLOGICAL GROUP
Report of Independent Public Accountants............................................ F-68
Combined Balance Sheets as of September 30, 1995 and 1996, and June 30, 1997
(unaudited)...................................................................... F-69
Combined Statements of Income for the years ended September 30, 1994, 1995 and 1996,
and the nine months ended June 30, 1996 and 1997 (unaudited)..................... F-70
Combined Statements of Owners' Equity (Deficit) for the years ended September 30,
1994, 1995 and 1996, and the nine months ended June 30, 1997 (unaudited)......... F-71
Combined Statements of Cash Flows for the years ended September 30, 1994, 1995 and
1996, and the nine months ended June 30, 1996 and 1997 (unaudited)............... F-72
Notes to Combined Financial Statements.............................................. F-73
VALLEY RADIOLOGY GROUP
Report of Independent Public Accountants............................................ F-78
Combined Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997
(unaudited)...................................................................... F-79
Combined Statements of Income for the years ended December 31, 1995 and 1996, and
the six months ended June 30, 1996 and 1997 (unaudited).......................... F-80
Combined Statements of Owners' Equity for the years ended December 31, 1995 and
1996, and the six months ended June 30, 1997 (unaudited)......................... F-81
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996,
and the six months ended June 30, 1996 and 1997 (unaudited)...................... F-82
Notes to Combined Financial Statements.............................................. F-83
</TABLE>
F-2
<PAGE> 276
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
American Physician Partners, Inc.:
We have audited the accompanying balance sheet of American Physician
Partners, Inc. -- A Development Stage Company (a Delaware corporation) as of
December 31, 1996, and the related statements of income, stockholders' deficit,
and cash flows for the period from inception (April 30, 1996) to December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Physician Partners,
Inc. -- A Development Stage Company as of December 31, 1996, and the results of
its operations and its cash flows for the period from inception (April 30, 1996)
to December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
April 10, 1997
F-3
<PAGE> 277
AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 2,490,679 $ 110,237
Prepaid expenses................................................. 15,002 137,859
----------- -----------
Total current assets..................................... 2,505,681 248,096
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $2,612 and $15,303 at December 31, 1996 and June 30, 1997,
respectively..................................................... 57,405 166,654
DEFERRED IPO COSTS................................................. -- 2,055,766
OTHER ASSETS....................................................... 14,480 15,711
----------- -----------
Total assets............................................. $ 2,577,566 $ 2,486,227
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued expenses................................................. $ 477,109 $ 2,085,169
CONVERTIBLE NOTES PAYABLE.......................................... 3,500,000 3,500,000
----------- -----------
Total liabilities........................................ 3,977,109 5,585,169
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $.0001 par value; 10,000,000 shares authorized;
no shares outstanding......................................... -- --
Common stock, $.0001 par value; 50,000,000 shares authorized;
2,000,000 shares issued and outstanding....................... 200 200
Additional paid-in capital....................................... 249,800 249,800
Accumulated deficit.............................................. (1,649,543) (3,348,942)
----------- -----------
Total stockholders' deficit.............................. (1,399,543) (3,098,942)
----------- -----------
Total liabilities and stockholders' deficit.............. $ 2,577,566 $ 2,486,227
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE> 278
AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION JANUARY 1,
(APRIL 30, 1996) 1997,
TO TO
DECEMBER 31, JUNE 30,
1996 1997
---------------- ---------------
(UNAUDITED)
<S> <C> <C>
REVENUES....................................................... $ -- $ --
COSTS AND EXPENSES:
Salaries and benefits........................................ 545,949 901,065
Rent and lease expense....................................... 57,015 114,134
General and administrative................................... 299,585 412,494
Depreciation................................................. 2,612 12,691
Interest expense............................................. 36,031 104,792
Professional services........................................ 607,482 143,859
Marketing expense............................................ 114,067 43,499
----------- -----------
Total costs and expenses............................. 1,662,741 1,732,534
----------- -----------
INTEREST INCOME................................................ 13,198 33,135
----------- -----------
NET LOSS....................................................... $ (1,649,543) $(1,699,399)
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE> 279
AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, April 30, 1996 (inception)..... -- $ -- $ -- $ -- $ --
Issuance of common stock.............. 2,000,000 200 249,800 -- 250,000
Net loss.............................. -- -- -- (1,649,543) (1,649,543)
--------- ---- -------- ----------- -----------
BALANCE, December 31, 1996.............. 2,000,000 200 249,800 (1,649,543) (1,399,543)
Net loss (unaudited).................. -- -- -- (1,699,399) (1,699,399)
--------- ---- -------- ----------- -----------
BALANCE, June 30, 1997 (unaudited)...... 2,000,000 $200 $ 249,800 $(3,348,942) $(3,098,942)
========= ==== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-6
<PAGE> 280
AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(APRIL 30,
1996) TO SIX MONTHS
DECEMBER 31, ENDED JUNE
1996 30, 1997
--------------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $(1,649,543) $(1,699,399)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation............................................... 2,612 12,691
Changes in assets and liabilities --
Prepaid expenses......................................... (15,002) (122,857)
Intangible asset......................................... -- (2,055,766)
Other assets............................................. (14,480) (1,231)
Accrued expenses......................................... 477,109 1,608,060
----------- -----------
Net cash used in operating activities................. (1,199,304) (2,258,502)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........................... (60,017) (121,940)
----------- -----------
Net cash used in investing activities................. (60,017) (121,940)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable....................... 400,000 --
Payments on notes payable..................................... (400,000) --
Proceeds from issuance of convertible notes payable........... 3,500,000 --
Issuance of common stock...................................... 250,000 --
----------- -----------
Net cash provided by financing activities............. 3,750,000 --
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS........................... 2,490,679 (2,380,442)
CASH AND CASH EQUIVALENTS, at inception......................... -- 2,490,679
----------- -----------
CASH AND CASH EQUIVALENTS, end of year.......................... $ 2,490,679 $ 110,237
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period
Interest................................................... $ 7,104 $ --
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-7
<PAGE> 281
AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS:
American Physician Partners, Inc. -- A Development Stage Company (the
"Company"), a Delaware corporation, is a radiology practice management entity.
The Company is a development stage company which through December 31, 1996, had
no revenue or significant operations. During the period from inception (April
30, 1996) to December 31, 1996, the Company reported a net loss of approximately
$1.6 million primarily as a result of general and administrative expenses
incurred during its startup and organizational stage. The Company's operating
prospects are dependent upon a number of factors including the ability to
attract physicians to its business concept and integrate their operations,
competition from similar entities as the Company and overall trends in the
healthcare industry (including the effects of government regulation and
reimbursement trends).
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The financial statements have been prepared on the accrual basis of
accounting and include the accounts of the Company.
The Company's financial statements have been prepared in anticipation of an
initial public offering of the Company's common stock (the "offering").
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment, consisting of furniture, fixtures, and equipment,
are stated at cost. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets (five years).
Net Loss Per Share
Net loss per share data has not been presented as historical information
does not reflect the distribution to the promoters (see Note 8) which will occur
in conjunction with the offering and will be paid with the proceeds thereof.
In February 1997, the Financial Accounting Standards Board issued Statement
128, "Earnings Per Share" (FASB No. 128.) This Statement simplifies the
standards for computing earnings per share previously found in APB No. 15,
"Earnings Per Share," and applies to entities with publicly held common stock or
potential publicly held common stock. FASB No. 128 is effective for financial
statements for both interim and annual periods ending after December 31, 1997,
early application is not permitted.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-8
<PAGE> 282
AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Basis of Presentation -- Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim period from January 1, 1997, to June 30, 1997, has been included
herein. The results of operations for the interim period is not necessarily
indicative of the results for the full year.
3. CONVERTIBLE NOTES PAYABLE:
During 1996, the Company issued $3,500,000 in convertible notes (the
"Notes"). As of December 31, 1996, $40,000 and $357,000 of the Notes are held by
employees and shareholders, respectively. The interest rate on the Notes is 6%
and they mature on January 31, 1998. The Notes may, at the election of the
noteholders of at least 50% of the outstanding principal amount, be converted
into shares of common stock at a conversion price of $8 per share, subject to
certain limitations, as defined in the Note agreement. In addition, upon or
after the effective date of the offering, the Company may redeem the Notes at
par in whole or in part. The Company expects that the note holders will elect
conversion upon the Company's request for redemption.
If the Notes remain outstanding at January 31, 1998, the interest rate
increases to the prime rate plus 2% per annum.
The Company issued $400,000 in notes to stockholders during 1996. The
interest rate on these notes was the bank base lending rate. These notes were
paid in full prior to December 31, 1996.
4. COMMON STOCK AND STOCK OPTION PLAN:
Common Stock
During 1996, the Company's Board of Directors issued 2,000,000 shares of
common stock. No shares of stock were held by employees at December 31, 1996.
Stock Option Plan
During 1996, the Company's Board of Directors approved a Stock Option Plan
(the "Plan") under which 3,000,000 options to purchase shares of the Company's
common stock may be granted to key directors, employees and other health care
professionals associated with the Company, as defined by the Plan. Options
granted under the Plan may be either incentive stock options (ISO) or
nonqualified stock options (NQSO). The option price per share under the Plan may
not be less than 100% of the fair market value at the grant date for ISO and may
not be less than 85% of the fair market value at the grant date for NQSO.
Generally, options vest over a 5-year period.
The Company accounts for its stock-based compensation arrangements under
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25). In 1995, Financial Accounting Standards
Board Statement No. 123, "Accounting for Stock-Based Compensation" (FASB No.
123), was issued, whereby companies may elect to account for stock-based
compensation using a fair value based method or continue measuring compensation
expense using the intrinsic value method prescribed in APB No. 25. FASB No. 123
requires that companies electing to continue to use the intrinsic
F-9
<PAGE> 283
AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
value method make pro forma disclosure of net income and net income per share as
if the fair value based method of accounting had been applied.
The Company used the minimum value method to estimate the fair value of
options. For purposes of the minimum value method, the Company used U.S.
Treasury strip rates for its risk-free interest rates, assumed no volatility or
future dividends, and assumed the expected life of the options through the
applicable expiration dates. The pro forma effects of adopting FASB No. 123's
fair value based method for the period ended December 31, 1996 were not
materially different from the corresponding APB No. 25 intrinsic value
methodology because the weighted average grant-date fair value of options
granted during the period was negligible. However, the effects of applying FASB
No. 123 during 1996 are not likely to be representative of the effects on pro
forma net income for future years because the vesting of options will cause
additional incremental expense to be recognized in future periods.
As of December 31, 1996, 1,210,000 options were granted and 1,790,000
options were available to be granted under the Plan. The weighted average
exercise prices for total granted options and total exercisable options were
$.74 and $.20, respectively, at December 31, 1996. The following table
summarizes information for the significant option groups outstanding at December
31, 1996:
<TABLE>
<CAPTION>
EXERCISE OPTIONS REMAINING EXERCISABLE
PRICE OUTSTANDING LIFE OPTIONS
- -------- ----------- ----------- -----------
(YEARS)
<S> <C> <C> <C>
$ .125 1,115,000 10 99,083
8.00 95,000 10 917
</TABLE>
Upon the effective date of the offering, the vesting period of 480,000
options will accelerate. Acceleration of the vesting period does not change the
measurement date pursuant to the provisions of APB 25 and accordingly no
compensation expense will be recognized.
5. INCOME TAXES:
The Company has incurred losses since inception. At December 31, 1996, the
Company has a net operating loss carryforward for income tax purposes of
approximately $1,647,000 available to reduce future amounts of taxable income.
If not utilized to offset future taxable income, the net operating loss
carryforward will expire in 2011.
The deferred tax benefit of approximately $600,000 generated during 1996
has been fully offset by a valuation allowance. The Company has recorded a full
valuation allowance against its deferred tax asset because of the Company's
current financial condition, its limited operating history, and its operating
losses recorded to date. If the Company does achieve profitability in the
future, the valuation allowance will be reduced by a credit to income.
6. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Instruments," requires disclosure about the fair value of
financial instruments. The carrying amounts and the estimated fair values for
these financial instruments as of December 31, 1996, were as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Cash and cash equivalents................................... $2,490,679 $2,490,679
Convertible notes payable................................... 3,500,000 3,421,687
</TABLE>
F-10
<PAGE> 284
AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
Leases
Lease expense of $57,015 for the period ended December 31, 1996, consists
of corporate office space and corporate equipment.
The following is a schedule of future minimum lease payments under
noncancelable operating leases as of December 31, 1996:
<TABLE>
<S> <C>
1997...................................................................... $164,865
1998...................................................................... 164,865
1999...................................................................... 164,220
2000...................................................................... 157,125
2001...................................................................... 130,940
</TABLE>
8. SUBSEQUENT EVENTS:
The Company plans to reorganize and complete an initial public offering. As
part of this transaction, all nonmonetary assets and certain monetary assets
(primarily accounts receivable, cash, and other monetary assets such as
inventory, deposits, prepaids and miscellaneous other receivables, but excluding
notes receivable from physicians) and liabilities, excluding those liabilities
payable to physicians such as accrued or defined physician compensation, and
certain other liabilities payable to physicians related to other benefit plans
of seven radiology practices (the "Founding Affiliated Practices") will be
exchanged for the Company's common stock and cash. Each of the stockholders of
the Founding Affiliated Practices is deemed to be a promoter of the offering.
The exchange will be accounted for at the historical cost basis with the stock
being valued at the historical cost of the net assets exchanged. The cash
payments to the owners of the Founding Affiliated Practices will be reflected as
dividends paid by the Company. Concurrent with these exchanges, the physicians
will create new medical professional corporations (PC's) which will enter into
40-year service agreements with the Company. Additionally, all physicians will
enter into employment and noncompete agreements with the new PC's.
As of the closing date, the Company will agree to pay the owners of the
Founding Affiliated Practices amounts equal to their existing cash and net
accounts receivable, less certain accounts payable and accrued liabilities of
the Founding Affiliated Practices.
The following summarized unaudited pro forma information assumes the
exchange between the Company and the Founding Affiliated Practices, but does not
give effect to the offering or the distribution to promoters. This pro forma
information assumes the exchanges occurred on June 30, 1997 (in thousands):
<TABLE>
<S> <C>
Balance sheet --
Working capital.......................................................... $ 3,895
Total assets............................................................. 75,524
Long-term debt and capital leases, net of current maturities............. 19,754
Stockholders' equity..................................................... 19,264
</TABLE>
This pro forma information may not be indicative of actual results if the
transactions had occurred on the dates indicated or which may be realized in the
future.
F-11
<PAGE> 285
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Advanced Radiology, LLC:
We have audited the accompanying consolidated balance sheets of Advanced
Radiology, LLC (a Maryland limited liability company) and subsidiary as of
December 31, 1996 and 1995, and the related consolidated statements of income,
owners' equity, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Radiology, LLC and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 21, 1997
F-12
<PAGE> 286
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 1,822,724 $ 3,048,169 $ 184,677
Accounts receivable, net of allowances of
$11,656,529, $13,591,727, and $14,922,987 at
December 31, 1995 and 1996 and June 30, 1997 ,
respectively................................... 9,957,828 12,041,297 15,042,029
Other receivables................................. -- 229,162 374,624
Other current assets.............................. 406,753 1,509,912 669,365
----------- ----------- -----------
Total current assets...................... 12,187,305 16,828,540 16,270,695
PROPERTY AND EQUIPMENT, net......................... 12,871,519 13,950,022 14,860,394
INVESTMENTS IN AFFILIATED ENTITIES.................. 497,345 743,586 1,101,109
OTHER ASSETS, net................................... 6,130,486 7,888,383 7,064,871
----------- ----------- -----------
Total assets.............................. $31,686,655 $39,410,531 $39,297,069
========== ========== ==========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facilities....................... $ 1,700,000 $ 4,000,000 $ 2,900,000
Accounts payable and accrued expenses............. 2,591,707 625,224 2,007,387
Accrued salaries and benefits..................... 2,073,807 1,328,370 1,605,918
Due to joint ventures............................. 1,162,296 1,430,415 693,257
Current portion of long-term debt................. 2,357,143 3,999,473 3,909,343
Other current liabilities......................... -- 248,450 748,789
----------- ----------- -----------
Total current liabilities................. 9,884,953 11,631,932 11,864,694
----------- ----------- -----------
LONG-TERM DEBT, net of current portion.............. 5,142,857 6,708,214 4,812,573
OTHER LIABILITIES................................... -- 359,012 359,012
----------- ----------- -----------
Total liabilities......................... 15,027,810 18,699,158 17,036,279
MINORITY INTEREST................................... -- 381,698 408,103
OWNERS' EQUITY...................................... 16,658,845 20,329,675 21,852,687
----------- ----------- -----------
Total liabilities and owners' equity...... $31,686,655 $39,410,531 $39,297,069
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE> 287
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Medical service revenue,
net........................ $19,277,956 $37,357,073 $51,692,004 $23,241,501 $31,103,238
Other revenue................. 3,173,533 1,476,239 1,189,986 524,288 456,914
----------- ----------- ----------- ----------- -----------
Total revenue......... 22,451,489 38,833,312 52,881,990 23,765,789 31,560,152
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Distributions to physician
owners..................... 8,755,971 12,355,000 20,563,799 8,600,000 12,199,998
Costs of affiliated physician
services................... -- 811,926 2,293,233 1,589,158 2,308,427
Practice salaries, wages and
benefits................... 6,325,282 10,051,129 12,317,949 5,567,355 7,683,633
Practice supplies............. 1,145,397 2,626,338 3,206,294 1,576,699 1,838,344
Practice rent and lease
expense.................... 862,257 2,184,472 2,301,575 1,306,004 1,598,479
Depreciation and
amortization............... 1,879,420 3,268,977 3,695,649 1,868,353 2,102,488
Other practice expenses....... 3,338,356 4,184,188 6,272,470 2,694,655 3,542,759
Interest expense.............. 410,752 1,003,042 751,086 307,409 445,779
----------- ----------- ----------- ----------- -----------
Total costs and
expenses............ 22,717,435 36,485,072 51,402,055 23,509,633 31,719,907
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND EQUITY IN
EARNINGS OF INVESTMENTS....... (265,946) 2,348,240 1,479,935 256,156 (159,755)
EQUITY IN EARNINGS OF
INVESTMENTS................... 761,999 634,659 1,207,670 680,447 642,367
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES..... -- -- (18,055) 9,239 (26,405)
----------- ----------- ----------- ----------- -----------
NET INCOME...................... $ 496,053 $ 2,982,899 $ 2,669,550 $ 945,842 $ 456,207
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE> 288
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OWNERS' EQUITY
<TABLE>
<S> <C>
BALANCE, December 31, 1993...................................................... $10,638,485
Capital contributions......................................................... 1,200
Net income.................................................................... 496,053
-----------
BALANCE, December 31, 1994...................................................... 11,135,738
Assets contributed, net of distribution to Copeland........................... 240,208
Capital contributions......................................................... 2,300,000
Net income.................................................................... 2,982,899
-----------
BALANCE, December 31, 1995...................................................... 16,658,845
Contribution of practice net assets........................................... 1,001,280
Net income.................................................................... 2,669,550
-----------
BALANCE, December 31, 1996...................................................... 20,329,675
Capital Contributions (unaudited)............................................. 1,066,805
Net income (unaudited)........................................................ 456,207
-----------
BALANCE, June 30, 1997 (unaudited).............................................. $21,852,687
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 289
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ --------------------------
1994 1995 1996 1996 1997
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 496,053 $ 2,982,899 $ 2,669,550 $ 945,842 $ 456,207
Adjustments to reconcile net income to net cash
provided by operating activities --
Minority interest in income of consolidated
subsidiaries............................... -- -- 18,055 (9,239) 26,405
Depreciation and amortization................ 1,879,420 3,268,977 3,695,649 1,868,353 2,102,488
Investment (income) loss from affiliated
entities................................... (761,999) (634,659) (1,207,670) (680,447) (642,367)
(Gain) loss on sale of assets................ (19,665) 12,302 379 -- --
Changes in assets and liabilities
(Increase) decrease in --
Accounts receivable, net................... (208,451) (9,957,828) (2,083,469) (731,663) (3,000,732)
Other receivables and other current
assets.................................. 96,924 (724,734) (261,143) (1,548,458) 695,085
Other noncurrent assets.................... (112,541) (242,636) (2,023,516) (1,208,878) --
Increase (decrease) in --
Accounts payable and accrued expenses...... 265,456 2,307,168 (1,966,483) 992,615 1,382,163
Accrued salaries and benefits.............. 138,042 2,073,806 (745,436) (2,012,306) 277,548
Due to joint ventures...................... 216,766 1,608,528 268,119 (269,952) (737,158)
Other liabilities.......................... (91) -- 248,450 -- 500,338
----------- ------------ ----------- ----------- -----------
Net cash provided by operating
activities............................ 1,989,914 693,823 (1,387,515) (2,654,133) 1,059,977
----------- ------------ ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of capital equipment.... 30,200 -- -- -- --
Purchases of capital equipment................. (2,133,526) (1,821,663) (3,295,696) (1,333,481) (2,189,347)
Contributions to partnerships.................. -- (61,198) (265,426) -- (302,772)
Distributions received from affiliated
entities..................................... 818,482 59,407 1,246,214 655,043 587,616
----------- ------------ ----------- ----------- -----------
Net cash used in investing activities... (1,284,844) (1,823,454) (2,314,908) (678,438) (1,904,503)
----------- ------------ ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................... 1,069,512 9,000,000 5,114,881 -- --
Repayment of long-term debt.................... (1,885,125) (10,047,645) (2,850,656) (239,873) (1,985,771)
Net increase in line of credit................. -- 1,700,000 2,300,000 1,778,000 (1,100,000)
Contributions from members..................... -- 2,300,000 -- -- 1,066,805
Distribution to Copeland shareholders.......... -- (5,466) -- -- --
Proceeds from the sale of stock................ 1,200 -- -- -- --
Minority interest contribution to joint
venture...................................... -- -- 363,643 363,644 --
----------- ------------ ----------- ----------- -----------
Net cash used in financing activities... (814,413) 2,946,889 4,927,868 1,901,771 (2,018,966)
----------- ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... (109,343) 1,817,258 1,225,445 (1,430,800) (2,863,492)
CASH AND CASH EQUIVALENTS, beginning of period... 114,809 5,466 1,822,724 1,822,724 3,048,169
----------- ------------ ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period......... $ 5,466 $ 1,822,724 $ 3,048,169 $ 391,924 $ 184,677
============ ============= ============ ============ ============
SUPPLEMENTAL DISCLOSURE:
Cash interest paid............................. $ 410,752 $ 1,003,000 $ 751,086 $ 307,409 $ 445,779
============ ============= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 290
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
Advanced Radiology, LLC (the "Company") is a Maryland limited liability
company organized to provide radiology and imaging healthcare services. Its
offices are located in the Baltimore, Maryland, metropolitan area. The Company
was organized in October 1994 and began providing healthcare services in January
1995.
The consolidated financial statements include the accounts of the Company
and its seventy-three percent owned subsidiary, MRI at St. Joseph Medical
Center, LLC ("MRI"). All significant intercompany accounts and transactions have
been eliminated in consolidation.
The Company was formed through the contribution of assets and medical
business of five existing radiology practices -- Drs. Copeland, Hyman, and
Shackman, P.A. ("Copeland"); Drs. Thomas, Wallop, Kim, and Lewis, P.A.
("Arundel"); Diagnostic Imaging Associates, P.A. (DIAPA); Drs. DeCarlo, Lyon,
Hearn, and Pazourek, P.A. ("DeCarlo"); and Carroll Imaging Associates, P.A.
("Carroll") (collectively, the "Practices"). Effective January 1, 1995, the
Practices contributed certain assets (primarily fixed assets and investments in
joint ventures) and the debt related to those assets in exchange for ownership
interests in the Company. The Company did not acquire the ownership interests of
the Practices; however, the Company became the sole provider of medical
services. The Practices remain in existence and continue to employ all
physician-owners. Distributions are made by the Company to the Practices, who
then pay all physician-owner salaries. Such distributions have been included as
operating expenses in the consolidated statements of income.
The initial formation of the Company has been accounted for as a purchase
under APB No. 16. Based on the asset sizes of the individual contributed
radiology practices, Copeland was identified as the accounting acquirer, and
accordingly, all balances prior to January 1, 1995, represent the activities of
Copeland on a stand alone basis. The net assets contributed by Arundel, DIAPA,
DeCarlo, and Carroll were recorded at the estimated fair value of the assets
contributed and liabilities assumed. The excess purchase price (goodwill) was
determined based upon the fair value of the ownership interest received relative
to Copeland less the fair value of net assets contributed. Following are the
assets and liabilities, by practice.
<TABLE>
<CAPTION>
ARUNDEL DIAPA DECARLO CARROLL TOTAL
----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Fixed assets.................... $ 2,082,667 $ 931,433 $ 502,922 $ 37,939 $ 3,554,961
Investments in joint venture.... -- -- -- (336,732) (336,732)
Debt............................ (1,705,357) (670,203) (262,405) (20,998) (2,658,963)
Other........................... 19,732 (19,414) 923 875 2,116
----------- --------- --------- --------- -----------
Total................. $ 397,042 $ 241,816 $ 241,440 $(318,916) 561,382
========== ========= ========= =========
-----------
Excess purchase price
(goodwill).................... 6,150,426
-----------
Total estimated fair market
value contributed............. $ 6,711,808
==========
</TABLE>
In addition, as part of the initial formation of the Company, all of the
assets and liabilities of Copeland, other than fixed assets, debt, and certain
miscellaneous assets, were maintained by Copeland and were not contributed to
the Company. Net assets in the amount of $6,471,600 (consisting primarily of
accounts receivable) were not contributed to the Company by Copeland. This
amount, less the $6,711,808 described above, has been reflected as a
contribution of $240,208 in the accompanying consolidated statements of owners'
equity.
Each of the Practices received Class B membership interests in the Company.
Such Class B interests represent in excess of 99% of the Company's ownership.
The Class A members are approximately 50
F-17
<PAGE> 291
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
physicians, each owning an .01% interest. The Class B members appoint the
Management Committee, which has the authority to manage regular operations of
the Company.
In April 1996, Harbor Radiologists, P.A. ("Harbor") was admitted as a
14.30% Class B member of the Company. Its shareholders were also admitted as
Class A members. The estimated fair market values of assets and liabilities
contributed by Harbor in exchange for an interest in the Company are as follows:
<TABLE>
<S> <C>
Fixed Assets............................................. $1,921,376
Debt..................................................... (943,461)
Other.................................................... 23,365
----------
Estimated fair market value.............................. $1,001,280
=========
</TABLE>
The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payors for medical services
provided by physicians. Such amounts are reduced by an allowance for contractual
adjustments and other uncollectible amounts.
Property and Equipment
Property and equipment is recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.
Investments in Affiliated Entities
Investments in joint venture partnerships are accounted for using the
equity method. In addition, the Company holds two investments in entities
accounted for under the cost method.
Other Assets
Other assets include loan origination costs, organization costs, deposits
and other assets. Loan origination costs are being amortized on a straight-line
basis over a four-year period. Organizations costs are being amortized on a
straight-line basis over a five-year period. Goodwill is being amortized over a
twenty-five year life.
Medical Service Revenues
Medical service revenue are accounted for in the period in which the
services are provided. The revenue are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for
F-18
<PAGE> 292
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated third party payor adjustments are estimated and recorded in the period
the related services are provided. Any adjustment to the amounts is recorded in
the period in which the revised amount is determined. A significant portion of
the Company's medical service revenue are related to Medicare and other
governmental programs. Medicare and other governmental programs reimburse
physicians based on fee schedules which are determined by the related
governmental agency. Additionally, the Company participates in agreements with
managed care organizations to provide services at negotiated rates.
All physician owners are employed by the Practices. Distributions are made
by the Company to the Practices, who then pay all physician owner salaries. Such
distributions have been included as an operating expense in the consolidated
statements of income.
Costs of Affiliated Physician Services
Costs of Affiliated Physician Services include all compensation to
non-owner physicians, as well as certain benefits, educational and travel costs
paid to non-owner physicians and physician owners.
Income Taxes
There is no provision for income taxes in the accompanying consolidated
financial statements. The members include their respective share of Company
profits and losses in their individual and corporate tax returns. In 1994,
Copeland was an S corporation, and accordingly all profits and losses were
reported by the individual physicians in their individual corporate returns.
Concentration of Credit Risk
The Company extends credit to patients covered by programs such as Medicare
and Medicaid and private insurers. The Company manages credit risk with the
various public and private insurance providers, as appropriate. Allowances for
bad debts have been made for potential losses when appropriate.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Presentation -- Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from January 1, 1996, to June 30, 1996, and from January
1, 1997, to June 30, 1997, have been included herein. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.
F-19
<PAGE> 293
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS IN AFFILIATED ENTITIES:
In 1995, investments in affiliated entities consist of 50% interests in two
partnerships (Franklin Imaging Joint Venture ("Franklin") and Advanced Imaging
of Carroll County Limited Partnership (AICC)), which perform radiology and
imaging healthcare services, and 50% of the common stock of a corporation
(Advanced Medical Imaging, Inc. (AMI)) which enters into and administers managed
care contracts for radiology services.
In January 1996, the Company became a 50% member in Poole Road Imaging, LLC
("Poole"), which was organized to perform radiology and imaging healthcare
services in the Carroll County General Hospital service area. The Company's
initial capital contribution consisted primarily of the fixed assets at its
Poole Road office, which had a net book value of approximately $712,000 at
December 31, 1995. The Poole Road office is now operated by Poole. In August,
1996, the Company became a 50% member in Health Systems Imaging, LLC, which owns
and operates diagnostic imaging centers. These investment balances at December
31 are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Franklin...................................................... $ 856,535 $539,843
AICC.......................................................... (330,555) (71,075)
AMI........................................................... (33,635) 17,424
Health Systems Imaging, LLC................................... -- 107,598
Poole......................................................... -- 64,796
Other......................................................... 5,000 85,000
--------- --------
$ 497,345 $743,586
========= ========
</TABLE>
Summary information from the unaudited financial statements of Franklin as
of and for the year ended December 31, 1996, is as follows:
<TABLE>
<S> <C>
Current assets........................................................... $2,981,926
Total assets............................................................. 3,123,695
Current liabilities...................................................... 1,275,441
Total liabilities........................................................ 1,662,751
Partners' equity......................................................... 1,460,944
Revenue.................................................................. $5,202,128
Net income............................................................... $1,567,258
</TABLE>
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(YEARS) 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Medical equipment.......................... 5-10 $ 19,312,384 $ 24,716,479
Leasehold improvements..................... 3-19 5,267,811 5,900,495
Furniture and fixtures..................... 5-7 4,156,432 5,078,959
------------ ------------
28,736,627 35,695,933
Accumulated depreciation and
amortization............................. (15,865,108) (21,745,911)
------------ ------------
Property and equipment, net.............. $ 12,871,519 $ 13,950,022
=========== ===========
</TABLE>
F-20
<PAGE> 294
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT:
Long-term debt as of December 31 is as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Mercantile Safe Deposit and Trust -- prime plus 1/4% (8.5%
at December 31, 1996), due December 31, 1998............. $ 7,500,000 $ 5,142,858
Mercantile Safe Deposit and Trust -- prime (8.25% at
December 31, 1996), due June 30, 2001.................... -- 2,706,667
Mercantile Safe Deposit and Trust -- prime (8.25% at
December 31, 1996), due 2001............................. -- 2,214,882
First National Bank of Maryland notes -- 30 day LIBOR plus
2.25% (8.03% at December 30, 1996), due March 1999....... -- 643,280
----------- -----------
Total long-term debt....................................... 7,500,000 10,707,687
Less current maturities.................................... (2,357,143) (3,999,473)
----------- -----------
Total long term debt, net of current portion............... $ 5,142,857 $ 6,708,214
========== ==========
</TABLE>
The Company has a $5,000,000 revolving line of credit for working capital
purposes with Mercantile Safe Deposit and Trust Company ("Mercantile"). At
December 31, 1996, the Company had $4,000,000 outstanding under the line. In
addition, the Company has a $15,000,000 revolving credit facility with
Mercantile for equipment purchases. Advances under the credit facilities bear
interest at bank's prime rate, payable monthly. The interest rate at December
31, 1996, was 8.25%. The maturity date is July 3, 1997 or on such later date as
the bank may elect; however, on an annual basis, the bank may approve a one-year
extension. Advances under the credit facility, when combined with any
outstanding balances on two of the term loan note payables described above, are
limited to $20,000,000 in total. At December 31, 1996, the maximum amount of
funds available under the credit facility approximated $8,200,000. Advances are
collateralized by a first lien on all assets of the Company and the guarantees
of the five Class B members.
In connection with the term and revolving credit facility to Mercantile,
the Company is required to maintain a liabilities to net worth ratio not
exceeding 1 to 1, and a minimum cash flow coverage ratio of at least 1.25 to 1.
In addition, the agreement provides that at no time shall total debt to
Mercantile exceed 80% of the fair market value of the Company's fixed assets,
plus the Company's and guarantors' eligible accounts receivable (as defined).
Future maturities of long-term debt at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997.................................................... $ 3,999,473
1998.................................................... 3,824,027
1999.................................................... 1,031,566
2000.................................................... 1,022,976
2001.................................................... 829,645
-----------
$10,707,687
==========
</TABLE>
F-21
<PAGE> 295
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LEASES:
The Company leases office facilities and certain equipment under various
noncancelable operating leases that expire at various dates through 2004.
Certain of the office leases provide for renewal options. Future minimum lease
payments under noncancelable operating leases at December 31, 1996, are as
follows:
<TABLE>
<S> <C>
1997..................................................... $1,608,947
1998..................................................... 1,319,045
1999..................................................... 952,888
2000..................................................... 552,661
2001..................................................... 498,810
----------
Total.......................................... $4,932,351
=========
</TABLE>
Total rent expense was approximately $862,000 in 1994, $2,069,000 in 1995,
and $2,156,000 in 1996.
The Company has also entered into a three-year agreement, expiring in April
1998, whereby it pays a quarterly fee for selection, procurement, repair and
maintenance of its radiology and imaging equipment. Total fees paid under this
arrangement approximate $950,000 per year, and are subject to adjustment to
reflect changes in the equipment and clinical needs of the Company.
7. EMPLOYEE BENEFIT PLAN:
The Company sponsors a 401(k) plan for employees of the Company and its
five corporate members who have completed one year of service and are at least
age 21. The plan does not provide for employer matching contributions, but does
allow discretionary employer contributions. The Company's contribution in 1995
was $1,911,000, which was remitted in February 1996. Included in this amount is
$1,455,000 relating to Class A members, which is included in distributions to
owners in the accompanying statement of owners' equity. The Company's
contribution for 1996 was $2,136,000, which was remitted in March 1997. Included
in this amount is $1,605,000 relating to Class A members, which is included in
distributions.
8. RELATED-PARTY TRANSACTIONS:
As indicated in Note 3, the Company has 50% partnership interests in
Franklin, AICC, and Poole. A Class B member of the Company has a 50% partnership
interest in Greater Baltimore Diagnostic Imaging Partnership (GBDIP). Under
agreements with these partnerships (Franklin, AICC, GBDIP, and Poole), the
Company performs professional, billing, and management services. These services
are billed to the partnerships based primarily upon agreed-upon percentages of
the partnerships' cash basis revenue. Management and professional fees earned
from these partnerships are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Franklin............................... $2,016,579 $1,678,000 $1,851,000
AICC................................... -- 162,000 204,000
GBDIP.................................. -- 149,000 474,000
Poole.................................. -- -- 364,000
---------- ---------- ----------
$2,016,579 $1,989,000 $2,893,000
========= ========= =========
</TABLE>
F-22
<PAGE> 296
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also collects the receivables of the partnerships and
periodically remits the collections to them. In addition, the Company pays
certain expenses on behalf of the partnerships and is periodically reimbursed by
them.
Amounts due to/(from) affiliated entities at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Franklin.................................................... $ 980,183 $ 687,226
AICC........................................................ (61,800) 186,303
GBDIP....................................................... 243,913 110,298
Poole....................................................... -- 99,644
Health Systems Imaging, LLC................................. -- 346,944
---------- ----------
$1,162,296 $1,430,415
========= =========
</TABLE>
The Company performs radiology and imaging healthcare services under
managed care contracts entered into and administered by AMI (see Note 3), and
remits a management fee to AMI. Such management fees were not significant in
1995 and 1996. In addition, the Company pays certain expenses on behalf of AMI
and is periodically reimbursed. There are no significant amounts due from or to
AMI at December 31, 1995 and 1996.
The Company leases seven of its office facilities from entities in which
certain of the Company's members have ownership interests. Rent expense relating
to such facilities was approximately $800,000 in 1995 and $796,000 in 1996.
There were no such arrangements during 1994.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. The carrying amounts of accounts receivable, accounts payable and
accrued expenses approximate fair value due to the short maturity of these
instruments. The carrying amount of the Company's long-term debt also
approximates fair value.
10. MEMBERSHIP REDEMPTION OPTION:
Under the terms of the Company's operating agreement, at any time on or
after October 17, 1999, the Company has the option to redeem the membership
interests of all of the Class B members (which are the corporate members of the
Company) at a price equal to the then positive capital account balances of such
members, or, if such balances are zero or negative, for a price of $10.
Twenty-five percent of the redemption price is to be paid no later than six
months after the exercise of the option with the remainder generally being paid
in three annual installments, including interest.
11. CONTINGENCIES:
The Company is a defendant in certain claims arising from alleged acts of
malpractice. Legal counsel for the Company is of the opinion that such claims
are adequately covered by malpractice insurance.
The Company is a defendant in a lawsuit brought by two former employees of
a Class B member alleging employment discrimination. Total damages claimed are
$80 million. The case has been compelled to binding arbitration; however, no
Scheduling Order has been issued, and no substantive discovery has taken place.
In the opinion of management, the ultimate disposition of this case will not
have a material adverse effect on the Company's financial condition or results
of operations.
F-23
<PAGE> 297
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, the Company became self-insured for employee health insurance
benefits. Stop-loss insurance coverage has been purchased which covers all
claims exceeding $35,000 per family with an aggregate maximum limit of 125% of
expected claims, as determined by the insurance company (approximately $684,000
in 1996).
12. SUBSEQUENT EVENTS:
On August 13, 1996, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
leases and other general operating expenses.
Effective January 1, 1997, Drs. Perilla, Sindler & Associates, P.A. (PSA)
contributed certain assets and liabilities to the Company in exchange for an
11.39% ownership interest. This transaction will be accounted for using the
purchase method.
F-24
<PAGE> 298
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
The Ide Group, P.C.:
We have audited the accompanying combined balance sheets of The Ide Group,
P.C. (a New York professional corporation) and Ide Diagnostic Imaging Associates
(a New York general partnership) as of June 30, 1997, 1996 and 1995, and the
related combined statements of income, changes in stockholders' equity and
partners' capital, and cash flows for the three years then ended. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Ide Group, P.C.
and Ide Diagnostic Imaging Associates as of June 30, 1997, 1996, and 1995, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
DEJOY, KNAUF & BLOOD LLP
Rochester, New York,
August 5, 1997
F-25
<PAGE> 299
THE IDE GROUP, P.C.
IDE DIAGNOSTIC IMAGING ASSOCIATES
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 238,071 $ 199,048 $ 268,854
Accounts receivable, net of allowance
for doubtful accounts and
contractual adjustments of
$1,185,000, $1,857,000 and
$2,425,000 at June 30, 1997, 1996
and 1995, respectively.............. 5,261,378 4,770,648 4,235,067
Supplies on hand...................... 81,988 116,938 99,177
Prepaids and deposits................. 43,649 23,085 65,247
----------- ----------- -----------
Total current assets............ 5,625,086 5,109,719 4,668,345
----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Radiology equipment................... 4,625,916 5,147,974 5,000,123
Furniture and fixtures................ 1,385,415 1,560,388 1,534,760
Leasehold improvements................ 409,119 409,862 555,785
----------- ----------- -----------
6,420,450 7,118,224 7,090,668
Less -- Accumulated depreciation...... (5,423,810) (5,787,413) (5,104,880)
----------- ----------- -----------
996,640 1,330,811 1,985,788
----------- ----------- -----------
OTHER ASSETS:
Cash surrender value of life insurance
policies............................ 348,649 337,326 314,591
Refundable bonds...................... 10,000 43,950 50,950
Other assets.......................... 38,541 38,541 10,274
----------- ----------- -----------
397,190 419,817 375,815
----------- ----------- -----------
TOTAL ASSETS............................ $7,018,916 $ 6,860,347 $ 7,029,948
=========== ========== ==========
LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Line of credit........................ $ -- $ -- $ 200,000
Accounts payable...................... 1,633,103 755,391 759,743
Current portion of long-term debt..... 436,440 380,000 841,463
Accrued liabilities................... 388,877 355,346 77,628
Accrued profit sharing................ 198,820 -- 240,678
Accrued vacation...................... 362,864 342,579 320,027
----------- ----------- -----------
Total current liabilities....... 3,020,104 1,833,316 2,439,539
----------- ----------- -----------
LONG-TERM LIABILITIES:
Long-term debt........................ 1,250,227 1,361,667 1,145,650
Life insurance loans payable.......... 171,379 171,379 167,613
Deferred income taxes................. 1,041,833 1,185,742 811,965
----------- ----------- -----------
2,463,439 2,718,788 2,125,228
----------- ----------- -----------
STOCKHOLDERS' EQUITY AND PARTNERS'
CAPITAL:
Common stock ($1 par, 20,000 shares
authorized, 2,400 shares issued and
outstanding)........................ 2,400 2,400 2,300
Additional paid-in capital............ 3,268 3,268 3,268
Retained earnings..................... 1,529,955 2,034,754 1,594,827
Partners' capital..................... -- 268,071 865,036
Less -- Treasury stock................ (250) (250) (250)
----------- ----------- -----------
Total stockholders' equity and
partners' capital............. 1,535,373 2,308,243 2,465,181
----------- ----------- -----------
TOTAL LIABILITIES, STOCKHOLDERS'
EQUITY AND PARTNERS'
CAPITAL....................... $7,018,916 $ 6,860,347 $ 7,029,948
=========== ========== ==========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these balance sheets.
F-26
<PAGE> 300
THE IDE GROUP, P.C.
IDE DIAGNOSTIC IMAGING ASSOCIATES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Medical service revenue, net......................... $26,892,138 $25,996,948 $25,521,062
Other revenue........................................ 11,323 22,736 12,692
----------- ----------- -----------
26,903,461 26,019,684 25,533,754
----------- ----------- -----------
COSTS AND EXPENSES:
Costs of affiliated physician services............... 15,279,935 11,483,239 10,935,981
Practice salaries wages and benefits................. 3,203,763 3,080,586 3,141,263
Practice supplies.................................... 1,289,106 1,558,493 1,597,236
Practice rent and lease expense...................... 3,982,938 3,598,904 3,532,920
Depreciation and amortization........................ 532,053 835,326 838,919
Other practice expenses.............................. 3,150,236 3,356,050 3,241,889
Interest expense..................................... 111,569 202,195 225,447
----------- ----------- -----------
Total costs and expenses..................... 27,549,600 24,114,793 23,513,655
----------- ----------- -----------
INCOME (LOSS) BEFORE (PROVISION FOR) BENEFIT FROM
DEFERRED INCOME TAXES................................ (646,139) 1,904,891 2,020,099
(PROVISION FOR) BENEFIT FROM DEFERRED INCOME TAXES..... 141,340 (374,977) 182,454
----------- ----------- -----------
NET INCOME (LOSS)...................................... $ (504,799) $ 1,529,914 $ 2,202,553
========== ========== ==========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-27
<PAGE> 301
THE IDE GROUP, P.C.
IDE DIAGNOSTIC IMAGING ASSOCIATES
COMBINED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED PARTNERS' TREASURY
SHARES AMOUNT CAPITAL EARNINGS CAPITAL STOCK TOTAL
------ ------ ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1994..... 2,000 2,000 3,268 1,665,141 1,509,174 (100) 3,179,483
Net income (loss).......... -- -- -- (70,314) 2,272,867 -- 2,202,553
Sale of stock.............. 300 300 -- -- -- -- 300
Purchase of stock.......... -- -- -- -- -- (150) (150)
Capital distributions...... -- -- -- -- (2,917,005) -- (2,917,005)
------ ------ ---------- ---------- ---------- -------- ----------
BALANCE, June 30, 1995..... 2,300 2,300 3,268 1,594,827 865,036 (250) 2,465,181
Net income................. -- -- -- 439,927 1,089,987 -- 1,529,914
Sale of stock.............. 100 100 -- -- -- -- 100
Capital contributions...... -- -- -- -- 68,661 -- 68,661
Capital distributions...... -- -- -- -- (1,755,613) -- (1,755,613)
------ ------ ---------- ---------- ---------- -------- ----------
BALANCE, June 30, 1996..... 2,400 2,400 3,268 2,034,754 268,071 (250) 2,308,243
Net loss................... -- -- -- (504,799) -- -- (504,799)
Capital distributions...... -- -- -- -- (268,071) -- (268,071)
------ ------ ---------- ---------- ---------- -------- ----------
BALANCE, June 30, 1997..... 2,400 $2,400 $3,268 $1,529,955 $ -- $ (250) $1,535,373
===== ====== ======= ========= ========= ====== =========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-28
<PAGE> 302
THE IDE GROUP, P.C.
IDE DIAGNOSTIC IMAGING ASSOCIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $ (504,799) $ 1,529,914 $ 2,202,553
---------- ----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization.................................... 532,053 835,326 838,919
Deferred taxes................................................... (143,909) 373,777 (191,327)
(Increase) decrease in accounts receivable....................... (490,730) (535,581) 377,070
Decrease (increase) in prepaids and deposits..................... (20,564) 42,162 172,264
(Increase) decrease in supplies on hand.......................... 34,950 (17,761) 16,233
(Increase) decrease in other assets.............................. -- (28,267) 4,514
Increase (decrease) in accounts payable.......................... 877,712 (4,352) 74,873
Increase (decrease) in accrued profit sharing.................... 198,820 (240,678) 240,678
Increase (decrease) in accrued liabilities....................... 53,816 300,270 12,428
---------- ----------- -----------
Total adjustments........................................... 1,042,148 724,896 1,545,652
---------- ----------- -----------
Net cash provided by operating activities................... 537,349 2,254,810 3,748,205
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................................. (197,882) (180,349) (1,281,275)
(Increase) decrease in purchase deposits............................ -- -- 459,168
Decrease in refundable bonds........................................ 33,950 7,000 2,100
Capital contributions and net stock purchases....................... -- 68,761 150
Capital distributions............................................... (268,071) (1,755,613) (2,917,005)
Increase in cash surrender value of life insurance policies......... (11,323) (22,735) (12,692)
---------- ----------- -----------
Net cash used by investing activities....................... (443,326) (1,882,936) (3,749,554)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on line of credit.................................... -- (200,000) (400,000)
Principal payments on long-term debt................................ (380,000) (633,585) (910,767)
Net proceeds from issuance of long-term debt........................ 325,000 391,905 455,000
---------- ----------- -----------
Net cash provided (used) by financing activities................. (55,000) (441,680) (855,767)
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 39,023 (69,806) (857,116)
CASH AND CASH EQUIVALENTS, beginning of year.......................... 199,048 268,854 1,125,970
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year................................ $ 238,071 $ 199,048 $ 268,854
========= ========== ==========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-29
<PAGE> 303
THE IDE GROUP, P.C.
IDE DIAGNOSTIC IMAGING ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Presentation and Principles of Combination
The accompanying combined financial statements present the combined
financial position, results of operations, and cash flows of The Ide Group, P.C.
("Ide"), a New York professional corporation, and Ide Diagnostic Imaging
Associates ("IDIA"), a New York general partnership. Ide was formed to practice
medicine specializing in radiology and radiation oncology in the Rochester, New
York region. IDIA provided magnetic resonance imaging services in the Rochester,
New York region. Effective January 1, 1996, substantially all of the operations
of IDIA were assumed by Ide.
Ide and IDIA are affiliated through common ownership. All material
intercompany balances and transactions are eliminated in combination.
Basis of Accounting
The accompanying financial statements are prepared using the accrual basis
of accounting.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and reported amounts of revenue and expenses
during the reporting periods. Actual results could differ from these estimates.
Revenue Recognition
Revenue is recognized when the related service is performed. Revenue is
recorded net of allowances for contractual adjustments and estimated
uncollectible accounts.
Supplies on Hand
Supplies on hand are stated at the lower of cost, determined on the
first-in, first-out basis, or market.
Property and Equipment
Depreciation and amortization of property and equipment are computed using
methods and lives prescribed under the Internal Revenue Code, which are as
follows:
<TABLE>
<S> <C>
Radiology equipment.............................................. 5 years
Furniture and fixtures........................................... 5-7 years
Leasehold improvements........................................... 4-39 years
</TABLE>
F-30
<PAGE> 304
THE IDE GROUP, P.C.
IDE DIAGNOSTIC IMAGING ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. LONG-TERM DEBT:
Long-term debt consisted of the following at June 30:
<TABLE>
<CAPTION>
TERMS 1997 1996 1995
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
M&T Bank-
Term loan agreement....................... (a) $1,361,667 $1,741,667 $ --
Term loan agreement....................... (b) 325,000 -- --
Chase Manhattan Bank-Term loan agreement.... (c) -- -- 1,987,113
---------- ---------- ----------
1,686,667 1,741,667 1,987,113
Less- Current portion..................... (436,440) (380,000) (841,463)
---------- ---------- ----------
Long-term portion......................... $1,250,227 $1,361,667 $1,145,650
========== ========== ==========
</TABLE>
- ---------------
(a) During fiscal 1996, Ide refinanced its term loan agreement with M&T Bank
("The Bank"). The term loan agreement requires 60 equal monthly principal
payments of $31,667 through January 2001 plus interest. Interest on the term
loan is fixed at 7.74%. The term loan is secured by substantially all of
Ide's assets. Ide has received a commitment from the Bank to allow
borrowings up to a maximum of $3,000,000.
(b) The term loan agreement requires 60 equal monthly installments of $6,674
including interest through June 2002. Interest on the term loan is fixed at
8.54%. The term loan is secured by substantially all of Ide's assets.
(c) Ide refinanced this term loan agreement in fiscal 1996.
As part of the financial covenants contained in Ide's agreements with M&T
Bank, Ide must generate no less than zero taxable income as reflected in
Ide's federal tax return and tangible net worth is not to decline by more
than 20% during any fiscal year. At June 30, 1997, Ide was in default of
both of these covenants. Waivers of these defaults have been obtained from
the bank.
The aggregate annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
1998............................................................. $ 436,440
1999............................................................. 439,446
2000............................................................. 444,726
2001............................................................. 292,142
2002............................................................. 73,913
----------
$1,686,667
==========
</TABLE>
3. LINES OF CREDIT:
Ide has a line of credit facility with M&T Bank under which Ide may borrow
up to $1,300,000 at the prime rate (8.5% at June 30, 1997). There were no
borrowings outstanding under this line at June 30, 1997 and 1996. The line of
credit agreement requires that there be no outstanding borrowings under the line
for at least thirty consecutive days each year.
F-31
<PAGE> 305
THE IDE GROUP, P.C.
IDE DIAGNOSTIC IMAGING ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Ide previously had an agreement with Chase Manhattan Bank, N.A. which
permitted Ide to borrow up to $600,000 through February 28, 1996. Borrowings
under the agreement were $200,000 at June 30, 1995. The note was repaid in full
and terminated in February 1996.
4. LIFE INSURANCE LOANS PAYABLE:
Ide's life insurance loans payable are secured by the cash surrender value
of the related policies. These policies bear interest at rates which range from
a fixed rate of five percent to rates which float with the prime rate. It is
Ide's intention to not repay these loans during the next year. Therefore, the
loans are reflected as a long-term liability in the accompanying balance sheets.
5. INCOME TAXES:
Ide follows the provisions of Statement of Financial Accounting Standards
Number 109, "Accounting for Income Taxes."
Deferred taxes are recognized for temporary differences between the basis
of assets and liabilities for financial statement and income tax purposes. The
differences result from the use of the cash basis of accounting for income tax
purposes and the use of the accrual basis of accounting for financial statement
purposes, and consist primarily of accounts receivable, accounts payable,
accrued liabilities and net operating loss carryforwards. It is Ide's intention
in future years to pay compensation to employees in amounts sufficient to reduce
taxable income to zero each year.
For federal tax return purposes, Ide has approximately $500,000 of net
operating loss carryforwards as of June 30, 1997, which expire in the years 2006
through 2012.
The results of the Partnerships' operations are reported in the individual
federal and state income tax returns of the partners. The Partnership files
informational returns and, therefore, no provision for income taxes is recorded.
6. REFUNDABLE BONDS:
Refundable bonds consist of deposits required for each Ide physician by
Ide's medical malpractice mutual insurance carrier. The bonds are refundable
from the free and divisible surplus of the insurance company upon cessation of
medical practice of the Ide physician. The bonds earn interest at the rate of
6%.
7. EMPLOYEE BENEFIT PLANS:
Ide maintains a discretionary qualified defined contribution 401(k) and
profit sharing plan ("the Plan"), covering substantially all employees of Ide
and IDIA who have attained the age of 21 and who have met certain minimum
eligibility requirements. The plan is subject to provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The plan also
provides that participants will be able to contribute up to 15% of their
compensation not to exceed $9,500. Ide contributes an amount equal to 25% of an
employee elective deferrals up to 4% of each employee's compensation.
In addition, Ide maintains a qualified discretionary supplemental profit
sharing plan which is subject to provisions of ERISA. The profit sharing expense
under these plans was $490,769, $539,737 and $518,107 for the years ended June
30, 1997, 1996 and 1995, respectively.
F-32
<PAGE> 306
THE IDE GROUP, P.C.
IDE DIAGNOSTIC IMAGING ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
Deferred Compensation Agreements
Each Ide shareholder physician's employment contract contains a deferred
compensation agreement. Under the terms of these agreements, these individuals
will receive payments at retirement or death for past services performed. At
June 30, 1997, 1996 and 1995 the vested amount of deferred compensation balances
total approximately $8,966,681, $9,015,593, and $7,329,000, respectively. These
balances will be paid out over time at indeterminable future dates and in
indeterminable future amounts. As such, the amount of liability that would be
recorded in the balance sheet is not reasonably estimable.
Leases
Ide occupies certain offices under lease agreements expiring at various
dates through December, 2000. The minimum rental commitment under all leases in
effect at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- --------
<S> <C> <C>
1998................................................................ $505,021
1999................................................................ 230,818
2000................................................................ 155,514
2001................................................................ 64,797
--------
$956,150
========
</TABLE>
The Partnership leases office space under leases expiring through 1998. The
Partnership is fully reimbursed for its office space rental expense under the
terms of its agreement with MICA (see Note 12).
9. RELATED PARTIES:
On January 1, 1996, Ide purchased the property and equipment of a related
entity, IDIA.
Ide has an agreement with an affiliated company whereby the affiliate
performs billing and collection functions for services rendered by Ide. Ide pays
the affiliate a fee based on the amount of billings collected. Payments to this
affiliate were $1,348,805, $1,547,143, and $1,324,882 in fiscal 1997, 1996 and
1995, respectively.
10. CREDIT RISK CONCENTRATIONS:
Ide and IDIA maintain bank account balances which, at times, exceeded the
federally insured limit during the years ended June 30, 1997, 1996 and 1995. The
Companies have not experienced losses related to these deposits and management
does not believe that the Companies are exposed to any significant credit risk
with respect to these accounts.
At June 30, 1997, Ide has approximately $1,465,416 of accounts receivable
due from Health Maintenance Organizations ("HMOs") which is subject to
retrospective adjustment. This amount represents withholdings by the HMOs to be
used against any operating losses incurred by the HMO. In fiscal 1996, Ide
received 80% of funds withheld under its contract with one HMO relating to
calendar 1995. Other than fiscal 1996, Ide has historically collected the full
amount of withheld funds each year.
Substantially all of the Companies' revenue is derived from services
performed in the greater Rochester, New York metropolitan area.
F-33
<PAGE> 307
THE IDE GROUP, P.C.
IDE DIAGNOSTIC IMAGING ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Substantially all of the Companies' revenue is derived from providing
medical services to patients covered under contracts with Blue Cross/Blue Shield
of Greater Rochester or affiliates, Blue Choice, Preferred Care, Medicare, or
Medicaid. Changes in the reimbursement rates Ide receives under these contracts
could have a material effect on Ide's financial position and operations.
Subsequent to June 30, 1996, Ide's management became aware of the intention
of the Rochester Community Individual Practice Association and the Rochester
Individual Practice Association, with whom Ide is a participating provider, to
adopt Resource-Based Relative Value Scale ("RBRVS") fee schedule methodologies.
These fee schedules will be implemented effective October 1, 1997. These
Individual Practice Associations ("IPA's") contract with Blue Choice and
Preferred Care, respectively. Approximately 60% of Ide's revenue is derived from
services provided to patients of Blue Choice and Preferred Care. The IPA's have
proposed community-wide budgets for imaging services based upon 1996
community-wide reimbursement levels. These budgets may reflect reductions in
community-wide imaging reimbursement of 12% in 1998 and 26% in 1999 and
thereafter.
11. SUPPLEMENTARY CASH FLOW DISCLOSURES:
Ide considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.
Cash payments for income taxes and interest are as follows for the years
ended June 30:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income taxes....................................... $ 2,569 $ 1,200 $ 8,873
-------- -------- --------
Interest........................................... $126,763 $202,798 $224,452
======== ======== ========
</TABLE>
12. EXCLUSIVE SUPPLY AGREEMENT:
On January 1, 1996, Ide assumed the obligations of an agreement between
IDIA and MICA Imaging and Medical Imaging Centers of America, Inc. ("MICA") in
which IDIA agreed to sell to MICA its magnetic resonance imaging ("MRI")
equipment and not to compete with MICA for the provision of MRI services in the
City of Rochester ("City") and within a twenty-five mile radius of the City.
This covenant not to compete also applies to all shareholders of Ide for the
duration of their participation as shareholders and for two years thereafter.
In accordance with the agreement, Ide has the right of first refusal for
the thirty year term of the agreement to provide professional radiology services
at facilities located in specified states in the Northeast except under certain
circumstances as outlined in the agreement.
MICA has the right of first refusal to provide MRI equipment, cryogens
and/or maintenance at any location in specific states in the Northeast where Ide
obtains the right to provide MRI equipment, cryogens and/or maintenance or where
Ide owns, leases or subleases office space for the purposes of providing MRI
services.
Ide also has assumed equipment leases with MICA covering equipment sold by
IDIA to MICA and other MRI equipment operated in private offices located on the
campuses of certain Rochester area hospitals. These lease terms range from five
to thirty years. The rental payments are based upon the aggregate number of MRI
scans performed by Ide using the leased MRI equipment.
If certain events occur under this agreement, Ide may be required to
purchase all fixed and mobile MRI equipment owned by MICA and leased to Ide as
well as to assume leases for fixed MRI equipment leased by
F-34
<PAGE> 308
THE IDE GROUP, P.C.
IDE DIAGNOSTIC IMAGING ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
MICA and subleased to Ide by MICA. Ide also may be required to pay MICA a
pro-rata portion of the amount for the exclusive supply contract.
13. ACQUISITION AGREEMENT:
During fiscal 1997, the Company entered into an acquisition agreement with
American Physician Partners, Inc. ("APPI") under which APPI will acquire all of
the non-medical assets of Ide through a merger transaction.
The non-medical assets consist of cash, imaging equipment, accounts
receivable, supplies on hand and other assets. These non-medical assets will be
separated from the medical assets through a reorganization of Ide to be
completed before the transaction with APPI. This reorganization will result in
the creation of a new entity ("New Ide") to provide regulated medical services.
APPI will assume certain liabilities of Ide pursuant to the agreement.
Completion of the transaction is subject to certain conditions, including
the execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to New Ide for a negotiated service fee. All
non-professional employees shall become employees of APPI. In addition, APPI
will assume responsibility for all maintenance, repairs, improvements, lease and
other general operating expenses.
The President of the Company is also a Shareholder of APPI.
F-35
<PAGE> 309
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
M&S X-Ray Practices:
We have audited the accompanying combined balance sheets of M&S X-Ray
Practices (see Note 1) as of December 31, 1996 and 1995, and the related
combined statements of income, owners' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of M&S X-Ray Practices as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 5, 1997
F-36
<PAGE> 310
M&S X-RAY PRACTICES
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 435,968 $ 425,619 $ 759,813
Accounts receivable, net of allowances of $5,650,732,
$4,887,279 and $5,282,236 at December 31, 1995 and
1996 and June 30, 1997, respectively.............. 3,138,151 3,182,876 3,701,703
Other receivables.................................... 44,472 33,859 192,255
Prepaid expenses and other current assets............ 99,141 73,896 73,068
---------- ---------- ----------
Total current assets......................... 3,717,732 3,716,250 4,726,839
PROPERTY AND EQUIPMENT, net............................ 1,252,330 746,268 757,540
INVESTMENT IN JOINT VENTURES........................... 1,023,079 1,170,953 1,419,785
OTHER ASSETS, net...................................... 733,529 698,269 723,643
---------- ---------- ----------
Total assets................................. $6,726,670 $6,331,740 $ 7,627,807
========== ========== ==========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 422,362 $ 190,036 $ 257,337
Accrued expenses..................................... 382,943 24,669 --
Accrued salaries and benefits........................ 112,440 144,961 151,632
Current portion of deferred compensation............. 160,718 83,000 83,000
Current portion of long-term debt.................... 908,626 351,645 230,541
Current portion of capital lease obligations......... 11,773 12,783 12,783
---------- ---------- ----------
Total current liabilities.................... 1,998,862 807,094 735,293
DEFERRED COMPENSATION, net of current portion.......... 1,285,458 1,345,817 1,345,817
CAPITAL LEASE OBLIGATIONS, net of current portion...... 50,018 37,235 37,235
LONG-TERM DEBT, net of current portion................. 541,842 212,408 178,221
---------- ---------- ----------
Total liabilities............................ 3,876,180 2,402,554 2,296,566
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES........ 314,858 346,033 506,203
OWNERS' EQUITY......................................... 2,535,632 3,583,153 4,825,038
---------- ---------- ----------
Total liabilities and owners' equity......... $6,726,670 $6,331,740 $ 7,627,807
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-37
<PAGE> 311
M&S X-RAY PRACTICES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenue, net.......... $14,720,403 $14,776,742 $7,458,604 $7,011,550
Other revenue......................... 347,765 421,603 253,084 208,527
----------- ----------- ---------- ----------
Total revenue................. 15,068,168 15,198,345 7,711,688 7,220,077
COSTS AND EXPENSES:
Cost of affiliated physician
services........................... 8,866,396 8,703,013 3,938,889 3,485,918
Practice salaries, wages and
benefits........................... 1,227,517 1,337,633 402,249 998,893
Practice supplies..................... 495,959 583,610 272,042 316,495
Practice rent and lease expense....... 249,568 271,677 118,114 148,683
Depreciation and amortization......... 963,148 670,617 332,729 147,923
Other practice expense................ 1,907,070 1,541,530 1,304,450 615,682
Interest expense...................... 123,958 69,694 40,814 16,210
----------- ----------- ---------- ----------
Total costs and expenses...... 13,833,616 13,177,774 6,409,287 5,729,804
----------- ----------- ---------- ----------
INCOME BEFORE MINORITY INTERESTS AND
EQUITY IN EARNINGS OF INVESTMENTS..... 1,234,552 2,020,571 1,302,401 1,490,273
EQUITY IN EARNINGS OF INVESTMENTS....... 212,751 604,625 273,172 427,350
MINORITY INTERESTS IN INCOME OF
CONSOLIDATED SUBSIDIARIES............. (216,452) (249,365) (122,266) (160,170)
----------- ----------- ---------- ----------
NET INCOME.............................. $ 1,230,851 $ 2,375,831 $1,453,307 $1,757,453
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-38
<PAGE> 312
M&S X-RAY PRACTICES
COMBINED STATEMENTS OF OWNERS' EQUITY
<TABLE>
<S> <C>
BALANCE, December 31, 1994...................................................... $ 2,624,570
Issuance of stock............................................................. 100,000
Purchases of stock............................................................ (56,418)
Distributions to stockholders................................................. (1,363,371)
Net income.................................................................... 1,230,851
----------
BALANCE, December 31, 1995...................................................... 2,535,632
Issuance of stock............................................................. 100,000
Distributions to stockholders................................................. (1,428,310)
Net income.................................................................... 2,375,831
----------
BALANCE, December 31, 1996...................................................... 3,583,153
Issuance of stock (unaudited)................................................. 78,408
Distributions to shareholders (unaudited)..................................... (593,976)
Net income (unaudited)........................................................ 1,757,453
----------
BALANCE, June 30, 1997 (unaudited).............................................. $ 4,825,038
==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-39
<PAGE> 313
M&S X-RAY PRACTICES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- ------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 1,230,851 $ 2,375,831 $1,453,307 $1,757,453
Adjustments to reconcile net income to net
cash provided by operating activities --
Minority interest in income of consolidated
subsidiaries............................. 216,452 249,365 122,266 160,170
Depreciation and amortization.............. 963,148 670,617 332,729 147,923
Investment income from joint ventures...... (212,751) (604,625) (273,172) (427,350)
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net................. (417,068) (44,725) (268,012) (518,827)
Prepaid expenses and other current
assets................................ (33,748) 35,858 (219,557) (211,386)
Increase (decrease) in --
Accounts payable and accrued expenses.... 383,567 (590,600) 37,605 42,632
Accrued salaries and benefits............ (58,284) 15,162 30,683 6,671
---------- ---------- ---------- ----------
Net cash provided by operating
activities.......................... 2,072,167 2,106,883 1,215,849 957,286
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........... (60,437) (99,295) (6,255) (130,751)
Distributions received from joint ventures.... 188,790 426,751 287,271 178,518
---------- ---------- ---------- ----------
Net cash provided by investing
activities.......................... 128,353 327,456 281,016 47,767
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.................. 30,000 96,000 -- 89,000
Repayment of long-term debt................... (974,392) (982,415) (498,022) (244,291)
Principal payments on capital lease
obligation................................. (5,534) (11,773) -- --
Proceeds from sale of stock................... 100,000 100,000 172,423 78,408
Purchases of stock............................ (56,418) -- -- --
Distributions to stockholders and minority
interest holders........................... (1,633,511) (1,646,500) (722,660) (593,976)
---------- ---------- ---------- ----------
Net cash used in financing
activities.......................... (2,539,855) (2,444,688) (1,048,259) (670,859)
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (339,335) (10,349) 448,606 334,194
CASH AND CASH EQUIVALENTS, beginning of year.... 775,303 435,968 435,968 425,619
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
end of year................................... $ 435,968 $ 425,619 $ 884,574 $ 759,813
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES:
Interest paid................................. $ 122,937 $ 68,294 $ 40,814 $ 16,210
</TABLE>
NONCASH FINANCING ACTIVITY:
A capital lease obligation of $67,325 was incurred during 1995 when the Company
entered into a lease for new equipment.
The accompanying notes are an integral part of these combined financial
statements.
F-40
<PAGE> 314
M&S X-RAY PRACTICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying combined financial statements combine the accounts of five
entities under common ownership: M&S X-ray Associates ("M&S"), a Texas
professional association, Madison Square Joint Venture ("Madison"), South Texas
MR, Inc. ("South Texas"), San Antonio MR Inc. ("San Antonio"), and Lexington MR
Ltd. ("Lexington") (collectively the "Company"), all of which are located in San
Antonio, Texas. M&S, a company specializing in radiological medicine, has and an
eight percent investment in Stone Oak Limited Partnership, a real estate limited
partnership. In addition, M&S holds forty-nine percent interest in Southeast
Baptist Imaging Center, a joint venture which owns and operates a diagnostic
imaging center. Madison is also engaged in the practice of radiological
medicine. South Texas holds a forty-nine percent interest in two joint ventures
which own and operate diagnostic imaging centers -- Northeast Baptist MRI Center
and Baptist Imaging Center. San Antonio holds a sixty percent interest in
Lexington, a company which owns and operates diagnostic imaging centers. An
additional nineteen percent of Lexington is owned by individual radiologists
included in the common ownership group. All intercompany transactions have been
eliminated.
The accompanying combined financial statements have been prepared on the
accrual basis of accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payors for medical services
provided by physicians. Such amounts are reduced by an allowance for contractual
adjustments and other uncollectible amounts.
Property and Equipment
Property and equipment are recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.
Investments in Joint Ventures
Investments in joint ventures are accounted for using the equity method. In
addition, the Company holds an investment in a limited partnership which is
accounted for using the cost method.
Other Assets
Other assets are comprised of organization costs, loan origination costs
and goodwill. Loan origination costs are amortized on a straight-line basis over
the term of the loan. Organization costs are amortized on a straight-line basis
over a five-year period. Goodwill is amortized on a straight-line basis over 15
years.
F-41
<PAGE> 315
M&S X-RAY PRACTICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Compensation
Under the terms of the physician employment agreements, physicians who have
completed a minimum of five years of service are entitled to a payment equal to
two-thirds of their final compensation upon retirement or when they cease to be
employees of the Company. These payments are made in sixty equal monthly
payments beginning upon attainment of age 70 or the date when the physician
leaves the Company. The estimated present value of these liabilities is accrued
ratably during the five year service period.
Medical Service Revenues
Medical service revenue are accounted for in the period in which the
services are provided. The revenue are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period the
related services are provided. Any adjustment to the amounts is recorded in the
period in which the revised amount is determined. A significant portion of the
Company's medical service revenue are related to Medicare and other governmental
programs. Medicare and other governmental programs reimburse physicians based on
fee schedules which are determined by the related governmental agency.
Additionally, the Company participates in agreements with managed care
organizations to provide services at negotiated rates.
Costs of Affiliated Physician Services
Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.
Income Taxes
As each of the consolidated entities is a non-taxable entity, there is no
provision for income taxes in the accompanying financial statements. The
individual owners include their respective share of Company profits and losses
in their tax returns.
Concentration of Credit Risk
The Company extends credit to patients covered by programs such as Medicare
and Medicaid and private insurers. The Company manages credit risk with the
various public and private insurance providers, as appropriate. Allowances for
bad debts have been made for potential losses when appropriate.
Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Basis of Presentation -- Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the
F-42
<PAGE> 316
M&S X-RAY PRACTICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Company with respect to the results of its operations for the interim periods
from January 1, 1996, to June 30, 1996, and from January 1, 1997, to June 30,
1997, have been included herein. The results of operations for the interim
periods are not necessarily indicative of the results for the full year.
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, consists of the following:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS) 1995 1996
---------------- ----------- -----------
<S> <C> <C> <C>
Equipment................................. 5 $ 5,587,074 $ 5,670,340
Leasehold improvements.................... 1-15 448,734 448,734
Furniture and fixtures.................... 5 390,014 390,014
Computer software......................... 3-5 111,797 124,081
----------- -----------
6,537,619 6,633,169
Less -- Accumulated depreciation and
amortization............................ (5,285,289) (5,886,901)
----------- -----------
Property and equipment, net..... $ 1,252,330 $ 746,268
========== ==========
</TABLE>
4. INVESTMENTS IN JOINT VENTURES:
Investments in joint ventures consist of 49% interests in three joint
ventures, each of which perform radiology and imaging healthcare services, and
an 8% interest in a real estate limited partnership. The carrying amounts of
these investments at December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Southeast Baptist Imaging Center............................ $ 666,365 $ 735,770
Baptist Imaging Center...................................... 206,061 140,770
Northeast Baptist MRI Center................................ 77,835 229,996
Stone Oak Limited Partnership............................... 72,818 64,417
---------- ----------
$1,023,079 $1,170,953
========= =========
</TABLE>
Summary information from the unaudited financial statements of the three
joint ventures, accounted for under the equity method, as of and for the year
ended December 31, 1996, is as follows:
<TABLE>
<CAPTION>
BAPTIST NORTHEAST
IMAGING BAPTIST
CENTER MRI CENTER
SOUTHEAST -------- ----------
BAPTIST
IMAGING (UNAUDITED) (UNAUDITED)
CENTER
----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets..................................... $1,338,915 $292,712 $ 623,320
Total assets....................................... 3,209,657 324,022 660,898
Current liabilities................................ 915,634 28,785 188,984
Total liabilities.................................. 1,684,905 28,785 188,984
Partners' equity................................... 1,524,752 295,237 471,914
Revenues........................................... $3,173,674 $776,433 $2,054,265
Net income......................................... $ 143,974 $266,003 $ 826,283
Distributions to shareholders...................... $ -- $400,000 $ 515,000
</TABLE>
F-43
<PAGE> 317
M&S X-RAY PRACTICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT:
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Note payable to related party, bearing interest at prime (8.5%
at December 31, 1995), due in 1996. Paid in full............ $ 30,000 $ --
Note payable to bank, bearing interest at 6.4%, due in 1998.
Quarterly payments of $49,000 plus interest, collateralized
by certain equipment........................................ 539,000 343,000
Note payable to bank, bearing interest at 6.25%, due in 1996.
Monthly payments of $2,780, collateralized by certain
equipment. Paid in full..................................... 5,355 --
Note payable to bank, bearing interest at 6.25%, due in 1997.
Monthly payments of $7,779, collateralized by certain
equipment................................................... 111,869 23,117
Note payable to bank, bearing interest at 8.25%, due in 2000.
Monthly payments of $2,361, collateralized by certain
equipment................................................... -- 85,557
Note payable to bank, bearing interest at 6.25%, due in 1997.
Monthly payments of $47,656, collateralized by certain
equipment................................................... 641,591 94,421
Note payable, bearing interest at 6.25%, due in 1997. Monthly
payments of $9,118, collateralized by certain equipment..... 122,653 17,958
---------- ---------
Long-term debt...................................... 1,450,468 564,053
Less-current portion................................ (908,626) (351,645)
---------- ---------
Long-term debt, net of current portion.............. $ 541,842 $ 212,408
========= =========
</TABLE>
Future maturities of long-term debt at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997....................................................... $351,645
1998....................................................... 170,751
1999....................................................... 25,818
2000....................................................... 15,839
--------
$564,053
========
</TABLE>
6. CAPITAL LEASE OBLIGATIONS:
The following represents the Company's outstanding capital lease
obligations at December 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Capital lease for computer software, due in 2000, payable in
monthly installments of $1,369 collateralized by the
equipment....................................................... $61,791 $50,018
======= =======
</TABLE>
F-44
<PAGE> 318
M&S X-RAY PRACTICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1996, the minimum annual lease commitments under capital
lease obligations are as follows:
<TABLE>
<S> <C>
1997............................................................... $ 16,433
1998............................................................... 16,433
1999............................................................... 16,433
2000............................................................... 8,496
--------
Total minimum lease payments due................................... $ 57,795
Less -- Amounts representing interest............................ (7,777)
--------
Present value of minimum lease payments............................ $ 50,018
Less -- Current portion.......................................... (12,783)
--------
Long-term obligations, net of current portion...................... $ 37,235
========
</TABLE>
7. LEASES:
The Company leases office facilities under various noncancelable operating
leases that expire at various dates through 1998. The Company leases office
space from Stone Oak Limited Partners (see Note 4) under a lease that expires in
1997. Certain of the office leases provide for renewal options. Future minimum
lease payments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
RELATED
PARTIES OTHER
------- --------
<S> <C> <C>
1997............................................................. $59,252 $111,345
1998............................................................. -- 24,485
------- --------
Total.................................................. $59,252 $135,830
======= ========
</TABLE>
Total rent expense in 1995 and 1996 was $240,395 and $260,067,
respectively. Included in rent expense was rent paid to related parties in the
amount of $88,878 in both 1995 and 1996.
8. EMPLOYEE BENEFIT PLAN:
The Company sponsors a 401(k) profit sharing plan. Employees of the Company
who are at least age 21 may participate in the 401(k) plan after one year of
service and are eligible for profit sharing after two years of service. The plan
provides for employer matching and profit sharing contributions. The Company's
contributions for 1995 and 1996 were $86,080 and $100,259, respectively.
9. RELATED-PARTY TRANSACTIONS:
Under agreements with affiliated joint ventures (Southeast Baptist Imaging
Center, Baptist Imaging Center, and Northeast Baptist MRI Center), the Company
performs professional, billing, and management services for these joint
ventures. These services are billed to the joint ventures based primarily upon
agreed-upon percentages of the joint ventures' cash basis revenue. Management
fee income from joint ventures is included in other revenue in the accompanying
combined statements of income and consist as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Southeast Baptist Imaging Center................................ $138,658 $183,212
Baptist Imaging Center.......................................... 12,375 12,000
Northeast Baptist MRI Center.................................... 96,750 96,100
-------- --------
$247,783 $291,312
======== ========
</TABLE>
F-45
<PAGE> 319
M&S X-RAY PRACTICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also collects the receivables of the joint ventures, and then
periodically remits the collections to them. In addition, the Company pays
certain expenses on behalf of the joint ventures, and is periodically reimbursed
by them. At December 31, 1996, there were no significant balances due from (to)
the joint ventures.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the carrying amounts of accounts receivable, accounts
payable and accrued expenses approximate fair value due to the short maturity of
these instruments. The carrying amount of the Company's long-term debt and
capital lease obligations also approximates fair value.
11. CONTINGENCIES:
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operations.
12. SUBSEQUENT EVENTS:
On September 24, 1996, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.
F-46
<PAGE> 320
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Pacific Imaging Consultants:
We have audited the accompanying combined balance sheets of Pacific Imaging
Consultants (see Note 1) as of December 31, 1995 and 1996, and the related
combined statements of income, owners' equity (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pacific Imaging Consultants
as of December 31, 1995 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 19, 1997
F-47
<PAGE> 321
PACIFIC IMAGING CONSULTANTS
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- ----------
1995 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ -- $ -- $ --
Accounts receivable, net of allowances of $1,358,461,
$2,107,857 and $2,115,899 at December 31, 1995 and
1996 and June 30, 1997, respectively............... 1,310,879 1,878,911 1,933,826
Prepaid pension expense............................... 197,049 2,100,113 2,100,113
Prepaid expenses and other............................ 62,072 197,251 195,619
---------- ---------- ----------
Total current assets.......................... 1,570,000 4,176,275 4,229,558
PROPERTY AND EQUIPMENT, net............................. 2,851,444 2,260,861 1,862,327
INTANGIBLE ASSETS, net.................................. 145,601 133,251 133,251
OTHER ASSETS, net....................................... 121,641 190,502 107,212
---------- ---------- ----------
Total assets.................................. $4,688,686 $6,760,889 $6,332,348
========= ========= =========
LIABILITIES AND OWNERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable...................................... $ 412,823 $ 898,582 $ 787,863
Accrued salaries and benefits......................... 240,402 287,512 287,512
Accrued liabilities................................... 444,034 490,882 490,155
Deferred income tax liability......................... 165,440 868,958 854,803
Current portion of long-term debt..................... 1,522,779 844,241 844,241
---------- ---------- ----------
Total current liabilities..................... 2,785,478 3,390,175 3,264,574
DEFERRED INCOME TAX LIABILITY........................... 10,871 11,268 11,268
LONG-TERM DEBT, net of current portion.................. 2,742,162 3,133,004 2,801,226
OWNERS' EQUITY (DEFICIT)................................ (849,825) 226,442 255,280
---------- ---------- ----------
Total liabilities and owners' equity
(deficit)................................... $4,688,686 $6,760,889 $6,332,348
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-48
<PAGE> 322
PACIFIC IMAGING CONSULTANTS
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenue, net.......... $11,245,044 $13,119,112 $5,552,390 $6,978,357
Other revenue......................... 203,296 175,408 81,772 73,422
----------- ----------- ---------- ----------
Total revenue................. 11,448,340 13,294,520 5,634,162 7,051,779
COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 5,896,675 7,214,725 2,859,709 4,055,877
Practice salaries, wages and
benefits........................... 1,604,303 1,839,889 842,225 965,805
Practice supplies..................... 485,942 568,235 242,416 258,417
Practice rent and lease expense....... 355,073 384,615 209,742 195,362
Depreciation and amortization......... 996,058 981,289 488,370 474,546
Other practice expenses............... 1,739,436 1,939,384 829,491 985,557
Interest expense...................... 475,007 311,377 197,632 155,534
----------- ----------- ---------- ----------
Total costs and expenses...... 11,552,494 13,239,514 5,669,585 7,091,098
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE TAXES, UNUSUAL ITEM
AND EXTRAORDINARY ITEM................ (104,154) 55,006 (35,423) (39,319)
UNUSUAL ITEM -- gain on curtailment of
defined benefit pension plan.......... -- 1,903,064 1,903,064 --
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES....... (104,154) 1,958,070 1,867,641 (39,319)
INCOME TAX EXPENSE (BENEFIT)............ 104,194 715,493 672,351 (14,155)
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM.................................. (208,348) 1,242,577 1,195,290 (25,164)
EXTRAORDINARY ITEM -- gain on
refinancing of debt................... -- 134,084 -- --
----------- ----------- ---------- ----------
NET INCOME (LOSS)....................... $ (208,348) $ 1,376,661 $1,195,290 $ (25,164)
========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-49
<PAGE> 323
PACIFIC IMAGING CONSULTANTS
COMBINED STATEMENTS OF OWNERS' EQUITY (DEFICIT)
<TABLE>
<S> <C>
BALANCE, December 31, 1994....................................................... $ (612,553)
Sale of stock.................................................................. 36,076
Net loss....................................................................... (208,348)
Distributions.................................................................. (65,000)
----------
BALANCE, December 31, 1995....................................................... (849,825)
Repurchase of stock............................................................ (22,394)
Net income..................................................................... 1,376,661
Distributions.................................................................. (278,000)
----------
BALANCE, December 31, 1996....................................................... 226,442
Net income (unaudited)......................................................... (25,164)
Contributions from Owners (unaudited).......................................... 72,000
Repurchase of Stock (unaudited)................................................ (17,998)
----------
BALANCE, June 30, 1997 (unaudited)............................................... $ 255,280
=========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-50
<PAGE> 324
PACIFIC IMAGING CONSULTANTS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- --------------------------
1995 1996 1996 1997
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ (208,348) $ 1,376,661 $ 1,195,290 $ (25,164)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities --
Depreciation and amortization........ 996,058 981,289 488,370 474,546
Deferred income taxes................ 104,194 703,915 672,351 (14,155)
Gain on refinancing of debt.......... -- 134,084 -- --
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net........ (114,465) (568,032) 276,173 (54,915)
Prepaid pension expense......... 4,666 (1,903,064) (1,903,064) --
Prepaid expenses and other...... 33,991 (135,179) (3,630) 1,632
Other assets, net............... (72,334) (68,861) (336,021) 83,290
Increase (decrease) in --
Accounts payable................ 40,282 485,759 153,049 (110,719)
Accrued salaries and benefits... (4,595) 47,110 (112,901) --
Accrued liabilities............. 360,805 46,848 382,487 (727)
---------- ----------- ----------- -----------
Net cash provided by operating
activities.................... 1,140,254 1,100,530 812,104 353,788
---------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..... (388,595) (378,356) (43,174) (76,012)
---------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............ 198,992 585,868 -- --
Repayment of long-term debt............. (921,727) (1,007,648) (490,930) (331,778)
Contributions from (distributions to)
owners............................... (65,000) (278,000) (278,000) 72,000
Sale (purchases) of stock............... 36,076 (22,394) -- (17,998)
---------- ----------- ----------- -----------
Net cash used in financing
activities.................... (751,659) (722,174) (768,930) (277,776)
---------- ----------- ----------- -----------
NET CHANGE IN CASH........................ -- -- -- --
CASH, beginning of year................... -- -- -- --
---------- ----------- ----------- -----------
CASH, end of year......................... $ -- $ -- $ -- $ --
========= ========== ========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid...................... $ 477,736 $ 283,081 $ 197,632 $ 155,534
Cash paid for income taxes.............. $ -- $ 11,578 $ 9,975 $ 8,593
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-51
<PAGE> 325
PACIFIC IMAGING CONSULTANTS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying financial statements combine the accounts of three
entities under common ownership: Pacific Imaging Consultants, A Medical Group,
Inc. ("Pacific"), a California corporation formerly known as East Bay Medical
Imaging; Total Medical Imaging (TMI), a California S-corporation; and Lafayette
Medical Imaging Health Services (LMI), a California general partnership
(collectively the "Company"), all of which are located in the San Francisco Bay
area. The Company specializes in radiological medicine and the operation of
diagnostic imaging equipment. All intercompany transactions have been
eliminated.
The accompanying financial statements have been prepared on the accrual
basis of accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounts Receivable
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payors for medical services
provided by physicians. Such amounts are reduced by an allowance for contractual
adjustments and other uncollectible amounts.
Property and Equipment
Property and equipment is recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.
Intangible Assets
Intangible assets are comprised of organization costs and noncompete
agreements. Organization costs are being amortized on a straight-line basis over
a five-year period. Noncompete agreements are amortized on a straight-line basis
over the life of the agreements.
Other Assets
Other assets are comprised of equity investments in affiliated entities,
deposits and other receivables. Investments in affiliated entities are being
accounted for under the cost method and equity method as appropriate, based on
percentage of ownership and control of the entity. Such investments are not
material at December 31, 1996.
Medical Service Revenues
Medical service revenue are accounted for in the period in which the
services are provided. The revenue are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period in which
the related services are provided. Any adjustment to the amounts is recorded in
the period in which the revised amount is determined. A significant portion of
the Company's medical service revenue are related to Medicare and other
governmental programs. Medicare and other governmental programs reimburse
physicians based on fee schedules which are determined by the related
governmental agency. Additionally, the Company participates in agreements with
managed care organizations to provide services at negotiated rates.
F-52
<PAGE> 326
PACIFIC IMAGING CONSULTANTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Costs of Affiliated Physician Services
Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.
Income Taxes
Pacific accounts for income taxes under the liability method which states
that deferred income taxes are determined based on the estimated future tax
effects of differences between the financial reporting and income tax basis of
assets and liabilities given the provisions of enacted tax laws. Deferred income
tax provisions are based on the changes to the asset or liability from period to
period. TMI is an S-corporation and LMI is a general partnership, and
accordingly, there is no provision for income taxes related to these entities.
The individual owners include their respective share of profits and losses in
their tax returns.
Concentration of Credit Risk
The Company extends credit to patients covered by programs such as Medicare
and Medicaid and private insurers. The Company manages credit risk with the
various public and private insurance providers, as appropriate. Allowances for
bad debts have been made for potential losses when appropriate.
Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Presentation -- Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from January 1, 1996, to June 30, 1996, and from January
1, 1997, to June 30, 1997, have been included herein. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.
F-53
<PAGE> 327
PACIFIC IMAGING CONSULTANTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, consists of the following:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS) 1995 1996
---------------- ----------- -----------
<S> <C> <C> <C>
Building.................................. 39 $ 122,645 $ 123,817
Automobiles............................... 5 22,818 22,818
Leasehold improvements.................... 5-10 670,479 670,479
Furniture and equipment................... 5-7 5,873,926 6,251,110
----------- -----------
6,689,868 7,068,224
Less -- Accumulated depreciation and
amortization............................ (3,838,424) (4,807,363)
----------- -----------
Property and equipment, net............... $ 2,851,444 $ 2,260,861
========== ==========
</TABLE>
4. LONG-TERM DEBT:
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Notes payable to Third Party, bearing interest at 7.5%, due
in 1999. Monthly payments of $5,009 including interest... $ 196,545 $ 136,648
Note payable to Service Provider, noninterest bearing,
balance due in 1996...................................... 13,405 --
Note payable to Bank, bearing interest at the U.S. Treasury
Securities rate plus 3.25% (9.125% at December 31, 1996),
due in 2003. Monthly payments of $1,052 including
interest................................................. 71,502 65,584
Notes payable to Bank, bearing interest at prime (8.5% at
December 31, 1995), due at various dates through 2001.
Monthly payments of $4,509 plus interest................. 443,615 --
Note payable to Bank, bearing interest at prime plus .25%
(8.75% at December 31, 1995), due in 1999. Monthly
payments of $6,636 including interest.................... 633,157 --
Note payable to Bank, bearing interest at prime plus 1%
(9.5% at December 31, 1995), due in 1998. Monthly
payments of $10,411 plus interest........................ 324,999 --
Notes payable to Finance Company, bearing interest ranging
from 8.97% to 9.72%, due in 1998, secured by accounts
receivable and certain property and equipment. Monthly
payments of $97,299 including interest................... 2,581,718 --
Note payable to Bank, bearing interest at the U.S. Treasury
Securities rate plus 2% (7.92% at December 31, 1996),
secured by accounts receivable and certain property and
equipment, due in 2001. Monthly payments of $92,017
including interest....................................... $ -- $3,775,013
----------- ----------
4,264,941 3,977,245
Less -- Current maturities................................. (1,522,779) (844,241)
----------- ----------
$ 2,742,162 $3,133,004
========== =========
</TABLE>
F-54
<PAGE> 328
PACIFIC IMAGING CONSULTANTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1996, the Company refinanced all outstanding bank debt. The
previous notes had interest rates ranging from the prime rate to a fixed rate of
9.25%. The new note bears interest at the rate of U.S. Treasury securities plus
2%. The refinancing resulted in a gain of $134,084, which has been reflected as
an extraordinary item in the accompanying financial statements.
Future maturities of long-term debt at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 844,241
1998..................................................... 920,658
1999..................................................... 973,590
2000..................................................... 1,021,470
2001..................................................... 217,286
----------
$3,977,245
=========
</TABLE>
5. OPERATING LEASES:
The Company leases seven facilities under various noncancelable operating
leases that expire at various dates through 2000. Future minimum lease payments
under noncancelable leases are as follows:
<TABLE>
<S> <C>
1997...................................................... $231,936
1998...................................................... 222,312
1999...................................................... 184,492
2000...................................................... 133,418
2001...................................................... 150,206
Thereafter................................................ 67,695
--------
$990,059
========
</TABLE>
6. INCOME TAXES:
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current income tax expense..................... $ -- $ 11,578
Deferred income tax expense.................... 104,194 703,915
-------- --------
Total income tax expense....................... $104,194 $715,493
======== ========
</TABLE>
Significant components of the Company's deferred tax liabilities as of
December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current:
Deferred tax assets --
Accounts payable and accrued liabilities.................. $ 131,425 $ 180,275
Deferred tax (liabilities) --
Accounts receivable, net.................................. (296,865) (402,191)
Prepaid pension expense................................... -- (647,042)
--------- ---------
Total net current deferred tax liabilities........... $(165,440) $(868,958)
========= =========
Noncurrent:
Deferred tax (liabilities) --
Depreciation.............................................. $ (10,871) $ (11,268)
========= =========
</TABLE>
F-55
<PAGE> 329
PACIFIC IMAGING CONSULTANTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the provision for income taxes and the amounts
computed by applying the statutory Federal income tax rate to income (loss)
before income taxes are due to the income (losses) of S-Corporations and
partnerships included in these combined financial statements.
7. EMPLOYEE BENEFIT PLAN:
The Company has a defined benefit pension plan covering all physician
employees and shareholders. The benefits are based on the final pay of each
physician, with minimum flat dollar limits. The Company's funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes. Contributions are intended to provide not only for benefits
attributed service to date but also for those expected to be earned in the
future.
Effective May 31, 1996, the Company curtailed the benefits under the plan
through Board of Director resolution to terminate the Plan. Plan benefits were
effectively frozen at this date and physicians will earn no additional defined
benefits for future services. All unrecognized prior service cost and
unrecognized net obligation from the initial application of SFAS 87 have been
reduced to zero as of the effective date of the curtailment, resulting in a gain
from curtailment of approximately $1.9 million. The plan of settlement has not
been determined and subsequent gain or loss may be recorded upon settlement.
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet at December 31,
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefits obligations:
Accumulated benefit obligation, including vested
benefits of $3,556,952 and $4,723,679,
respectively......................................... $(3,594,203) $(4,723,679)
========== ==========
Projected benefit obligation for service rendered to
date................................................. $(4,392,486) $(4,723,679)
Plan assets at fair value, primarily...................... 6,345,352 6,823,792
----------- -----------
Plan assets in excess of projected benefit obligations.... 1,952,866 2,100,113
Unrecognized net obligation at initial adoption of SFAS
No. 87.................................................. (1,755,817) --
----------- -----------
Prepaid pension cost included in other assets............. $ 197,049 $ 2,100,113
========== ==========
</TABLE>
Net periodic pension cost for 1995 and 1996 included the following
components (in thousands)
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Service cost-benefits earned during the period............. $ 828,307 $ --
Interest cost on projected benefit obligation.............. 286,658 331,193
Actual return on plan assets............................... (269,853) (478,440)
Net amortization........................................... (39,035) (1,755,817)
--------- -----------
Net periodic pension cost (benefit)........................ $ 806,077 $(1,903,064)
========= ==========
Weighted average discount rate............................. 7.39% 7.54%
Rate of increase in future compensation.................... 3.00% N/A
Expected long-term rate of return on assets................ 7.39% 7.54%
</TABLE>
In 1996, the Company began sponsoring a 401(k) and profit sharing plan for
employees of the Company and its two corporate members, who have completed one
year of service and are at least age 21. The 401(k) plan provides for employer
matching contributions equal to three percent of gross salary for eligible
employees. The Company made no contributions to the plan in 1996. Physician
shareholders contributed $88,688 on behalf of the employees of the Company.
F-56
<PAGE> 330
PACIFIC IMAGING CONSULTANTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED-PARTY TRANSACTIONS:
The Company has a non-interest bearing note receivable from an employee.
Amounts outstanding at December 31, 1995 and 1996 were $85,000 and $94,836,
respectively. The note has no stated maturity date.
The Company has a note receivable from a physician which bears interest at
8.5% and matures in August, 1995. Amounts outstanding at December 31, 1995 and
1996 were $38,936 and $36,173, respectively.
At December 31, 1995, the Company had a $25,000 note receivable from a
physician. This note was paid in full in 1996.
At December 31, 1996, the Company had a $10,000 note receivable from a
physician which bears interest at 8.25% and matures in 1997. In addition, in
1996, the Company made non-interest bearing advances totaling $70,287 to certain
physicians. These advances are to be repaid in 1997.
The Company has an ownership interest in a real estate partnership. Rent
paid to this partnership was $49,752 in 1995 and 1996.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the carrying amounts of accounts receivable, accounts
payable and accrued expenses approximate fair value due to the short maturity of
these instruments. The carrying amount of the Company's long-term debt also
approximates fair value.
10. CONTINGENCIES:
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operation.
11. SUBSEQUENT EVENTS:
On February 26, 1997, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.
Effective January 1, 1997, the Company and Valley Radiology Group, a group
of radiologists in San Jose, California, formed a management services
organization to manage their operations.
F-57
<PAGE> 331
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Radiology and Nuclear Medicine, P.A.:
We have audited the accompanying balance sheets of Radiology and Nuclear
Medicine, P.A., (a Kansas corporation) as of December 31, 1995 and 1996 and the
related statements of income, owners' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Radiology and Nuclear
Medicine, P.A., as of December 31, 1995 and 1996 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 21, 1997
F-58
<PAGE> 332
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $ 223,067 $ 173,258 $ 887,376
Accounts receivable, net of allowances of $1,664,580,
$1,922,264 and $2,281,491 at December 31, 1995, 1996
and June 30, 1997, respectively....................... 1,596,469 1,756,271 2,021,553
Prepaid expenses and other current assets............. 230,531 220,937 220,937
---------- ---------- ----------
Total current assets............................. 2,050,067 2,150,466 3,129,866
PROPERTY AND EQUIPMENT, net................................ 626,684 572,172 662,005
INVESTMENTS IN JOINT VENTURES.............................. 1,251,110 1,269,545 1,321,507
OTHER ASSETS, net.......................................... 85,361 88,368 88,451
---------- ---------- ----------
Total assets..................................... $4,013,222 $4,080,551 $5,201,829
========== ========== ==========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 65,064 $ 64,561 $ 64,561
Accrued expenses......................................... 35,943 48,322 144,026
Accrued salaries and benefits............................ 399,750 361,571 419,087
Deferred income taxes.................................... 489,332 536,241 1,005,735
Short-term borrowings.................................... 1,400,000 1,400,000 1,000,000
Current portion of long-term debt........................ 174,371 186,611 119,399
---------- ---------- ----------
Total current liabilities........................ 2,564,460 2,597,306 2,752,808
LONG-TERM DEBT, net of current portion..................... 234,528 45,784 --
---------- ---------- ----------
Total liabilities................................ 2,798,988 2,643,090 2,752,808
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY............................................. 1,214,234 1,437,461 2,449,021
---------- ---------- ----------
Total liabilities and owners' equity............. $4,013,222 $4,080,551 $5,201,829
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 333
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenue, net.......... $13,725,958 $13,448,096 $6,601,598 $6,943,616
Other revenue......................... 122,672 124,084 17,957 17,697
----------- ----------- ---------- ----------
Total revenue................. 13,848,630 13,572,180 6,619,555 6,961,313
COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 10,700,150 10,265,121 3,965,406 4,132,057
Practice salaries, wages and
benefits........................... 1,807,179 1,743,761 657,808 682,530
Practice supplies..................... 385,666 293,545 166,273 134,796
Practice rent and lease expense....... 260,347 272,617 130,173 130,173
Depreciation and amortization......... 187,612 202,058 89,358 90,241
Other practice expenses............... 816,860 822,598 405,116 444,782
Interest expense...................... 67,542 70,530 57,805 57,884
----------- ----------- ---------- ----------
Total costs and expenses...... 14,225,356 13,670,230 5,471,939 5,672,463
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
EQUITY IN EARNINGS OF INVESTMENTS..... (376,726) (98,050) 1,147,616 1,288,850
EQUITY IN EARNINGS OF INVESTMENTS....... 311,311 292,442 189,665 192,204
INCOME TAX EXPENSE (BENEFIT)............ (33,212) 57,305 423,918 469,494
----------- ----------- ---------- ----------
NET INCOME (LOSS)....................... $ (32,203) $ 137,087 $ 913,363 $1,011,560
========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE> 334
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<S> <C>
BALANCE, December 31, 1994....................................................... $1,270,173
Net loss....................................................................... (32,203)
Dividends paid................................................................. (23,736)
----------
BALANCE, December 31, 1995....................................................... 1,214,234
Sale of treasury stock......................................................... 104,716
Net income..................................................................... 137,087
Dividends paid................................................................. (18,576)
----------
BALANCE, December 31, 1996....................................................... 1,437,461
Net income (unaudited)......................................................... 1,011,560
----------
BALANCE, June 30, 1997 (unaudited)............................................... $2,449,021
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE> 335
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, SIX MONTHS ENDED JUNE 30,
---------------------- -------------------------
1995 1996 1996 1997
--------- --------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ (32,203) $ 137,087 $ 913,363 $1,011,560
Adjustments to reconcile net income (loss)
to net cash used in operating
activities --
Depreciation and amortization........... 187,612 202,058 89,358 90,241
Deferred income taxes................... (63,815) 46,909 424,007 469,494
Equity in earnings of investments....... (311,311) (292,440) (189,665) (192,204)
Gain on sale of assets.................. (2,410) (6,519) -- --
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net........... 196,804 (159,802) 58,156 (265,282)
Prepaid expenses and other current
assets........................... (14,393) 9,594 -- --
Other assets....................... (6,231) (3,007) (308) (83)
Increase (decrease) in --
Accounts payable and accrued
expenses......................... (19,073) 11,876 96,605 95,704
Accrued salaries and benefits...... 52,323 (38,178) (205,733) 57,516
--------- --------- ----------- ----------
Net cash provided by (used in)
operating activities.......... (12,697) (92,422) 1,185,783 1,266,946
--------- --------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment,
net..................................... (296,206) (147,547) (21,786) (180,074)
Proceeds from sale of fixed assets......... 2,410 7,020 -- --
Distributions from investments............. 515,447 273,502 373 140,242
--------- --------- ----------- ----------
Net cash provided by (used in)
investing activities.......... 221,651 132,975 (21,413) (39,832)
--------- --------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt................ (185,023) (176,502) (108,010) (112,996)
Repayment of short-term borrowings......... -- -- (1,000,000) (400,000)
Sale of treasury stock..................... -- 104,716 -- --
Dividends paid............................. (23,736) (18,576) -- --
--------- --------- ----------- ----------
Net cash used in financing
activities.................... (208,759) (90,362) (1,108,010) (512,996)
--------- --------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 195 (49,809) 56,360 714,118
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 222,872 223,067 223,067 173,258
--------- --------- ----------- ----------
CASH AND CASH EQUIVALENTS,
end of period.............................. $ 223,067 $ 173,258 $ 279,427 $ 887,376
========= ========= ========== =========
SUPPLEMENTAL DISCLOSURE:
Cash interest paid......................... $ 67,542 $ 70,530 $ 57,805 $ 57,884
Cash income taxes paid..................... $ 30,603 $ 17,616 $ -- $ 1,108
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE> 336
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
Radiology and Nuclear Medicine, a Professional Association (the "Company"),
is a professional corporation organized under the laws of the State of Kansas to
provide diagnostic radiology medical imaging and radiation oncology services.
Its offices are located in Topeka, Kansas and the surrounding area.
The accompanying financial statements have been prepared on the accrual
basis of accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payors for medical services
provided by physicians. Such amounts are reduced by an allowance for contractual
adjustments and other uncollectible amounts.
Property and Equipment
Property and equipment are recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using straight-line methods over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.
Investments in Affiliated Entities
The Company has investments in two partnerships, Magnetic Resonance Imaging
Center of Kansas ("MRI") and Medical Building West Associates, LP ("MBW") which
are accounted for using the equity method and the cost method, respectively (see
Note 3).
Other Noncurrent Assets
Other noncurrent assets consist of deposits with insurance companies and a
note receivable.
Medical Service Revenues
Medical service revenue are accounted for in the period in which the
services are provided. Revenues are reported at the estimated realizable amounts
from patients, third party payors and others. Provisions for estimated third
party payor adjustments are estimated and recorded in the period the related
services are provided. Any adjustment to the amounts is recorded in the period
in which the revised amount is determined. A significant portion of the
Company's medical service revenue are related to Medicare and other governmental
programs. Medicare and other governmental programs reimburse physicians based on
fee schedules which are determined by the related governmental agency.
Additionally, the Company participates in agreements with managed care
organizations to provide services at negotiated rates.
F-63
<PAGE> 337
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company accounts for income taxes under the liability method which
states that deferred income taxes are to be determined based on the estimated
future tax effects of differences between the financial reporting and income tax
bases of assets and liabilities given the provisions of enacted tax laws.
Deferred income tax provisions are based on the changes to the asset or
liability from period to period.
Concentration of Credit Risk
The Company extends credit to patients covered by programs such as Medicare
and Medicaid and private insurers. The Company manages credit risk with the
various public and private insurance providers, as appropriate. Allowances for
bad debts have been made for potential losses when appropriate.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Presentation - Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from January 1, 1996, to June 30, 1996, and from January
1, 1997, to June 30, 1997, have been included herein. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.
3. INVESTMENTS:
Investments in affiliated entities primarily consist of a 22% interest in
MRI and a 15% interest in MBW. The purpose of MRI is to own and operate real and
personal property. The purpose of MBW is to acquire/own land for the production
of income. The initial amount contributed to MBW was $1,000,000.
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
MBW.......................................................... $ 966,667 $ 966,667
MRI.......................................................... 283,948 302,878
Other........................................................ 495 --
---------- ----------
$1,251,110 $1,269,545
========= =========
</TABLE>
F-64
<PAGE> 338
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
(YEARS) 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Equipment........................................ 5 - 10 $ 3,715,478 $ 3,781,288
Leasehold improvements........................... 10 319,532 319,532
Furniture and fixtures........................... 5 62,447 116,758
----------- -----------
4,097,457 4,217,578
Less -- Accumulated depreciation and
amortization................................... (3,470,773) (3,645,406)
----------- -----------
Property and equipment, net.................... $ 626,684 $ 572,172
========== ==========
</TABLE>
5. SHORT-TERM BORROWINGS:
At December 31, 1995 and 1996, the Company had $1,400,000 of short-term
working capital notes outstanding. The interest rate on these borrowings was
8.5% and 8.25% at December 31, 1995 and 1996, respectively and the notes are due
within a one year period.
6. LONG-TERM DEBT:
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Note payable to physician, bearing interest at 5.35%, due in
1998. Annual payments of $20,870 plus interest................ 62,607 41,737
Note payable to physician, bearing interest at 6.34%, due in
1997. Annual payments of $21,347 plus interest................ 42,694 21,347
Note payable to bank, bearing interest at the index of the
weekly average yield on U.S. Treasury securities plus 2%
(8.34% and 7.56% at December 31, 1995 and 1996, respectively),
due in 1998. Monthly payments of $12,912 and $12,643 in 1995
and 1996, respectively, secured by the Company's interest in a
limited partnership........................................... 303,598 169,311
-------- --------
Long-term debt........................................ 408,899 232,395
Less -- Current maturities............................ (174,371) (186,611)
-------- --------
Long-term debt, net of current maturities............. $234,528 $ 45,784
======== ========
</TABLE>
Future maturities of long-term debt at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997....................................................... $186,611
1998....................................................... 45,784
--------
$232,395
========
</TABLE>
Under the terms of a Stock Purchase Agreement between the Company and its
stockholders, the Company is required to repurchase the stock of each
stockholder upon retirement or at any time the stockholder ceases to be an
employee of the Company. The purchase price is based upon the then accounts
receivable balances of the Company, tax-effected, plus owners' equity of the
Company as of the end of the previous year, with certain defined adjustments.
The purchase price is paid in annual installments, not to
F-65
<PAGE> 339
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
exceed five years, with unpaid balances bearing interest at the lesser of 9% or
the U.S. Treasury Note rate. At December 31, 1996, the Company had $63,084
payable under these arrangements.
7. INCOME TAXES:
The provisions for income taxes for the years ended December 31, consist of
the following:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Current income tax expense....................................... $ 30,603 $10,396
Deferred income tax expense (benefit)............................ (63,815) 46,909
-------- -------
Total income tax expense (benefit)..................... $(33,212) $57,305
======== =======
</TABLE>
Significant components of the Company's net deferred tax assets as of
December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Depreciation............................................... $ 44,576 $ 50,331
Accounts payable and accrued liabilities................... 87,272 85,679
Deferred tax liabilities:
Accounts receivable........................................ (542,800) (597,133)
Other...................................................... (78,380) (75,118)
--------- ---------
Net deferred tax liabilities............................ $(489,332) $(536,241)
========= =========
</TABLE>
The differences between the provision (benefit) for income taxes and the
amounts computed by applying the statutory Federal income tax rate to income
(loss) before income taxes are due to disallowed passive losses from certain
investments.
8. LEASES:
The Company leases office facilities under various noncancelable operating
leases that expire in 2007. Future minimum lease payments under noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 177,396
1998..................................................... 149,742
1999..................................................... 149,742
2000..................................................... 149,742
2001..................................................... 149,742
Thereafter............................................... 885,974
----------
$1,662,338
=========
</TABLE>
The Company has also entered into various agreements, expiring in April
1997, whereby it pays a monthly fee for selection, procurement, repair and
maintenance of its radiology and imaging equipment. The fees paid are expected
to approximate $57,000 per year.
9. EMPLOYEE BENEFIT PLAN:
The Company sponsors a defined contribution pension plan for employees of
the Company who have completed one year of service, with a minimum of 1,000
hours worked. The plan provides for employer contributions of 10% of
compensation up to a maximum eligible compensation of $150,000. The Company's
contribution for 1995 and 1996 was approximately $472,000 and $477,000,
respectively.
F-66
<PAGE> 340
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also sponsors a 401(k) plan for employees of the Company who
have completed one year of service, with a minimum 1,000 hours worked. The plan
provides for employer matching contributions of one-half of employee
contributions, up to 2% of the employee's salary. The plan also allows for
employer discretionary contributions. The Company's contributions for 1995 and
1996 were approximately $189,000 and $185,000, respectively.
10. RELATED-PARTY TRANSACTIONS:
As indicated in Note 3, the Company has a 15% partnership interest in MBW
from which the Company leases its office space. Rent expense relating to such
facilities was approximately $150,000 in 1995 and 1996.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the carrying amounts of accounts receivable, accounts
payable, accrued expenses, short-term borrowings and long-term debt approximate
fair value due to the short maturity of these instruments.
12. CONTINGENCIES:
Litigation
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operations.
Insurance
The Company is self-insured for employee health benefits. Stop-loss
insurance coverage has been purchased to cover claims exceeding certain
retention limits. At December 31, 1996, the Company's maximum exposure for
health insurance claims was $20,000 per family with an aggregate maximum limit
of 125% of expected claims, as determined by the insurance company
(approximately $379,000 in 1996.) An estimate of the amount due and payable on
existing claims for which the Company is liable is included in accrued expenses.
13. SUBSEQUENT EVENTS:
On January 20, 1997, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.
F-67
<PAGE> 341
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Rockland Radiological Group:
We have audited the accompanying combined balance sheets of Rockland
Radiological Group (Note 1) as of September 30, 1995 and 1996, and the related
combined statements of income, owners' equity (deficit), and cash flows for each
of the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rockland Radiological Group
as of September 30, 1995 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1996,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 19, 1997
F-68
<PAGE> 342
ROCKLAND RADIOLOGICAL GROUP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 198,387 $ 226,579 $ 368,633
Accounts receivable, net of allowances of $2,457,694,
$2,614,800 and $3,840,588 at September 30, 1995 and
1996 and June 30, 1997, respectively............... 2,686,087 2,995,190 2,842,436
Prepaid expenses and other current assets............. 194,872 212,011 409,638
----------- ----------- -----------
Total current assets.......................... 3,079,346 3,433,780 3,620,707
PROPERTY AND EQUIPMENT, net............................. 3,811,459 4,152,971 5,268,947
DEFERRED INCOME TAX ASSET............................... 854,993 1,029,209 1,203,425
OTHER ASSETS, net....................................... 30,626 2,000 2,143,996
----------- ----------- -----------
Total assets.................................. $ 7,776,424 $ 8,617,960 $12,237,075
=========== =========== ===========
LIABILITIES AND OWNERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable...................................... $ 202,486 $ 196,728 $ 188,710
Accrued salaries and benefits......................... 604,948 541,492 541,492
Deferred income tax liability......................... 533,921 639,961 572,785
Current portion of long-term debt..................... 719,078 944,199 1,675,146
Current portion of capital lease obligations.......... 1,077,848 1,193,100 545,557
----------- ----------- -----------
Total current liabilities..................... 3,138,281 3,515,480 3,523,690
DEFERRED COMPENSATION................................... 2,592,054 3,167,979 3,599,923
CAPITAL LEASE OBLIGATIONS, net of current portion....... 2,557,615 1,364,515 1,377,890
LONG-TERM DEBT, net of current portion.................. 1,832,526 2,548,330 5,562,941
----------- ----------- -----------
Total liabilities............................. 10,120,476 10,596,304 14,064,444
OWNERS' EQUITY (DEFICIT)................................ (2,344,052) (1,978,344) (1,827,369)
----------- ----------- -----------
Total liabilities and owners' equity
(deficit)................................... $ 7,776,424 $ 8,617,960 $12,237,075
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-69
<PAGE> 343
ROCKLAND RADIOLOGICAL GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Medical service revenues, net......... $15,078,280 $17,823,023 $17,302,049 $11,560,883 $13,541,174
Other revenues........................ 2,023 1,110 30,759 203,442 126,251
----------- ----------- ----------- ----------- -----------
Total revenues................ 15,080,303 17,824,133 17,332,808 11,764,325 13,667,425
COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 3,674,505 7,074,008 6,051,448 4,824,530 4,799,315
Practice salaries, wages and
benefits........................... 3,916,578 4,118,141 4,251,812 2,967,423 3,542,507
Practice supplies..................... 603,087 1,181,653 1,146,608 856,491 1,033,193
Practice rent and lease expense....... 188,399 163,878 110,413 78,347 90,281
Depreciation and amortization......... 1,605,316 1,628,181 1,350,324 974,819 1,110,446
Other practice expenses............... 3,565,411 4,001,394 3,577,232 1,883,911 2,607,857
Interest expense...................... 1,082,044 702,967 581,786 531,967 591,243
----------- ----------- ----------- ----------- -----------
Total costs and expenses...... 14,635,340 18,870,222 17,069,623 12,117,488 13,774,842
NET INCOME (LOSS) BEFORE INCOME TAXES... 444,963 (1,046,089) 263,185 (353,163) (107,417)
INCOME TAX EXPENSE (BENEFIT)............ 57,662 (335,568) (71,023) (439,332) (258,392)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)....................... $ 387,301 $ (710,521) $ 334,208 $ 86,169 $ 150,975
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-70
<PAGE> 344
ROCKLAND RADIOLOGICAL GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY (DEFICIT)
<TABLE>
<S> <C>
BALANCE, September 30, 1993..................................................... $(2,059,332)
Sale of stock................................................................. 11,000
Net income.................................................................... 387,301
-----------
BALANCE, September 30, 1994..................................................... (1,661,031)
Sale of stock................................................................. 27,500
Net loss...................................................................... (710,521)
-----------
BALANCE, September 30, 1995..................................................... (2,344,052)
Sale of stock................................................................. 31,500
Net income.................................................................... 334,208
-----------
BALANCE, September 30, 1996..................................................... (1,978,344)
Net income (unaudited)........................................................ 150,975
-----------
BALANCE, June 30, 1997 (unaudited).............................................. $(1,827,369)
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-71
<PAGE> 345
ROCKLAND RADIOLOGICAL GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
-------------------------------------- --------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ 387,301 $ (710,521) $ 334,208 $ 86,169 $ 150,975
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities --
Depreciation and amortization........... 1,605,316 1,628,181 1,350,324 974,819 1,110,446
Deferred income taxes................... 57,662 (335,568) (71,023) (410,148) (241,392)
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net........... (602,918) (163,544) (309,103) 141,781 152,754
Prepaid expenses and other current
assets........................... (175,810) 234,131 (17,139) (350,186) (197,627)
Other assets....................... 27,569 39,814 28,626 (10,787) (2,141,996)
Increase (decrease) in --
Accounts payable................... 277,466 (296,427) (5,758) (1) (8,018)
Accrued salaries and benefits...... 10,656 280,840 (63,456) 142,956 --
Deferred compensation.............. 46,693 753,358 575,925 565,019 431,944
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities.......... 1,633,935 1,430,264 1,822,604 1,139,622 (742,914)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment....... (683,491) (275,043) (1,688,989) (1,471,184) (2,226,422)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............... 2,877,000 132,750 1,710,030 1,689,933 4,088,000
Repayment of long-term debt................ (3,018,703) (235,524) (769,105) (501,973) (342,442)
Principal payments on capital lease
obligations............................. (657,836) (1,231,754) (1,077,848) (684,363) (634,168)
Proceeds from sale of stock................ 11,000 27,500 31,500 -- --
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities.......... (788,539) (1,307,028) (105,423) 503,597 3,111,390
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 161,905 (151,807) 28,192 172,035 142,054
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 188,289 350,194 198,387 198,387 226,579
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period..... $ 350,194 $ 198,387 $ 226,579 $ 370,422 $ 368,633
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid......................... $ 602,225 $ 700,180 $ 607,321 $ 531,967 $ 591,243
Cash income taxes paid..................... $ -- $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-72
<PAGE> 346
ROCKLAND RADIOLOGICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994, 1995, AND 1996
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying financial statements combine the accounts of nine entities
under common ownership: Mid Rockland Imaging Associates, P.C. ("MRI"), Rockland
Radiological Group, P.C. ("RRG"), Nyack Magnetic Resonance Imaging, P.C.
("NMR"), Central Imaging Associates, P.C., Advanced Imaging of Bergen, P.A.,
Pelham Imaging Associates, P.C., Women's Imaging Consultants, P.C., Montvale
Regional Imaging of Bergen, P.A., and Advanced Imaging of Orange County, P.C.
(collectively the "Company"), all of which are located in the states of New York
and New Jersey and specialize in the practice of radiological medicine. All
intercompany items and transactions have been eliminated.
The accompanying financial statements have been prepared on the accrual
basis of accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and cash equivalents
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payors for medical services
provided by physicians. Such amounts are reduced by an allowance for contractual
adjustments and other uncollectible amounts.
Property and Equipment
Property and equipment is recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.
Deferred Compensation
Under the terms of the physician employment agreements, physicians who have
completed a minimum of eight years of service are entitled to a payment of up to
one hundred percent of their final compensation upon retirement or when they
cease to be employees of the Company. The percentage of salary received by the
physician varies based upon the number of years of service. These payments are
made in 36 equal monthly payments beginning upon attainment of age 70 or the
date when the physician leaves the Company. The estimated present value of these
obligations is being accrued ratably during the eight year service period.
Medical Service Revenue
Medical service revenues are accounted for in the period in which the
services are provided. The revenues are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period the
related services are provided. Any adjustment to the amounts is recorded in the
period in which the revised amount is determined. A significant portion of the
Company's medical service revenues are related to Medicare and other
governmental programs. Medicare and other governmental programs reimburse
physicians based on fee
F-73
<PAGE> 347
ROCKLAND RADIOLOGICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
schedules which are determined by the related governmental agency. Additionally,
the Company participates in agreements with managed care organizations to
provide services at negotiated rates.
Costs of Affiliated Physician Services
Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.
Income Taxes
MRI and RRG account for income taxes under the liability method which
states that deferred income taxes are to be determined based on the estimated
future tax effects of differences between the financial reporting and income tax
basis of assets and liabilities given the provisions of enacted tax laws.
Deferred income tax provisions are based on the changes to the asset or
liability from period to period. The remaining companies included in the
accompanying combined financial statements are S corporations, and accordingly,
there is no provision for income taxes related to these entities. The individual
owners include their respective share of Company profits and losses in their tax
returns.
Concentration of Credit Risk
The Company extends credit to patients covered by programs such as Medicare
and Medicaid and private insurers. The Company manages credit risk with the
various public and private insurance providers, as appropriate. Allowances for
bad debts have been made for potential losses when appropriate.
Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Basis of Presentation -- Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from October 1, 1995, to June 30, 1996, and from October
1, 1996, to June 30, 1997, have been included herein. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.
F-74
<PAGE> 348
ROCKLAND RADIOLOGICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment at September 30, consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES (YEARS) 1995 1996
--------------- ---------- -----------
<S> <C> <C> <C>
Equipment.................................. 5 $6,852,399 $ 8,348,140
Leasehold improvements..................... 15 640,515 782,200
Furniture and fixtures..................... 7 642,978 679,762
Capitalized building lease................. 15 2,634,333 2,648,401
----------- -----------
10,770,225 12,458,503
Less -- Accumulated depreciation and
amortization............................. (6,958,766) (8,305,532)
----------- -----------
Property and equipment, net...... $3,811,459 $ 4,152,971
=========== ===========
</TABLE>
4. LONG-TERM DEBT:
Long-term debt consists of the following as of September 30:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Note payable to related party, bearing interest at 10%, due
in 1997. Monthly payments of $6,453 including interest.... $ 90,642 $ 19,042
Note payable to previous shareholder, bearing interest at
8%, due in 1996. Monthly payment of $4,000 plus
interest.................................................. 12,000 --
Note payable to vendor, bearing interest at 10.36%, due in
1998. Monthly payments of $1,339 including interest....... 34,448 20,712
Note payable to vendor, bearing interest at 8.26%, due in
2001. Monthly payments of $8,955 including interest....... -- 396,552
Note payable to Bank, bearing interest at 8.34%, due in
1999. Monthly payments of $49,603 plus interest, secured
by accounts receivable and certain property and
equipment................................................. 2,281,764 1,686,528
Note payable to Bank, bearing interest at 8.21%, due in
2000, secured by accounts receivable and certain property
and equipment. Monthly payments of $2,250 plus
interest.................................................. 132,750 105,750
Note payable to Bank, bearing interest at 8.95%, due in
2001. Monthly payments of $24,881 including interest...... -- 1,200,000
Note payable to vendor, bearing interest at 9.53%, due in
2001. Monthly payments of $1,419 including interest....... -- 63,945
---------- ----------
Total long-term debt...................................... 2,551,604 3,492,529
Less -- Current maturities................................ (719,078) (944,199)
---------- ----------
Total long-term debt, net of current portion.............. $1,832,526 $2,548,330
========== ==========
</TABLE>
Future maturities of long-term debt at September 30, 1996, are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 944,199
1998..................................................... 942,087
1999..................................................... 866,460
2000..................................................... 399,584
2001..................................................... 340,199
----------
$3,492,529
==========
</TABLE>
F-75
<PAGE> 349
ROCKLAND RADIOLOGICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. CAPITAL LEASES:
The Company leases certain medical equipment and facilities under capital
leases. These leases have been capitalized using the implicit rate stated in
each lease. Future payments due under capital leases as of September 30, 1996,
are as follows:
<TABLE>
<S> <C>
1997.................................................... $ 1,412,563
1998.................................................... 1,389,510
1999.................................................... 60,374
-----------
Total minimum lease payments due........................ 2,862,447
Less -- Amounts representing interest................. (304,832)
-----------
Present value of minimum lease payments................. 2,557,615
Less -- Current portion............................... (1,193,100)
-----------
Long-Term obligation.................................... $ 1,364,515
===========
</TABLE>
6. INCOME TAXES:
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- --------- --------
<S> <C> <C> <C>
Current income tax expense......................... $ -- $ -- $ --
Deferred income tax expense (benefit).............. 57,662 (335,568) (71,023)
------- --------- --------
Total income tax expense (benefit)....... $57,662 $(335,568) $(71,023)
======= ========= ========
</TABLE>
Significant components of the Company's net deferred tax assets and
liabilities as of September 30, are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Current:
Deferred tax assets --
Accounts payable and accrued liabilities................. $ 248,176 $ 241,283
Deferred tax (liabilities) --
Accounts receivable...................................... (773,933) (870,234)
Other.................................................... (8,164) (11,010)
--------- ----------
Total net current deferred tax liabilities.......... $(533,921) $ (639,961)
========= ==========
Noncurrent:
Deferred tax assets --
Deferred compensation.................................... $ 881,298 $1,077,113
Deferred tax (liabilities) --
Depreciation............................................. (26,305) (47,904)
--------- ----------
Total net noncurrent deferred tax assets............ $ 854,993 $1,029,209
========= ==========
</TABLE>
The differences between the provision (benefit) for income taxes and the amounts
computed by applying the statutory Federal income tax rate to income (loss)
before income taxes are due to the income (losses) of S-Corporations included in
these combined financial statements.
7. OPERATING LEASES:
The Company leases two facilities under various noncancelable operating
leases that expire at various dates through 1999. The Company leases a portion
of the MRI building under a lease that expires in 1998, and
F-76
<PAGE> 350
ROCKLAND RADIOLOGICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
also maintains a lease at the Nyack Hospital through NMR. Future minimum lease
payments under noncancelable leases at September 30, are as follows:
<TABLE>
<S> <C>
1997...................................................... $103,970
1998...................................................... 96,014
1999...................................................... 3,958
</TABLE>
8. EMPLOYEE BENEFIT PLAN:
The Company sponsors a profit sharing and 401(k) plan for employees of the
Company, who have completed one year of service and are at least age 21. The
plan provides for employer profit sharing contributions, depending upon the
level of the employee. The plan also provides for employees matching
contributions of 100% of employee contributions, up to 3% of the employee's
salary. The Company's contributions for 1994, 1995, and 1996 were $253,656,
$363,809, and, $404,047 respectively.
9. RELATED-PARTY TRANSACTIONS:
The Company leases office space from a limited partnership. Two
shareholders own an interest in this limited partnership. The Company paid rent
related to these leases of $659,500, $698,500, and $726,310 for the years ended
December 31, 1994, 1995, and 1996, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. The carrying amounts of accounts receivable, accounts payable and
accrued expenses approximate fair value due to the short maturity of these
instruments. The carrying amount of the Company's long-term debt and capital
leases also approximates fair value.
11. CONTINGENCIES:
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operations.
12. SUBSEQUENT EVENTS:
On November 15, 1996, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.
In April, 1997, the Company entered into an agreement to purchase certain
assets of Kingston Diagnostic Radiology, P.C. for $2,000,000 in cash and certain
assumed liabilities of approximately $1,850,000. Completion of the transaction
is subject to execution of a five-year service contract.
On March 11, 1997, Wallkill Radiology Associates, P.C. ("Wallkill")
contributed all of its assets to the Company. In exchange, the sole stockholder
of Wallkill was made an equal partner of the Company. At December 31, 1996,
Wallkill had total assets of approximately $480,000. For the year ended December
31, 1996, Wallkill had total revenues of approximately $1,480,000.
F-77
<PAGE> 351
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Valley Radiology Group:
We have audited the accompanying combined balance sheets of Valley
Radiology Group (Note 1) as of December 31, 1995 and 1996, and the related
combined statements of income, owners' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Valley Radiology Group as of
December 31, 1995 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 19, 1997
F-78
<PAGE> 352
VALLEY RADIOLOGY GROUP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $1,212,535 $1,014,649 $ 386,310
Accounts receivable, net of allowances
of $1,624,631, $2,021,861 and
$2,293,536 at December 31, 1995 and
1996 and June 30, 1997,
respectively....................... 1,632,342 1,616,645 2,076,098
Prepaid expenses and other............ 9,228 28,414 7,650
---------- ---------- -----------
Total current assets.......... 2,854,105 2,659,708 2,470,058
PROPERTY AND EQUIPMENT, net............. 198,263 1,253,425 1,219,586
INVESTMENTS IN AFFILIATED ENTITIES...... 369,172 104,031 26,720
NOTES RECEIVABLE........................ 428,448 405,500 402,500
OTHER ASSETS, net....................... 163,353 61,440 36,003
---------- ---------- -----------
Total assets.................. $4,013,341 $4,484,104 $ 4,154,867
========= ========= =========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................... $ 229,216 $ 94,550 $ 94,822
Accrued salaries and benefits......... 944,296 757,428 257,322
Deferred income tax liability......... 156,004 259,988 372,329
Line of credit payable................ 57,000 825,100 678,333
Current portion of long-term debt..... 298,298 329,028 560,604
---------- ---------- -----------
Total current liabilities..... 1,684,814 2,266,094 1,963,410
DEFERRED INCOME TAX LIABILITY........... 8,344 37,261 37,261
LONG-TERM DEBT, net of current
portion............................... 675,142 395,065 167,188
---------- ---------- -----------
Total liabilities............. 2,368,300 2,698,420 2,167,859
OWNERS' EQUITY.......................... 1,645,041 1,785,684 1,987,008
---------- ---------- -----------
Total liabilities and owners'
equity...................... $4,013,341 $4,484,104 $ 4,154,867
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-79
<PAGE> 353
VALLEY RADIOLOGY GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
-------------------------- ------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenues, net......... $10,156,958 $10,974,993 $5,461,462 $5,895,340
Other revenues........................ 350,331 198,605 109,023 59,057
----------- ----------- ---------- ----------
Total revenues................ 10,507,289 11,173,598 5,570,485 5,954,397
COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 5,510,802 5,383,728 2,549,462 2,708,341
Practice salaries, wages and
benefits........................... 2,268,596 2,592,672 1,143,074 1,247,927
Practice supplies..................... 176,051 355,777 211,656 160,382
Practice rent and lease expense....... 466,155 420,260 228,310 232,769
Depreciation and amortization......... 168,900 223,248 111,624 165,919
Other practice expenses............... 1,385,743 1,337,118 702,027 723,317
Interest expense...................... 53,387 73,475 30,773 55,840
(Gain) loss on sale of equipment...... 20,099 (37,386) (24,930) (930)
----------- ----------- ---------- ----------
Total costs and expenses...... 10,049,733 10,348,892 4,951,996 5,293,565
INCOME BEFORE TAXES AND EQUITY IN
EARNINGS OF INVESTMENTS............... 457,556 824,706 618,489 660,832
EQUITY IN EARNINGS (LOSS) OF
INVESTMENTS........................... 13,698 (18,997) -- --
----------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES.............. 471,254 805,709 618,489 660,832
INCOME TAX EXPENSE (BENEFIT)............ (110,919) 132,901 105,143 112,341
----------- ----------- ---------- ----------
NET INCOME.............................. $ 582,173 $ 672,808 $ 513,346 $ 548,491
========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-80
<PAGE> 354
VALLEY RADIOLOGY GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
<TABLE>
<S> <C>
BALANCE, December 31, 1994....................................................... $1,270,013
Sale of stock.................................................................. 1,304
Net income..................................................................... 582,173
Distributions.................................................................. (208,449)
----------
BALANCE, December 31, 1995....................................................... 1,645,041
Purchase of stock.............................................................. (165)
Net income..................................................................... 672,808
Distributions.................................................................. (532,000)
----------
BALANCE, December 31, 1996....................................................... 1,785,684
Net income (unaudited)......................................................... 548,491
Distributions (unaudited)...................................................... (346,250)
Purchase of stock (unaudited).................................................. (917)
----------
BALANCE, June 30, 1997 (unaudited)............................................... $1,987,008
=========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-81
<PAGE> 355
VALLEY RADIOLOGY GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED JUNE
DECEMBER 31 30,
------------------------ ------------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 582,173 $ 672,808 $ 513,346 $ 548,491
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization.................... 168,900 223,248 111,624 165,919
Deferred income taxes............................ (110,919) 132,901 105,142 112,341
Investment income from affiliated entities....... (13,698) 18,997 5,470 77,311
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net....................... 242,584 15,697 (309,189) (459,453)
Prepaid expenses and other..................... (8,284) (19,186) (11,882) 20,764
Other assets................................... 10,508 28,242 34,156 4,240
Increase (decrease) in --
Accounts payable............................... (9,662) (134,666) 526 272
Accrued liabilities............................ (609,468) -- -- --
Accrued salaries and benefits.................. 703,728 (186,868) (754,595) (500,106)
---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities................................ 955,862 751,173 (305,402) (30,221)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................. (14,671) (1,204,739) (297,307) (110,883)
Proceeds from notes receivable...................... 26,826 22,948 19,948 3,000
Distributions from affiliated entities.............. 297,000 246,144 -- --
---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities................................ 309,155 (935,647) (277,359) (107,883)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........................ 745,000 300,000 300,000 185,000
Repayment of long-term debt......................... (731,144) (549,347) (159,075) (181,301)
Net change in line of credit payable................ (143,000) 768,100 (57,000) (146,767)
Distributions to owners............................. (208,449) (532,000) (292,500) (346,250)
Sales (purchases) of stock.......................... 1,304 (165) (32) (917)
---------- ---------- ---------- ----------
Net cash used in financing activities....... (336,289) (13,412) (208,607) (490,235)
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH....................... 928,728 (197,886) (791,368) (628,339)
CASH AND CASH EQUIVALENTS, beginning of year.......... 283,807 1,212,535 1,212,535 1,014,649
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year................ $1,212,535 $1,014,649 $ 421,167 $ 386,310
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid.................................. $ 80,134 $ 73,475 $ 30,773 $ 55,840
Cash income taxes paid.............................. $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-82
<PAGE> 356
VALLEY RADIOLOGY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying financial statements combine the accounts of three
entities under common ownership: Valley Radiologists Medical Group, Inc.
("Valley"), a California corporation; LXL, Ltd. ("LXL"), a California general
partnership; and LXL Building Partnership ("LXLB"), a California general
partnership (collectively the "Company"), all of which are located in northern
California and specialize in the practice of radiological medicine and the
ownership and operation of diagnostic imaging equipment. All intercompany
transactions have been eliminated.
The accompanying financial statements have been prepared on the accrual
basis of accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash equivalents
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payors for medical services
provided by physicians. Such amounts are reduced by an allowance for contractual
adjustments and other uncollectible amounts.
Property and Equipment
Property and equipment are recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.
Investments in Affiliated Entities
Investments in affiliated entities are accounted for using the equity
method.
Other Assets
Other assets are comprised of organization costs, noncompete agreements and
security deposits. Organization costs are being amortized on a straight-line
basis over a five-year period. Noncompete agreements are amortized on a
straight-line basis over the life of the agreements.
Medical Service Revenues
Medical service revenues are accounted for in the period in which the
services are provided. The revenues are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period in which
the related services are provided. Any adjustment to the amounts is recorded in
the period in which the revised amount is determined. A significant portion of
the Company's medical service revenues are related to Medicare and other
governmental programs. Medicare and other governmental programs reimburse
physicians based on fee schedules which are determined by the related
governmental agency. Additionally, the Company participates in agreements with
managed care organizations to provide services at negotiated rates.
F-83
<PAGE> 357
VALLEY RADIOLOGY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996
Costs of Affiliated Physician Services
Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.
Income Taxes
Valley accounts for income taxes under the liability method which states
that deferred income taxes are determined based on the estimated future tax
effects of differences between the financial reporting and income tax basis of
assets and liabilities given the provisions of enacted tax laws. Deferred income
tax provisions are based on the changes to the asset or liability from period to
period. LXL and LXLB are partnerships, and accordingly, there is no provision
for income taxes related to these entities. The individual owners include their
respective share of profits and losses in their tax returns.
Concentration of Credit Risk
The Company extends credit to patients covered by programs such as Medicare
and Medicaid and private insurers. The Company manages credit risk with the
various public and private insurance providers, as appropriate. Allowances for
bad debts have been made for potential losses when appropriate.
Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Basis of Presentation - Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from January 1, 1996, to June 30, 1996, and from January
1, 1997, to June 30, 1997, have been included herein. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.
3. NOTES RECEIVABLE:
Notes receivable primarily consist of a $400,000 note receivable from a
third party, due July 18, 1999 with monthly interest only payments until that
date. The note bears interest of 8.0%.
4. INVESTMENTS IN AFFILIATED ENTITIES:
Investments in affiliated entities primarily consist of 40% interests in
two partnerships (Santa Clara Valley MRI ("Santa Clara") and Sunnyvale MRI
("Sunnyvale"), each of which perform radiology and
F-84
<PAGE> 358
VALLEY RADIOLOGY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996
imaging healthcare services. These investments are being accounted for under the
equity method of accounting. Balances at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Santa Clara..................................................... $387,564 $ --
Sunnyvale....................................................... (20,734) 98,089
Other........................................................... 2,342 5,942
-------- --------
$369,172 $104,031
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, consists of the following:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS) 1995 1996
---------------- ---------- ----------
<S> <C> <C> <C>
Equipment................................... 5 $4,236,818 $4,056,426
Leasehold improvements...................... 5-13 370,130 413,604
Furniture and fixtures...................... 5-7 109,415 113,561
---------- ----------
4,716,363 4,583,591
Less -- Accumulated depreciation and
amortization.............................. (4,518,100) (3,330,166)
---------- ----------
Property and equipment, net....... $ 198,263 $1,253,425
========= =========
</TABLE>
F-85
<PAGE> 359
VALLEY RADIOLOGY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996
6. LONG-TERM DEBT:
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Note payable to Bank, bearing interest at prime plus .5%
(8.75% on December 31, 1996), due March 1, 2000, secured by
accounts receivable and certain property and equipment.
Monthly payments of $12,420 plus interest. ................ $ 606,700 $ 244,962
Note payable to Bank, bearing interest at prime plus .5%
(8.75% on December 31, 1996), due May 1, 2001, secured by
accounts receivable and certain property and equipment.
Monthly payments of $5,000 including interest. ............ -- 261,649
Note payable to physician, bearing interest at prime,
adjustable every April 1 and October 1, (8.75% on December
31, 1995), due March 31, 1996. Monthly payments of $4,201
plus interest. ............................................ 12,604 --
Note payable to physician, bearing interest at prime,
adjustable every May 1 and November 1, (8.75% on December
31, 1995), due April 30, 1996. Monthly payments of $4,167
plus interest. ............................................ 16,666 --
Note payable to physician, noninterest bearing, due December
31, 1998. Monthly payments of $6,250. ..................... 225,000 150,000
Note payable to physician, noninterest bearing, due June 30,
1998. Monthly payments of $3,749. ......................... 112,470 67,482
--------- ---------
Total long-term debt......................................... 973,440 724,093
Less -- Current maturities................................... (298,298) (329,028)
--------- ---------
Total long-term debt, net of current portion................. $ 675,142 $ 395,065
========= =========
</TABLE>
Future maturities of long-term debt at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997.................................................... $329,028
1998.................................................... 253,416
1999.................................................... 60,000
2000.................................................... 60,000
2001.................................................... 21,649
--------
$724,093
========
</TABLE>
During 1995, the Company maintained a $300,000 line of credit for working
capital purposes bearing interest at the prime rate (8.5% on December 31, 1995).
The amount outstanding at December 31, 1995 was $57,000. The Company currently
maintains a $900,000 line of credit bearing interest at the prime rate (8.25% on
December 31, 1996). The amount outstanding at December 31, 1996 was $825,100.
Under the terms of the physician employment agreements, any physician who
is a shareholder in the Company and has been employed as a full-time
professional for a continuous four year period is entitled to a payout upon
retirement or when they cease to be employees of the Company. The payout is
equal to the physician's pro rata share of 80% of accounts receivable less
amounts owed to former shareholders. Payments are made in forty-eight equal
monthly amounts beginning the month after employment ceases. At December 31,
1996, the Company had $217,482 payable under these arrangements.
F-86
<PAGE> 360
VALLEY RADIOLOGY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996
Notes payable to physicians outstanding at December 31, 1995 represents
amounts paid to two former physicians for non-compete agreements.
7. INCOME TAXES:
The provisions for income taxes for the years ended December 31, consist of
the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current income tax expense................................. $ -- $ --
Deferred income tax expense (benefit)...................... (110,919) 132,901
--------- ---------
Total income tax expense (benefit)............... $(110,919) $ 132,901
========= =========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current:
Deferred tax assets --
Accounts payable and accrued salaries and benefits.... $ 398,993 $ 289,672
Deferred tax (liabilities) --
Accounts receivable, net.............................. (554,997) (549,660)
--------- ---------
Total net current deferred tax liabilities....... $(156,004) $(259,988)
========= =========
Noncurrent:
Deferred tax liabilities --
Depreciation.......................................... $ (8,344) $ (37,261)
========= =========
</TABLE>
The differences between the provision (benefit) for income taxes and the
amounts computed by applying the statutory Federal income tax rate to income
before income taxes are due to disallowed passive losses from certain
investments.
8. EMPLOYEE BENEFIT PLAN:
The Company sponsors a profit sharing plan for employees of the Company,
who have completed one year of service. The plan provides for discretionary
employer contributions. The Company's contributions for 1995 and 1996 were
$480,858 and $500,000, respectively.
9. OPERATING LEASES:
The Company leases various facilities under noncancelable operating leases
that expire at various dates through 1999. Future minimum lease payments under
noncancelable leases are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 348,256
1998..................................................... 293,206
1999..................................................... 220,521
2000..................................................... 156,802
2001..................................................... 156,802
Thereafter............................................... 370,016
----------
$1,545,603
=========
</TABLE>
F-87
<PAGE> 361
VALLEY RADIOLOGY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996
10. RELATED-PARTY TRANSACTIONS:
As indicated in Note 4, the Company has 40% partnership interests in Santa
Clara and Sunnyvale. Under agreements with these partnerships, the Company
performs professional and management services. Management fees are billed to the
partnership based primarily upon agreed-upon rates per case. Management and
professional fees earned from these partnerships are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Santa Clara.................................................... $198,327 $ 25,664
Sunnyvale...................................................... 343,698 266,338
-------- --------
$542,025 $292,002
======== ========
</TABLE>
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. The carrying amounts of accounts receivable, accounts payable and
accrued expenses approximate fair value due to the short maturity of these
instruments. The carrying amount of the Company's long-term debt also
approximates fair value.
12. CONTINGENCIES:
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operations.
13. SUBSEQUENT EVENTS:
On March 6, 1997, the Company entered into a letter of intent with American
Physician Partners, Inc. (APPI) under which APPI will acquire certain assets and
liabilities of the Company in exchange for common stock and cash. Completion of
the transaction is subject to certain conditions, including the execution of a
forty-year service agreement, stockholder approval by both parties and
successful completion of an initial public offering by APPI. Under the terms of
the service agreement, APPI will provide practice management, administration and
other services to the physicians for a negotiated service fee. All
nonprofessional employees shall become employees of APPI. In addition, APPI will
assume responsibility for all maintenance, repairs, improvements, lease and
other general operating expenses.
In 1997, the Company refinanced its $900,000 line of credit with a term
note. The term note provides for borrowings of $925,000 due February 2002.
Effective January 1, 1997, the Company and Pacific Imaging Consultants, a
group of radiologists in Oakland, California, formed a management services
organization to manage their operations.
F-88
<PAGE> 362
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),
[AMERICAN PHYSICIAN PARTNERS SUBSIDIARY, INC.]
(a Maryland corporation),
and
CARROLL IMAGING ASSOCIATES, P.A.
DIAGNOSTIC IMAGING ASSOCIATES, P.A.
DRS. THOMAS, WALLOP, KIM & LEWIS, P.A.
DRS. COPELAND, HYMAN & SHACKMAN, P.A.
DRS. DECARLO, LYON, HEARN & PAZOUREK, P.A.
HARBOR RADIOLOGISTS, P.A.
PERILLA, SINDLER & ASSOCIATES, P.A.; and
(each a Maryland professional association)
================================================================================
A-1
<PAGE> 363
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Rules Of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Certificate of Incorporation of Surviving Corporation . . . . . . . . . . . . . . . . . . 6
Section 2.5 Bylaws of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6 Directors of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.7 Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.8 Conversion of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.9 Exchange of Certificates Representing Shares of the Company Common Stock . . . . . . . . 7
Section 2.10 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.5 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.6 Continuity of Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.7 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.8 Absence of Conflicting Agreements or Required Consents . . . . . . . . . . . . . . . . . 9
Section 3.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.10 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.11 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.12 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.13 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.14 Lease Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.15 Real and Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.16 Indebtedness for Borrowed Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.17 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.18 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.19 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.20 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.22 Filing Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.23 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.24 Accounts Receivable; Payors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.25 Accounts Payable; Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
A-2
<PAGE> 364
<TABLE>
<S> <C> <C>
Section 3.26 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.27 Licenses, Authorization and Provider Programs . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.28 Inspections and Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.29 Proprietary Rights and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.30 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.31 Related Party Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.32 Banking Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.33 Fraud and Abuse and Self Referral . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.34 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.35 Agreements in Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.36 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.37 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.38 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV Representations and Warranties of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.2 Authorization and Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.5 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.6 Absence of Conflicting Agreements or Required Consents . . . . . . . . . . . . . . . . . 23
Section 4.7 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.8 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.9 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.10 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.11 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.13 Related Party Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.14 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.15 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.16 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.17 Agreements in Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE V Closing Date Representations and Warranties of each Company . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.3 Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.4 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.6 No Business, Agreements, Assets or Liabilities . . . . . . . . . . . . . . . . . . . . . 26
Section 5.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI Closing Date Representations and Warranties Regarding . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.1 Authorization and Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.2 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.3 No Business, Agreements, Assets or Liabilities . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII Covenants of each Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.1 Conduct of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
A-3
<PAGE> 365
<TABLE>
<S> <C> <C>
Section 7.2 Title to Assets; Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.4 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.5 Compliance With Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.6 Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.8 Stockholders' Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.9 Obligations of Company and Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.10 Funding of Accrued Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.11 Accounting and Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.12 Spin-Off Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VIII Covenants of APP and APP Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.1 Consummation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.2 Requirements to Effect the Merger and Acquisitions . . . . . . . . . . . . . . . . . . . 31
Section 8.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.4 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.5 Qualified Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IX Covenants of APP, APP Sub and each Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.1 Filings; Other Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.2 Amendments of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.3 Actions Contrary to Stated Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.4 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.6 Patient Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.7 Registration Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE X Conditions Precedent of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.3 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.5 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.6 Government Approvals and Required Consents . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.7 Securities Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.9 Closing of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.10 Closing of Related Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.11 Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.12 Stockholder Representation Letter; Indemnification Agreement . . . . . . . . . . . . . . 34
Section 10.13 Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.15 Merger Into Merger PC; Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XI Conditions Precedent of each Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.3 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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Section 11.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.5 Government Approvals and Required Consents . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.7 Closing of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.9 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.10 Service Agreement Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.11 Tax Opinion
ARTICLE XII Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.1 Deliveries of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.2 Deliveries of APP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE XIII Post Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.1 Further Instruments of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.2 Merger Tax Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.3 Current Public Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XIV Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.1 Indemnification by each Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.2 Indemnification by APP and APP Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 14.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 14.4 Costs, Expenses and Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 14.5 Tax Benefits; Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XV Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 15.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 15.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XVI Nondisclosure of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 16.1 Non-Disclosure Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 16.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 16.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE XVII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.1 Amendment; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.3 Parties in Interest; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . 44
Section 17.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.6 Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . 44
Section 17.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.9 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.10 Intentionally omitted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.11 Confidentiality; Publicity and Disclosures . . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.12 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.13 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
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Section 17.15 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
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EXHIBITS
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Exhibit A - List of Target Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Stockholder Representation Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D - Indemnification Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E - Physician Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
Exhibit F - Service Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit G - Stockholder Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
</TABLE>
Exhibit 1.1 - List of Stockholders
Exhibit 2.6 - List of Directors
Exhibit 2.7 - List of Officers
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP"); [AMERICAN PHYSICIAN PARTNERS
SUBSIDIARY, INC.], a ________________ corporation and a wholly- owned
subsidiary of APP ("APP Sub"); and Carroll Imaging Associates, P.A., a Maryland
professional association; Diagnostic Imaging Associates, P.A., a Maryland
professional association; Drs. Thomas, Wallop, Kim & Lewis, P.A., a Maryland
professional association; Drs. Copeland, Hyman & Shackman, P.A., a Maryland
professional association; Drs. DeCarlo, Lyon, Hearn & Pazourek, P.A., a
Maryland professional association; Harbor Radiologists, P.A., a Maryland
professional association; and Perilla, Sindler & Associates, P.A., a Maryland
professional association, and each Company Subsidiaries (each individually
referred to as a "Company").
RECITALS
A. Each Company owns and operates (i) a professional medical
practices specializing in radiology and (ii) diagnostic imaging centers. All
of the shares of the common stock of each Company (the "Company Common Stock")
are owned beneficially and of record by the Stockholders.
B. APP Sub is engaged in the business of owning, operating and
acquiring the assets of, and managing the non-medical aspects of, radiology
practices and diagnostic imaging centers.
C. Pursuant to this Agreement, APP, APP Sub, and each Company
intend that APP Sub be merged with and into each Company, and that each Company
be the sole surviving corporation (sometimes referred to hereinafter as the
"Surviving Corporation"), and APP Sub be the disappearing corporation
(sometimes referred to hereinafter as the "Disappearing Corporation").
D. APP, APP Sub and each Company have each determined to engage
in the transactions contemplated hereby, pursuant to which (i) APP Sub will
merge with and into each Company upon the terms and conditions set forth herein
and in accordance with the laws of the State of Maryland, (ii) the outstanding
shares of the Company Common Stock shall be converted at such time into cash
and shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein, and (iii) each Company shall become a wholly-owned
subsidiary of APP.
E. Prior to the Merger, each Company intends to transfer certain
of its assets most of which relate solely to the practice of medicine to a
newly formed professional association ("NewCo") in exchange for all of the
capital stock of NewCo and to thereafter distribute such NewCo stock to the
Stockholders (the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement
with interest holders (together with the Stockholders, the "Target Interest
Holders") of each of the entities listed on Exhibit A (together with each
Company, the "Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder.
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AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, APP Sub, NewCo and each of their
Affiliates.
"APP Sub" shall have the meaning set forth in the preamble to this
Agreement.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed on Exhibit 1.1, director or executive officer of such
entity after reasonable investigation and inquiry by the executive officers of
such entity; provided, however, that to the extent any of the representations,
warranties and statements of each Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of each Company, it
shall mean the knowledge of any of the Stockholders listed on Exhibit 1.1,
director or executive officer of each Company actually possesses without the
necessity of any special inquiry as to the matters which are the subject
thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement and specifically includes each Company's Subsidiaries.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of each Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of each Company and its Subsidiaries for the year ended December 31, 1996.
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"Company Common Stock" shall have the meaning set forth in the
recitals to this Agreement.
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
"Company Current Financial Statements" shall mean the related
statements of income, stockholders' equity and statements of cash flows of each
Company and each Company Subsidiaries for the _____ (__) month period then
ended and each Company Current Balance Sheet.
"Company Financial Statements" shall mean collectively each Company
Audited Financial Statements and each Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which each Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section
3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person,
including, but not limited to, information derived from reports, processes,
data, know-how, software programs, improvements, inventions, strategies,
compensation structures, reports, investigations, research, work in progress,
codes, marketing and sales programs and plans, financial projections, cost
summaries, formulae, contract analyses, financial information, forecasts,
confidential filings with any state or federal agency, and all other
confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section
3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the
terms hereof, as such may be amended or supplemented from time to time pursuant
to the provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement
is declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
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"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering
of APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section
14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or
other fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred
to, taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste,
(xi) any substance, pollutant, material, or contaminant listed or regulated
under any Medical Waste Law, and (xii) other biological waste and discarded
materials contaminated with or exposed to blood, excretion, or secretions from
human beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Section Section 2501 et seq., (iii) the
Marine Protection, Research, and Sanctuaries Act of 1972, 33 USCA Section
Section 1401 et seq., (iv) The Occupational Safety and Health
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Act, 29 USCA Section Section 651 et seq., (v) the United States Department of
Health and Human Services, National Institute for Occupational Safety and
Health, Infectious Waste Disposal Guidelines, Publication No. 88-119, and (vi)
any other federal, state, regional, county, municipal, or other local laws,
regulations, and ordinances insofar as they are applicable to any of each
Company's assets or operations and purport to regulate Medical Waste or impose
requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"Merger PC" shall have the meaning set forth in Section 7.13.
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Section Section 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock[, $_____ par value
per share,] of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to each Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.
"Physician Employee" shall mean each radiologist employed by each
Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
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"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the
recitals to this Agreement.
"Stockholders" shall mean the stockholders of each Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth
in Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in
which such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed
to be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time, APP Sub shall be merged with and into
each Company in accordance with this Agreement and the separate corporate
existence of the Disappearing Corporation shall thereupon cease (the "Merger").
Each Company shall be the Surviving Corporation in the Merger and shall
continue to be governed by the laws of the State of Maryland, and the separate
corporate existence of each Company with all its rights, privileges, powers,
immunities, purposes and franchises shall continue unaffected by the Merger,
except as set forth herein. The Surviving Corporation may, at any time
concurrent with and/or after the Effective Time, take any action in the name of
or on behalf of the Disappearing Corporation in order to effectuate the
transactions contemplated by this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take
place at 10:00 a.m., local time, at the offices of APP located at 2301
NationsBank Plaza, 901 Main Street, Dallas, Texas on the day on which the
transactions contemplated by the Initial Public Offering are consummated. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
Section 2.3 Effective Time. If all the conditions to the Merger
set forth in Articles XI and XII shall have been fulfilled or waived in
accordance herewith and this Agreement shall not have been
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terminated in accordance with Article XVI, the parties hereto shall cause to be
properly executed and filed on the Closing Date, Certificates of Merger meeting
the requirements of Section 3-109 of the Maryland General Corporation Law. The
Merger shall become effective at the time of the filing of such documents with
the Secretary of State of the State of Maryland, in accordance with such law or
at such later time which the parties hereto have theretofore agreed upon and
designated in such filings as the effective time of the Merger (the "Effective
Time").
Section 2.4 Certificate of Incorporation of Surviving
Corporation. Effective at the Effective Time, the articles or certificate of
incorporation of each Company in effect immediately prior to the Effective Time
shall be amended and restated in a manner satisfactory to APP. The
certificate of Incorporation, as so amended and restated, shall be the
certificate of incorporation of the Surviving Corporation.
Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP
Sub in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation without any amendment or modification as a result of
the Merger, until duly amended in accordance with applicable laws.
Section 2.6 Directors of the Surviving Corporation. The persons
who are directors of each Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time. The directors of the Surviving Corporation following
the Effective Time shall be set forth in Exhibit 2.6.
Section 2.7 Officers of the Surviving Corporation. The persons
who are officers of each Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time. The officers of the Surviving Corporation following
the Effective Time shall be set forth in Exhibit 2.7.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on
the part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the
Company's treasury, if any, at the Effective Time, by virtue of the Merger,
shall be cancelled and retired without payment of any consideration therefor
and shall cease to exist.
(c) Each Company Right outstanding at the Effective Time
shall be terminated and cancelled, without payment of any consideration
therefor, and shall cease to exist.
(d) Each share of common stock of APP Sub issued and
outstanding at the Effective Time shall be converted to one share of Company
Common Stock.
(e) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged
and remain outstanding as a validly issued, fully paid and nonassessable share
of APP Common Stock.
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Section 2.9 Exchange of Certificates Representing Shares of the
Company Common Stock.
(a) At or after the Effective Time and at the Closing (i)
the Stockholders, as holders of a certificate or certificates representing
shares of each Company's Common Stock, shall upon surrender of each certificate
or certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until
each certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at
the Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing
the certificates representing Company Common Stock owned by him, her or it,
duly endorsed in blank by the Stockholder, or accompanied by duly executed
stock powers in blank, and with all necessary transfer tax and other revenue
stamps, acquired at the Stockholder's expense, affixed and cancelled. Each
Stockholder agrees to cure any deficiencies with respect to the endorsement of
the certificates or other documents of conveyance with respect to such Company
Common Stock or with respect to the stock powers accompanying any Company
Common Stock. Upon such delivery (or completion of appropriate affidavit of
lost certificate and indemnity), each Stockholder shall receive in exchange
therefor the Merger Consideration pursuant to Exhibit B and Section 2.10
hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other
provision herein, no fractional shares of APP Common Stock will be issued and
any Stockholder otherwise entitled to receive a fractional share of APP Common
Stock as part of the Merger Consideration hereunder shall receive a cash
payment in lieu thereof reflecting such Stockholder's proportionate interest in
a share of APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP and APP Sub to enter into this Agreement and
to consummate the Merger and except as set forth in the Disclosure Schedules
attached hereto and incorporated herein by this reference, each Company and
Company Subsidiary individually represents and warrants to APP and APP Sub both
as of the date hereof and as of the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, with all requisite corporate
power and authority to own, operate and lease its assets and properties and to
carry on its business as currently conducted. The Company and each Company
Subsidiary is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in
good standing would not have a Material Adverse Effect on the Company. Copies
of the articles or certificates of incorporation and all amendments thereto of
the Company and each Company Subsidiary and the bylaws of the Company and each
Company Subsidiary, as amended, and copies of the corporate minutes of the
Company, all of which have been or will be made available to APP for review,
are true and complete as in effect on the date of this Agreement, and in the
case of the corporate minutes, accurately reflect all material proceedings of
the Stockholders and directors of the Company (and all committees thereof).
The stock record books of the Company, which have been or will be made
available to APP for review, contain true, complete and
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accurate records of the stock ownership of record of the Company and the
transfer record of the shares of its capital stock.
Section 3.2 Authorization and Validity. The Company has all
requisite corporate power to enter into this Agreement and all other agreements
entered into in connection with the transactions contemplated hereby and to
consummate the transactions contemplated hereby. The execution, delivery and,
subject to approval of this Agreement and the Merger by the Stockholders,
performance by the Company of this Agreement and the agreements contemplated
herein, and the consummation by the Company of the transactions contemplated
hereby and thereby are within the Company's respective corporate powers and
have been duly authorized by all necessary action on the part of the Company's
Board of Directors. Subject to the approval of this Agreement and the Merger
by the Stockholders, this Agreement has been duly executed by the Company, and
this Agreement and all other agreements and obligations entered into and
undertaken in connection with the transactions contemplated hereby to which the
Company is a party constitute, or upon execution will constitute, valid and
binding agreements of the Company, enforceable against it in accordance with
their respective terms, except as enforceability may be limited by bankruptcy
or other laws affecting the enforcement of creditors' rights generally, or by
general equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger (as
contemplated by Section 2.3) and any other required documents related to the
Merger, and other than consents, filings or notifications required to be made
or obtained solely by APP or APP Sub (including, without limitation, in
connection with the Initial Public Offering, Form S-4 or any Hart-Scott-Rodino
filing to be made by APP, if any), the execution, delivery and performance by
the Company of this Agreement and the agreements provided for herein, and the
consummation of the transactions contemplated hereby and thereby by the Company
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority.
Section 3.4 Capitalization. The authorized capital stock and
shares issued and outstanding are listed in the Disclosure Schedules. The
Stockholders collectively are and will be immediately prior to the Effective
Time the record and beneficial owners of all the issued and outstanding Company
Common Stock, free and clear of all Encumbrances, in the respective amounts set
forth in the Disclosure Schedules. Each outstanding share of Company Common
Stock has been legally and validly issued and is fully paid and nonassessable,
and was issued pursuant to a valid exemption from registration under (i) the
Securities Act of 1933, as amended, and (ii) all applicable state securities
laws. No shares of Company Common Stock are owned by the Company in treasury.
No shares of Company Common Stock have been issued or disposed of in violation
of any preemptive rights, rights of first refusal or similar rights of any of
the Stockholders. Other than Company Common Stock, the Company has no
securities, bonds, debentures, notes or other obligations the holders of which
have the right to vote (or are convertible into or exercisable for securities
having the right to vote) with the Stockholders on any matter.
Section 3.5 Transactions in Capital Stock. There exist no
Company Rights. The Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Company nor the relative
ownership of shares among any of its Stockholders has been altered or changed
in contemplation of the Merger within the two (2) years preceding the date of
this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not
been any sale, distribution or spin-off of significant assets of the Company or
any of its Affiliates other than in the ordinary course of business within the
(2) two years preceding the date of this Agreement.
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Section 3.7 Subsidiaries and Investments. The Company does not
own, directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required
Consents. Subject to approval of this Agreement and the Merger by the
Stockholders of the Company, the execution, delivery and performance by the
Company of this Agreement and any other documents contemplated hereby (with or
without the giving of notice, the lapse of time, or both): (i) do not require
the consent of any governmental or regulatory body or authority or any other
third party except for such consents, for which the failure to obtain would not
result in a Material Adverse Effect on the Company; (ii) will not conflict with
or result in a violation of any provision of the Company's articles or
certificate of incorporation or bylaws, (iii) will not conflict with, result in
a violation of, or constitute a default under any law, rule, ordinance,
regulation or any ruling, decree, determination, award, judgment, order or
injunction of any court or governmental instrumentality which is applicable to
the Company or by which the Company or its properties are subject or bound;
(iv) will not conflict with, constitute grounds for termination of, result in a
breach of, constitute a default under, require any notice under, or accelerate
or modify, or permit any person to accelerate or modify, any performance
required by the terms of any agreement, instrument, license or permit, to which
the Company is a party or by which the Company or any of its properties are
subject or bound except for such conflict, termination, breach or default, the
occurrence of which would not result in a Material Adverse Effect on the
Company; and (v) except as contemplated by this Agreement, will not create any
Encumbrance or restriction upon the Company Common Stock or any of the assets
or properties of the Company.
Section 3.9 Intentionally omitted.
Section 3.10 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, the Company has conducted
its business only in the ordinary course and has not:
(a) suffered any change or changes in its working
capital, condition (financial or otherwise), assets, liabilities, reserves,
business or operations (whether or not covered by insurance) that individually
or in the aggregate has had or could reasonably be expected to have a Material
Adverse Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business;
(c) written off as uncollectible any receivable, except
for write-offs in the ordinary course of business;
(d) except in the ordinary course of business and
consistent with past practice, cancelled or compromised any debts or waived or
permitted to lapse any claims or rights or sold, transferred or otherwise
disposed of any of its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment
policies;
(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;
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(h) mortgaged, pledged, subjected or agreed to subject,
any of its assets, tangible or intangible, to any claim or Encumbrance, except
for liens for current personal property taxes not yet due and payable
mechanics, landlords, materialmen, and other statutory liens, purchase money
security interests, sale-leaseback interests granted and all other Encumbrances
granted in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee
benefits for any employee of the Company, except in the ordinary course of
business and consistent with past practice;
(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends
or other distributions to any Stockholder or any other holder of capital stock
of the Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its
knowledge, the Company does not have any liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected or reserved against
in the Company's Current Balance Sheet.
Section 3.12 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of the
Company, threatened against, or affecting the Company, any Company Subsidiary,
any Stockholder, the Physician Employees or any other licensed professional or
other individual affiliated with the Company affecting or that would reasonably
be likely to affect the Company Common Stock or the operations, business
condition, (financial or otherwise), or results of operations of the Company
which (i) if successful, may, individually or in the aggregate, have a Material
Adverse Effect on the Company or (ii) could adversely affect the ability of the
Company or any Company Subsidiary to effect the transactions contemplated
hereby, and to the knowledge of the Company there is no basis for any such
action or any state of facts or occurrence of any event which would reasonably
be likely to give rise to the foregoing. There are no unsatisfied judgments
against the Company or any Company Subsidiary or any licensed professional or
other individual affiliated with the Company or any Company Subsidiary relating
to services provided on behalf of the Company or any Company Subsidiary or any
consent decrees to which any of the foregoing is subject. Each of the matters,
if any, set forth in this Section 3.12 is fully covered by policies of
insurance of the Company or any Company Subsidiary as in effect on the date
hereof.
Section 3.13 No Violation of Law. Neither the Company nor any
Company Subsidiary has been, nor shall be as of the Effective Time (by virtue
of any action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever), in violation of any applicable local,
state or federal law, ordinance, regulation, order, injunction or decree, or
any other requirement of any governmental body, agency, authority or court
binding on it, or relating to its properties, assets or business or its
advertising, sales or pricing practices, except for violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a
true, accurate and complete list of all the lease agreements and license
agreements to which the Company or any Company Subsidiary is a party and
pursuant to which the Company or any Company Subsidiary leases (whether as
lessor or lessee) or licenses (whether as licensor or licensee) any real or
personal property related to the
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operation of its business and which requires payments in excess of $12,000 per
year (the "Lease Agreements"). The Company has delivered to APP true and
complete copies of all of the Lease Agreements. Each Lease Agreement is valid,
effective and in full force in accordance with its terms, and there is not
under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver
to APP or APP Sub in writing such consents as are necessary to effect a valid
and binding transfer or assignment of the Company's or any Company Subsidiary's
rights thereunder. The Company has a good, clear, valid and enforceable
leasehold interest under each of the Lease Agreements. The Lease Agreements
comply with the exceptions to ownership interests and compensation arrangements
set out in 42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any
similar applicable state law safe harbor or other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns
any interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein which it purports to own
including, without limitation, all the property and assets reflected in the
Company Current Financial Statements; and (ii) owns such rights, interests,
assets and property free and clear of all Encumbrances, title defects or
objections (except for taxes not yet due and payable). The personal property
presently used in connection with the operation of the business of the Company
and the Company Subsidiaries constitutes the necessary personal property assets
to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, the Company does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in
any manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies,
of each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate
(other than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the
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Company would be required to make, aggregate future payments in excess of
$10,000 in any fiscal year or $25,000 in the aggregate, (iii) all agreements
for capital improvements or acquisitions involving an amount of $75,000 in any
fiscal year or $75,000 in the aggregate, (iv) all agreements containing a
covenant limiting the freedom of the Company (or any provider employee of the
Company) to compete in any line of business with any person or entity or in any
geographic area or (v) all written contracts and commitments providing for
future payments by the Company in excess of $10,000 in any fiscal year or
$25,000 in the aggregate and that are not cancelable by providing notice of
sixty (60) days or less. All such contracts, agreements or other instruments
are in full force and effect, there has been no threatened cancellation
thereof, there are no outstanding disputes thereunder, each is with unrelated
third parties and was entered into on an arms-length basis and, assuming the
receipt of the appropriate consents, all will continue to be binding in
accordance with their terms after consummation of the transaction contemplated
herein; there are no contracts, agreements or other instruments to which the
Company is a party or is bound (other than physician employment contracts and
insurance policies) which could either singularly or in the aggregate have a
Material Adverse Effect on the value to APP or APP Sub of the assets and
properties to be acquired by APP or APP Sub from the Company, or which could
inhibit or prevent the Company from transferring to or vesting in APP or APP
Sub good and sufficient title to the assets and properties to be acquired by
APP or APP Sub and the Surviving Corporation except where the failure to
transfer would not have a Material Adverse Effect on APP or APP Sub. In every
instance where consent is necessary, the Company shall, on or before the
Closing Date, use reasonable good faith efforts to obtain and deliver to APP or
APP Sub in writing, effective as of the Closing Date, such consents as are
necessary to enable the Surviving Corporation to enjoy all of the rights now
enjoyed by the Company under such contracts. Any and all such consents shall
be in a form reasonably acceptable to APP and shall contain an acknowledgment
by the consenting party that the Company has fully complied with and is not in
default under any provision of the particular contract or agreement.
Notwithstanding the foregoing, the Company shall not transfer to APP or APP Sub
any contracts or agreements relating to the provision of professional medical
services or other such agreements and contracts that APP consents to in writing
to be transferred to NewCo in the Spin-off Transaction. No contract with a
health care provider or Payor has been materially amended or terminated within
the last twelve (12) months.
(b) The Company (i) has not received notice of any plan
or intention of any other party to exercise any right to cancel or terminate
any contract, agreement or instrument required to be disclosed pursuant to
Section 3.17(a), and to the knowledge of the Company there are no fact(s) that
would justify the exercise of such a right; and (ii) does not currently
contemplate, or have reason to believe any other Person currently contemplates,
any amendment or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a
party to any employment contract (except for oral employment agreements which
are terminable at will), consulting or collective bargaining contracts,
deferred compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit
sharing, bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed the
number of part-time and full-time employees listed in the Disclosure Schedules.
The Disclosure Schedules list each employee of, or consultant to, the Company
who received combined salary, benefits (other than those offered generally to
all other employees) and bonuses for 1996 in excess of $50,000 or who is
expected to receive combined salary, benefits (other than those offered
generally to all other employees) and bonuses in 1997 in excess of $50,000.
The Company is not delinquent in payment to any of its employees or Physician
Employees for wages, salaries, bonuses or other direct compensation for any
services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Upon termination of employment of any employee
or Physician Employee, no severance or other payments will become due and the
Company has no policy, past practice or plan of paying severance on termination
of employment.
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Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair
labor practice, charge or complaint or any other employment- related matter
against or involving the Company pending or threatened before the National
Labor Relations Board or any federal, state or local agency, authority or
court;
(c) To the knowledge of the Company, there are no
charges, investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or
court against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the
Immigration Reform and Control Act of 1986, as amended, and all applicable
regulations promulgated thereunder; and
(e) To the knowledge of the Company, there are no
inquiries, investigations or monitoring activities of any licensed, registered,
or certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided to APP copies of all plan documents (as they may have been
amended to the date hereof), determination letters, pending determination
letter applications, trust instruments, insurance contracts or policies related
to an Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee
Benefit Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any
notice that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency or authority.
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(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach
of any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or
other liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the
Company's knowledge, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or
501(c)(9) of the Code and/or tax-exempt within the meaning of Section 501(a) of
the Code and, to the best knowledge of the Company and each Stockholder, has
been continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation
of any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency
(within the meaning of Section 412 of the Code), whether waived or unwaived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Code) in which the Company is a member (a "Controlled Group"). With respect to
each Employee Benefit Plan subject to Title IV of ERISA, the assets of each
such plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. With respect to each
Employee Benefit Plan described in Section 501(c)(9) of the Code, the assets of
each such plan are at least equal in value to the present value of accrued
benefits, based upon the most recent actuarial valuation as of a date no more
than ninety (90) days prior to the date hereof. The Disclosure Schedules
contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of
a Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any
member of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section
412 of the Code.
(j) PBGC. No facts or circumstances are known to the
Company that would result in the imposition of liability against APP, APP Sub
or any of its Affiliates by the Pension Benefit Guaranty Corporation ("PBGC")
as a result of any act or omission by the Company or any member of a Controlled
Group. No reportable event (within the meaning of Section 4043 of ERISA) for
which the notice requirement has not been waived has occurred with respect to
any Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or
commitment to provide medical, dental or life insurance benefits to or on
behalf of any of its employees who may retire or any of its former employees
who have retired except as may be required pursuant to the continuation of
coverage provisions of Section 4980B of the Code and the applicable provisions
of ERISA.
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(l) Other Compensation Arrangements. Neither the Company
nor, to the Company's knowledge, any Stockholder or Physician Employee is a
party to any compensation or debt arrangement with any Person relating to the
provision of health care related services other than arrangements with the
Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has,
within the five (5) years preceding the date hereof, through the Effective
Time, received from any federal, state or local governmental body, agency,
authority or entity, or any other Person, any written notice, demand, citation,
summons, complaint or order or any notice of any penalty, lien or assessment,
and to the knowledge of the Company no investigation or review is pending by
any governmental entity, with respect to any (i) alleged violation by the
Company of any Environmental Law (as defined in subsection (e) below) (ii)
alleged failure by the Company to have any environmental permit, certificate,
license, approval, registration or authorization required pursuant to any
Environmental Law in connection with the conduct of its business; or (iii)
alleged illegal Regulated Activity (as defined in subsection (e) below) by the
Company.
(b) Neither the Company nor any Company Subsidiary has
used, transported, disposed of or arranged for the disposal of (as those terms
are defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein)
that would be reasonably likely to give rise to any Environmental Liabilities
(as defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
The Disclosure Schedules list any known presence of asbestos in or on the
Company's or any Company Subsidiary's owned or leased premises. To the
knowledge of the Company, there is no friable asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises.
(c) To the knowledge of the Company, no soil or water in
or under any assets currently or formerly held for use or sale by the Company
or any Company Subsidiary is or has been contaminated by any Hazardous
Substance while such assets or premises were owned, leased, operated or
managed, directly or indirectly by the Company or any Company Subsidiary, where
such contamination had, or would be reasonably likely to have, a Material
Adverse Effect on the Company.
(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of the
Company, concerning the Company or any Company Subsidiary within the five (5)
years preceding the date hereof through the Effective Time with respect to any
real property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following
terms have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended
to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect
to, or list or define air, water, groundwater, solid waste, hazardous,
toxic, or radioactive substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public in each case as in
effect on the date hereof.
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"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
Section 3.22 Filing Reports. All returns, reports, plans and
filings of any kind or nature necessary to be filed by the Company with any
governmental agency or authority have been properly completed and timely filed
in compliance with all applicable requirements, except where failure to so file
would not have a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list
and briefly describe the Company's policies of insurance to which the Company
or any Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and
enforceable policies, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies and all premiums with respect thereto which
are due and payable are currently paid. All Insurance Policies currently
maintained by the Company or any Company Subsidiary ("Current Policies") taken
together, (i) provide adequate insurance coverage for the assets, properties
and operations of the Company and its Affiliates for all risks normally insured
against by a Person carrying on a substantially similar business or businesses
as the Company and its Affiliates, (ii) are sufficient for compliance with
legal and contractual requirements to which the Company or any of its
Affiliates is a party or by which any of them may be bound, and (iii) shall be
maintained in force (including the payment of all premiums and compliance with
their terms) without interruption up to and including the Closing Date. True,
complete and correct copies of all Insurance Policies have been provided to
APP. Neither the Company nor any Company Subsidiary nor any officer or
director thereof has received any notice or other written communication from
any issuer of any Current Policy cancelling such policy, materially increasing
any deductibles or retained amounts thereunder, or materially increasing the
annual or other premiums payable thereunder and, to the knowledge of the
Company, no such cancellation or increase of deductibles, retainages or
premiums is threatened. There are no outstanding claims, settlements or
premiums owed against any Insurance Policy, and all required notices have been
given and all known potential or actual claims under any Insurance Policy have
been presented in due and timely fashion. Within the five (5) years preceding
the Agreement, neither the Company nor any Company Subsidiary has filed a
written application for any professional liability insurance coverage which has
been denied by an insurance agency or carrier. The Disclosure Schedules also
set forth a list of all claims under any Insurance Policy in excess of $10,000
per occurrence filed by the Company or any Company Subsidiary during the
immediately preceding three-year period. Each Physician Employee has, at all
times while a Physician Employee, maintained or been covered by professional
malpractice insurance in such types and amounts as are customary for such a
physician practicing the same type of medicine in the same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging
of all accounts receivable of the Company as of March 31, 1997, which list is
complete, true and accurate in all material respects. All such accounts
receivable arose in the ordinary course of business and have not been
previously written off
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as bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements
or on the accounting records of the Company (which reserves are calculated
consistent with generally accepted accounting principles and past practice).
(b) The Disclosure Schedules set forth (i) a true,
correct and complete list of the names and addresses of each Payor of the
Company as of such date, which accounted for more than 5% of the revenues of
the Company in the fiscal year ended December 31, 1996, or which is reasonably
expected to account for more than 5% of the revenues of the Company for the
fiscal year to end December 31, 1997, and (ii) a single line item listing for
all private-pay patients in the aggregate of the Company. The Company has
satisfactory relations with such Payors set forth in (i) above and none of such
Payors has notified the Company that it intends to discontinue its relationship
with the Company or to deny any payments due from, or any claims for payment
submitted to any such party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and
complete (i) list of the accounts payable of the Company as of March 31, 1997,
and (ii) list of each individual indebtedness owed by the Company of $5,000 or
more, setting forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct
and complete list of the names and addresses of each of the providers/suppliers
of products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company
Current Balance Sheet contained in the Company Financial Statements consisted,
and all such items on hand on the date of this Agreement consist, and all such
items on hand at the Effective Time will consist, net of all applicable
reserves with respect thereto (calculated consistent with past practice), of
items of a quality and a quantity usable and saleable in the ordinary course of
the Company's business and conform to generally accepted standards in the
industry of which the Company is a part. The value of the inventories
reflected on the Company Current Balance Sheet contained in the Company
Financial Statements are net of adequate reserves for damaged, excess, and
unusable items. Purchase commitments of the Company for inventory are not
materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or practice his or her specialty and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which the Company is eligible and which are listed in the Disclosure Schedules
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any
private insurance program) under which the Company is presently receiving
payments directly or indirectly from any Payor for patient care provided by
such Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid
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provider numbers and participating physician contracts under 1842(h) of the
Social Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to
APP. No violation, default, order or deficiency exists with respect to any of
the items listed in the Disclosure Schedules except for such violations,
defaults, orders or deficiencies which would not be reasonably likely to have a
Material Adverse Effect on the Company, and there is no action pending or to
the Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program,
and no event has occurred which, with or without notice or lapse of time, or
both, would constitute grounds for a violation, order or deficiency with
respect to any of the items listed in the Disclosure Schedules to revoke,
withdraw or suspend any material license to operate its business as is
presently being conducted by it. To the knowledge of the Company, there has
been no decision not to renew any existing agreement with any provider or Payor
relating to the Company's business as presently being conducted by it. Neither
the Company nor any Physician Employee (i) has had his/her/its professional
license, Drug Enforcement Agency number, Medicare/Medicaid provider status or
staff privileges at any hospital or diagnostic imaging center suspended,
relinquished, terminated or revoked (including orders that have been entered by
any such entities but stayed), (ii) has been reprimanded in writing, sentenced,
or disciplined by any licensing board, state agency, regulatory body or
authority, hospital, Payor or specialty board (including orders that have been
entered by any such entities but stayed), or (iii) is the subject of an initial
or final determination by any federal or state authority that could result in
any demand or reimbursement under the Medicare, Medicaid or Government Programs
or any exclusion or which monetary penalty under federal or state law or (iv)
has had a final judgment or settlement entered against him/her/it in connection
with a malpractice or similar action.
(b) The Company is not required, or for the 72-month
period prior to the Effective Time was not required, to file any cost reports
or other reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of
the Company, or any Physician Employee, nor the right of any licensed
professional or other individual affiliated with the Company to receive
reimbursements pursuant to any Governmental Program or Private Program has been
terminated or otherwise materially and adversely affected as a result of any
investigation or action whether by any federal or state governmental regulatory
authority or other third party. No Physician Employee, licensed professional
or other individual affiliated with the business has, during the past three (3)
years prior to the Effective Time, had their professional license or staff
privileges limited, suspended or revoked by any governmental regulatory
authority or agency, hospital, integrated delivery system, trade association,
professional review organization, accrediting organization or certifying agency
(including orders that have been entered by any such entities but stayed).
True, correct and complete copies of all reports, correspondence, notices and
other documents relating to any matter described or referenced in this Section
3.28 have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete
and accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v)
other similar agreements relating to the foregoing to which the Company or any
Company Subsidiary is a party (including expiration date if applicable)
(collectively, the "Proprietary Rights").
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(b) The Disclosure Schedules contain a complete and
accurate list and summary description of all agreements relating to technology,
trade secrets, know-how or processes that the Company is licensed or authorized
to use by others (other than technology, know-how or processes generally
available to other health care providers) or which it licenses or authorizes
others to use, true, correct and complete copies of which have been provided to
APP. There are no outstanding and, to the Company's knowledge, any threatened
disputes or disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and
the Proprietary Rights are freely transferable. To the knowledge of the
Company, no claim has been asserted by any person to the ownership of or for
infringement by the Company of any Proprietary Right of any other Person, and
neither the Company nor any Stockholder is aware of any valid basis for any
such claim. To the best knowledge of the Company, no proceedings have been
threatened which challenge the Proprietary Rights of the Company. The Company
has the right to use, free and clear of any adverse claims or rights of others,
all trade secrets, customer lists and proprietary information required for the
performance and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and
timely filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All
such Tax Returns or reports are complete and accurate in all material respects
and properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the
Company may be disputing in good faith by proceedings in compliance with
applicable law, which are described in Schedule 3.30(b), (i) the Company has
paid all taxes, penalties, assessments and interest that have become due with
respect to any Tax Returns that it has filed and has properly accrued on its
books and records in accordance with generally accepted accounting principles
for all of the same that have not yet become due and payable and (ii) the
Company is not delinquent in the payment of any tax, assessment or governmental
charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to
be asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated
any applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has
not granted an extension to any taxing authority of the statute of limitation
period during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for
all income, social security, unemployment insurance, sales, excise, use, and
other taxes have been collected or withheld and paid to the respective
governmental agencies.
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(f) Foreign Person. Neither the Company nor any
Stockholder is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets
of the Company constitutes property that the Company, APP, APP Sub or any
Affiliate of APP, will be required to treat as being owned by another person
pursuant to the "Safe Harbor Lease" provisions of Section 168(f)(8) of the Code
prior to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties
of the Company are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any
time consented to have the provisions of Section 341(f)(2) of the Code apply to
it.
(j) Boycotts. The Company has not at any time
participated in or cooperated with any international boycott as defined in
Section 999 of the Code.
(k) Parachute Payments. No payment required or
contemplated to be made by the Company will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election
to be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or
has not been a personal holding company within the meaning of Section 542 of
the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to
the Company's business. There is no commitment to, and no income reflected in
the Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.) and
the Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the
Company nor any Company Subsidiary has engaged and, to the knowledge of the
Company, neither the Company's officers and directors nor the Physician
Employees or other Persons and entities providing professional services for or
on behalf of the Company have engaged, in any activities which are prohibited
under 42 U.S.C. Section Section 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn
(subject to the exceptions or safe harbor provisions set forth in such
legislation), or the regulations promulgated thereunder or pursuant to similar
state or local statutes or regulations, or which are prohibited by applicable
rules of professional conduct or 18 U.S.C. Section Section 24, 287, 371, 664,
669, 1001, 1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no
material agreement, judgment, injunction, order or decree binding upon the
Company, any Company Subsidiary or officer, director or key employee of the
Company or Company Subsidiary, which has or reasonably could be expected to
have the effect of prohibiting or materially impairing the current medical
practice of the Company or any
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Company Subsidiary or the continuation of that medical practice in the future
by NewCo, any acquisition of property by the Company, any Company Subsidiary or
the conduct of business by the Company or any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are
valid and binding, and are in full force and effect and are enforceable in
accordance with their terms, except to the extent that the validity or
enforceability thereof may be limited by bankruptcy or other laws affecting the
enforcement of creditors' rights generally, or by general equity principles, or
by public policy. There is no pending or, to the knowledge of the Company,
threatened bankruptcy, insolvency or similar proceeding with respect to any
other party to such agreements, and no event has occurred which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder by the Company or any other party
thereto. No contract with a Physician Employee has been terminated in the last
twelve (12) months.
Section 3.36 Statements True and Correct. No representation or
warranty made herein by the Company or any Stockholder, nor any statement,
certificate, information, exhibit or instrument to be furnished by the Company
or any Stockholder to APP, APP Sub or any of their respective representatives
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules
required by Article III hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
any of the Stockholders or the Company who is entitled to any fee or commission
upon consummation of the transactions contemplated by this Agreement or
referred to herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to each Company and the Stockholders to enter into this
Agreement and to consummate the Merger and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to each Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
Section 4.1 Organization and Good Standing; Qualification. APP
is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. APP is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where such failure to be so
qualified or in good standing would not have a Material Adverse Effect on APP.
Copies of the certificate of incorporation and all amendments thereto of APP
and the bylaws of APP, as amended, and copies of the corporate minutes of APP
regarding the Merger and the transactions contemplated hereby, all of which
have been or will be made available to the Company for review, are true,
correct and complete as in effect on the date of this Agreement and accurately
reflect all material proceedings of the stockholders and directors of APP (and
all committees thereof) regarding the Merger and the transactions contemplated
hereby. The stock record books of APP, which have been or will be made
available to each Company for review, contain true, complete and accurate
records of the stock ownership of APP and the transfer of the shares of its
capital stock.
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Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and the Other Agreements
and to consummate the Merger and the transactions contemplated hereby. The
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, including the Other Agreements and the consummation by APP
of the transactions contemplated hereby and thereby are within APP's corporate
powers and have been duly authorized by all necessary action on the part of
APP's Board of Directors. This Agreement has and the Other Agreements have
been duly executed by APP. This Agreement and all other agreements and
obligations entered into and undertaken in connection with the Merger and the
transactions contemplated hereby to which APP is a party constitute, or upon
execution will constitute, valid and binding agreements of APP, enforceable
against it in accordance with their respective terms, except as may be limited
by bankruptcy or other laws affecting creditors' rights generally, or by
general equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger and any
other required documents related to the Merger, and other than consents,
filings or notifications required to be made or obtained solely by each
Company, the execution, delivery and performance by APP of this Agreement and
the agreements provided for herein, and the consummation of the Merger and the
transactions contemplated hereby and thereby by APP requires no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares
are issued and outstanding and 10,000,000 shares of APP Preferred Stock, none
of which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights
of first refusal or similar rights of any stockholders of APP. APP has no
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or are convertible into or exercisable for securities having the
right to vote) with the stockholders of APP on any matter. There exist no
options, warrants, subscriptions, calls, commitments or other rights to
purchase, or securities convertible into or exchangeable for, any of the
authorized or outstanding securities of APP and no option, warrant,
subscription, call, or commitment or commission right of any kind exists which
obligates APP to issue any of its authorized but unissued capital stock. APP
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance of this Agreement by APP and
any other documents contemplated hereby (with or without the giving of notice,
the lapse of time, or both): (i) does not require the consent of any
governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on APP; (ii) will not conflict with any provision of
APP's certificate of incorporation or bylaws; (iii) will not conflict with,
result in a violation of, or constitute a default under any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or governmental
instrumentality to which APP is a party or by which APP or its properties are
subject or bound; (iv) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, require any
notice under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit, material
to this transaction, to which APP is a party or by which APP or any of its
properties are bound except for such conflict, termination,
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breach or default, the occurrence of which would not result in a Material
Adverse Effect on APP; and (v) will not create any Encumbrance or restriction
upon APP Common Stock or any of the assets or properties of APP. The financial
statements of APP contained in the Registration Statements (a) have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated therein or in the notes
thereto), (b) present fairly the financial position of APP and APP Subsidiaries
as of the dates indicated and present fairly the results of APP's and APP
Subsidiaries' operations for the periods then ended, and (c) are in accordance
with the books and records of APP and APP Subsidiaries, which have been
properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, there has not been (i)
any change in the working capital, condition (financial or otherwise), assets,
liabilities, reserves, business or operations of APP that has had or is
reasonably likely to have a Material Adverse Effect on APP; or (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in
the Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.
Section 4.9 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of APP,
threatened against, or affecting APP. There are no unsatisfied judgments
against APP or any consent decrees to which APP is subject. Each of the
matters, if any, set forth in the Disclosure Schedules are fully covered by
policies of insurance of APP as in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be
as of the Effective Time (by virtue of any action, omission to act, contract to
which it is a party or any occurrence or state of facts whatsoever), in
violation of any applicable local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any governmental body,
agency or authority or court binding on it, or relating to its property or
business or its advertising, sales or pricing practices, except for violations
which are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form
S-4, APP does not have any material arrangements, agreements or plans with any
person with respect to the employment by APP of such person or whereby such
person is to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any
Tax Returns that it has filed and has properly accrued on its books and records
for all of the same that have not yet become due and (ii) APP is not delinquent
in the payment of any tax, assessment or governmental charge.
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(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. APP has not received any notice that any tax deficiency or
delinquency has been asserted against APP. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of APP that could be asserted by any taxing authority. There is
no taxing authority audit of APP pending, or to the knowledge of APP,
threatened, and the results of any completed audits are properly reflected in
the financial statements of APP. APP has not violated any federal, state,
local or foreign tax law.
(d) No Extension of Limitation Period. APP has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Code.
(j) Parachute Payments. No payment required or
contemplated to be made by APP will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. The Disclosure Schedules
or Form S-4 sets forth a description of any interest held, directly or
indirectly, by any officer, director or other Affiliate of APP in any property,
real or personal or mixed, tangible or intangible, used in or pertaining to
APP's business and any arrangement or agreement with any such person concerning
the provision of goods or services or other matters pertaining to APP's
business.
Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to each Company or a Stockholder
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules
required by Article IV hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.
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Section 4.16 Finder's Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
APP who is entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of each Company
Each Company represents and warrants that the following will be true
and correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo
is a professional corporation duly organized, validly existing and in good
standing under the laws of its state of organization, with all requisite
corporate power and authority to carry on the business in which it intends to
engage, to own the properties it intends to own, and to execute and deliver the
Service Agreement, the Security Agreement and the Physician Employment
Agreements and consummate the transactions and perform the services
contemplated thereby. NewCo is duly qualified and licensed to do business and
is in good standing in all jurisdictions where the nature of its intended
business makes such qualification necessary, which jurisdictions are listed in
the Disclosure Schedules, except where the failure to be so qualified shall not
have a Material Adverse Effect on NewCo.
Section 5.2 Capitalization. The authorized capital stock of
NewCo consists of [_____] shares of NewCo Common Stock, of which [______]
shares are issued and outstanding, and no shares of capital stock of NewCo are
held in treasury. The Stockholders own all of the issued and outstanding
shares of NewCo Common Stock, free and clear of any Encumbrance. Each
outstanding share of NewCo Common Stock has been legally and validly issued and
is fully paid and nonassessable. There exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of NewCo. No
shares of capital stock of NewCo have been issued or disposed of in violation
of the preemptive rights, rights of first refusal or similar rights of any of
NewCo's stockholders.
Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and
complete copies thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery
and performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
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Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict
with any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities.
NewCo has not commenced business since its incorporation. Other than its
articles or certificate of incorporation and bylaws, and as of the Closing
Date, the Service Agreement, the Security Agreement, the Physician Employment
Agreements, and the other contracts and agreements assigned to NewCo as part of
the Spin-Off Transaction, NewCo is not a party to or subject to any agreement,
indenture or other instrument. NewCo does not own any assets (tangible or
intangible) other than the consideration received upon the issuance of shares
of its capital stock or pursuant to the Spin-Off Transaction, and NewCo does
not have any liabilities, accrued, contingent or otherwise (known or unknown
and asserted or unasserted) other than those assumed pursuant to the Spin-Off
Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure
to so comply or file would not, individually or in the aggregate, have a
Material Adverse Effect on NewCo.
ARTICLE VI
Closing Date Representations and Warranties Regarding APP Sub
APP and APP Sub, jointly and severally, represent and warrant that the
following will be true and correct on the Closing Date as if made on that date:
Section 6.1 Authorization and Validity. The execution, delivery
and performance by APP Sub of this Agreement and the consummation of the
transactions contemplated thereby, have been duly authorized by APP Sub. This
Agreement will be as of the Closing Date duly executed and delivered by APP Sub
and will constitute the legal, valid and binding obligation of APP Sub
enforceable against APP Sub in accordance with its respective terms, except as
may be limited by bankruptcy or other laws affecting creditors' rights
generally, or by equity principles, or by public policy.
Section 6.2 No Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby will conflict with, or result in a violation or breach of
the terms, conditions or provisions of, or constitute a default under, the
certificate of incorporation or bylaws of APP Sub.
Section 6.3 No Business, Agreements, Assets or Liabilities. APP
Sub has not commenced business since its incorporation. APP Sub does not own
any assets (tangible or intangible) other than the consideration received upon
the issuance of shares of its capital stock and APP Sub does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted) other than those assumed pursuant to this Agreement.
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ARTICLE VII
Covenants of each Company
Each Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of the Company. Except as required pursuant
to the Spin-Off Transaction, from the date hereof until the Effective Time, the
Company shall, in all material respects, conduct its business in the ordinary
and usual course consistent with past practices and shall use reasonable
efforts to:
(a) preserve intact its business and its relationships
with Payors, referral sources, customers, suppliers, patients, employees and
others having business relations with it;
(b) maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the
conduct of the business of the Company;
(c) continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof. In addition, without the written consent of APP, the Company shall
not:
(1) amend its articles or certificate of
incorporation or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or
sale, shares of any class of its securities (including, but
not limited to, by way of stock split, dividend,
recapitalization or other reclassification) or any
subscriptions, options, warrants, rights or convertible
securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such securities;
(3) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such
shares;
(4) declare or pay any dividend or other
distribution (whether in cash, stock or other property) with
respect to its capital stock (except as expressly contemplated
herein);
(5) voluntarily sell, transfer, surrender,
abandon or dispose of any of its assets or property rights
(tangible or intangible) other than the sale of inventory, if
any, in the ordinary course of business consistent with past
practices;
(6) grant or make any mortgage or pledge or
subject itself or any of its properties or assets to any lien,
charge or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital
expenditures which are not reasonably necessary for the
conduct of its business;
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(9) grant any increase in the compensation
payable or to become payable to directors, officers,
consultants or employees other than merit increases to
employees of the Company who are not directors or officers of
the Company, except in the ordinary course of business and
consistent with past practices;
(10) change in any manner any accounting
principles or methods other than changes which are consistent
with generally accepted accounting principles;
(11) enter into any material commitment or
transaction other than in the ordinary course of business;
(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;
(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;
(14) agree, whether in writing or otherwise, to do
any of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective
Time, the Company shall (i) except for sales of assets held as inventory, if
any, in the ordinary course of business prior to the Effective Time and except
as otherwise specifically described in the Disclosure Schedules to this
Agreement, have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or indirect
indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations
in the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.
Section 7.3 Access. At all times prior to the Effective Time,
APP's employees, attorneys, accountants, agents and other authorized and
designated representatives will be allowed full access upon reasonable prior
notice and during regular business hours (and at such other times as the
parties may reasonably agree) to the properties, books and records of the
Company, including, without limitation, deeds, title documents, leases, patient
lists, insurance policies, minute books, share certificate books, share
registers, accounts, tax returns, financial statements and all other data that,
in the reasonable opinion of APP, are required for APP to make such
investigation as it may desire of the properties and business of the Company.
APP shall also be allowed full access upon reasonable prior notice and during
regular business hours (and at such other times as the parties may reasonably
agree) to consult with the officers, employees (after announcement by the
Company of the Merger to its employees which shall occur no later than three
(3) days subsequent to execution hereof by the Company), accountants, counsel
and agents of the Company in connection with such investigation of the
properties and business of the Company. No investigation by APP shall diminish
or otherwise affect any of the representations, warranties, covenants or
agreements of the Company under this Agreement. Any access or investigation
referred to in this Section 7.3 shall be conducted in such a manner as to
minimize the disruption to the Company's ongoing business operations.
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Section 7.4 Acquisition Proposals. The Company shall not, and
shall cause each of its directors, officers, employees or agents not to
directly or indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire
all or a substantial portion of the business, properties or capital stock of
the Company, whether by merger, consolidation, share exchange, business
combination, purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of the Company, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of the Company. If the Company receives any
offer or proposal after the date hereof, written or otherwise, of the type
referred to above, the Company shall promptly inform APP of such offer or
proposal, decline such offer and furnish APP with a copy thereof if such offer
or proposal is in writing.
Section 7.5 Compliance With Obligations. Prior to the Effective
Time, the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all
material agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly
notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to
terminate employment received from, any salaried or non-hourly, skilled
employee of the Company;
(d) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting the Company which, if pending on the date of this
Agreement, would have been required to have been disclosed to APP hereunder or
which relate to the consummation of the transactions contemplated by this
Agreement;
(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a
material deterioration in the relationship with any Payor or supplier or key
employee of the Company and, if requested by APP, will exert its reasonable
best efforts to restore the relationship.
Section 7.7 Intentionally omitted.
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Section 7.8 Stockholders' Consent. The Company shall use its
best efforts to obtain the unanimous approval of its Stockholders to the
Merger. In seeking the approval of its Stockholders, the Company shall provide
each Stockholder with the Form S-4 which shall include information as may be
required by applicable law or as APP shall deem appropriate. The Board of
Directors of the Company shall recommend the approval of the Merger by the
Stockholders of the Company. If the Stockholders' approval is not unanimous,
the Company shall give notice to the nonconsenting Stockholders of the action
taken by the consenting Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to
Section 7.8 hereof, the Company will take all action reasonably necessary to
cause the Company to perform its obligations under this Agreement and all
related agreements and to consummate the Merger and other transactions
contemplated hereby and thereby on the terms and conditions set forth in this
Agreement and such agreements provided, however, that this covenant shall not
require the Company to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein..
Section 7.10 Funding of Accrued Employee Benefits. The Company
hereby covenants and agrees that it will take whatever steps are necessary to
pay for or fund completely any accrued benefits, where applicable, or vested
accrued benefits for which the Company or any entity might have any liability
whatsoever arising from any tax-qualified plan as required under applicable
law. The Company acknowledges that the purpose and intent of this covenant is
to assure that APP Sub shall have no liability whatsoever at any time after the
Closing Date with respect to any such tax-qualified plan, unless such plan is
merged with a plan sponsored by APP or APP Sub.
Section 7.11 Accounting and Tax Matters. The Company will not
change in any material respect the accounting methods or practices followed by
the Company (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. The Company will
not make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment or consent to any tax
claim or assessment or any waiver of the statute of limitations for any such
claim or assessment. The Company will duly, accurately and timely (without
regard to any extensions of time) file all returns, information statements and
other documents relating to taxes of the Company required to be filed by it,
and pay all taxes required to be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form,
organize and incorporate NewCo in the state of Maryland, and the articles or
certificate of incorporation and bylaws of NewCo shall be in form and substance
reasonably satisfactory to APP. Except for consummating the Spin-Off
Transaction, NewCo shall not commence business until the Closing Date. On or
prior to the Closing, the Company shall take all actions and execute all
documents, agreements or instruments necessary pursuant to and in compliance
with applicable law to effect the Spin-Off Transaction, including without
limitation, the following: Prior to the Closing, the Company shall transfer to
NewCo good, valid and marketable title to all of the Company's right, title and
interest in and to the Employee Benefit Plans, all contracts and agreements and
other assets listed on the Disclosure Schedules (to be delivered by the Company
prior to Closing, which schedule will be subject to the approval of APP, which
approval shall not be unreasonably withheld) which by law either cannot be
acquired or cannot be used by APP because they relate to the practice of
medicine or radiology, and shall contribute to NewCo such other consideration
and assets of the Company as may be required under applicable law, in exchange
for the issuance by NewCo of shares of NewCo Common Stock, such shares being
all of the issued and outstanding shares of NewCo Common Stock. The Company
shall then distribute the shares of NewCo Common Stock to the Stockholders in
proportion to their respective ownership interest in the Company.
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Section 7.13 Merger of Each Company Prior to the Closing. Each
Company shall form, organize and incorporate a new professional corporation in
the State of Maryland ("Merger PC"). Each Company shall merge with and into
Merger PC on or before the Closing. Each Company hereby agrees to prepare, and
each Company and each Stockholder shall execute, any and all documentation
necessary to effectuate the merger transaction between each Company and Merger
PC in accordance with Maryland General Corporation Law. Each Company agrees to
amend this Agreement to effectuate the changes which result from the merger
with and into Merger PC.
ARTICLE VIII
Covenants of APP and APP Sub
APP and APP Sub agree that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP and APP Sub will take
all action reasonably necessary to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions and take all
corporate and other action necessary to approve the Merger; provided, however,
that this covenant shall not require APP and APP Sub to make any expenditures
that are not expressly set forth in this Agreement or otherwise contemplated
herein.
Section 8.2 Requirements to Effect the Merger and Acquisitions.
APP and APP Sub will use their best efforts to take, or cause to be taken, all
actions necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
Section 8.3 Access. APP and APP Sub shall, at reasonable times
during normal business hours and on reasonable notice, permit each Company and
its authorized representatives of each Company reasonable access to, and make
available for inspection, all of the assets and business of APP and APP Sub,
including its executive officers, and permit each Company and their authorized
representatives to inspect and, at the Company's sole expense, make copies of
all documents, records and information with respect to the affairs of APP and
APP Sub as each Company and their representatives may reasonably request, all
for the sole purpose of permitting each Company to become familiar with the
business and assets and liabilities of APP and APP Sub. No investigation by
each Company or the Stockholders shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of APP under this
Agreement.
Section 8.4 Notification of Certain Matters. APP and APP Sub
shall promptly inform each Company in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or lapse of
time or both, would become a default, received by APP subsequent to the date of
this Agreement and prior to the Effective Time under any contract, agreement or
investment material to APP's or APP Sub's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; (b) any
material adverse change in APP's condition (financial or otherwise),
operations, assets, liabilities or business or (c) defaults or disputes
regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP and APP Sub shall
use their best efforts to establish a qualified plan and trust for NewCo,
within the meaning of Section 401(a) and 501(a), respectively, of the Code
("New Qualified Plan") that will provide benefits comparable (as determined
under Section 401(a)(4) of the Code) to the benefits provided under the
qualified plans referenced in the Disclosure Schedules, if any, sponsored by
the Company as of March 31, 1997. APP will file for a favorable determination
letter from the IRS on the New Qualified Plan and request a favorable
determination from the IRS that NewCo is not a member of an affiliated service
group (as defined in Section 414(m) of the Code) or a recipient organization of
leased employee services (as defined in Section 414(n) of the Code). Any
benefits provided under the New Qualified Plan shall be conditioned on a
favorable determination letter from the IRS. Costs associated with the
establishment and design of the New
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Qualified Plan shall be paid by APP or APP Sub. NewCo shall be responsible for
funding any contributions to, or any ongoing administrative costs of, the New
Qualified Plan.
ARTICLE IX
Covenants of APP, APP Sub and each Company
APP, APP Sub and each Company agree as follows:
Section 9.1 Filings; Other Action.
(a) Each Company shall cooperate with APP and APP Sub to promptly
prepare and file with the SEC the Registration Statements on Form S-1 and Form
S-4 (or other appropriate Forms) to be filed by APP in connection with its
Initial Public Offering and offering of the shares of APP Common Stock to the
Target Interest Holders pursuant to the transactions contemplated by this
Agreement and the Other Agreements (including the prospectus constituting parts
thereof, the "Registration Statements"). APP shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. Each Company shall cooperate with
APP in the preparation of the Registration Statements and shall furnish all
information concerning each Company and NewCo as may be reasonably requested in
connection with any such action in a timely manner.
(b) Each Company, APP and APP Sub and each separately represent
and warrant that (i) in the case of each Company, none of the written
information or documents supplied or to be supplied by it specifically for
inclusion in the Registration Statements, by exhibit or otherwise and (ii) in
the case of APP or APP Sub, will, at the time the Registration Statements and
each amendment and supplement thereto, if any, becomes effective under the
Securities Act, none of them contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Each Company shall be entitled to review the
Registration Statements and each of the amendments thereto, if any, prior to
the time each becomes effective under the Securities Act. Each Company shall
have no responsibility for information contained in the Registration Statements
except for information provided by each Company specifically for inclusion
therein. Each Company's review of the Registration Statements shall not
diminish or otherwise affect the representations, covenants and warranties of
APP and APP Sub contained in this Agreement.
(c) Each Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners,
Stockholders and NewCo, and such other matters as may be reasonably requested
by APP in connection with the preparation of the Registration Statements and
each of the amendments or supplements thereto, or any other statement, filing,
notice or application made by or on behalf of each such party or any of its
subsidiaries to any governmental entity in connection with the Merger and the
other transactions contemplated by this Agreement.
Section 9.2 Amendments of Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to supplement or amend promptly the Disclosure Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on each Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Disclosure Schedule that constitutes or reflects a Material Adverse Effect on
APP may be made unless each Company consents to such amendment or supplement.
For purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have
been fulfilled, the Disclosure Schedules hereto shall be deemed to be the
Disclosure Schedules as amended or supplemented pursuant to this Section
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9.2. In the event that each Company seeks to amend or supplement a Disclosure
Schedule pursuant to this Section 9.2 and APP does not consent to such
amendment or supplement, or APP seeks to amend or supplement a Disclosure
Schedule pursuant to this Section 9.2, and each Company does not consent, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto
will knowingly, either before or after the Merger, take any action that would
prevent the Merger from qualifying as a tax-free exchange within the meaning of
Section 351 of the Code.
Section 9.4 Public Announcements. The parties hereto will
consult with each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable law, will not issue any
such press release or make any such public statement prior to such
consultation, although the foregoing shall not apply to any disclosure by APP
in any filing with the DOJ, FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be
solely responsible for their own fees and expenses with respect to the
transactions contemplated herein including, without limitation, the fees
charged by attorneys, accountants and financial advisors retained by such
parties. The fees and expenses incurred by each Company and NewCo in
connection with the Merger shall be paid by each Company in full immediately
prior to the Closing and such expenses shall be the sole responsibility of the
Stockholders following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP and APP Sub shall agree
to keep all records and information regarding the patients of each Company and
NewCo confidential in accordance with all applicable laws.
Section 9.7 Registration Statements. APP shall prepare and file
the Registration Statements with the SEC, and shall use its reasonable good
faith efforts to cause the Registration Statements to become effective under
the Securities Act and take any action required to be taken under the
applicable state Blue Sky or other securities laws in connection with the
issuance of the shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP and APP Sub
Except as may be waived in writing by APP, the obligations of APP and
APP Sub hereunder are subject to the fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 10.1 Representations and Warranties. The representations
and warranties of each Company contained herein and each Stockholder contained
in the Stockholders Representation Letter (as delivered pursuant to Section
10.12 hereof) shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects as of the
Effective Date.
Section 10.2 Covenants. Each Company shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed and complied with by each Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to each Company shall have
delivered to APP their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 10.3.
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Section 10.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse
Effect on each Company shall have occurred since March 31, 1997, whether or not
such change shall have been caused by the deliberate act or omission of the
Company or any Stockholder.
Section 10.6 Government Approvals and Required Consents. Each
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, statements, rule, regulation or ordinance to
consummate the transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statements shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate
the transactions contemplated hereby. The APP Common Stock shall have been
approved for listing on the Nasdaq National Market, subject only to official
notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 10.11 Dissenter's Rights. Each Company shall have
satisfied each of its obligations to its Stockholders regarding dissenters or
related rights under Maryland General Corporation Law, and the sum of the
amount which may become due to the Stockholders who have dissented to the
Merger and have indicated their intent to seek appraisal rights plus the cash
portion of the Merger Consideration shall not exceed 25% of the total Merger
Consideration due hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder receiving Merger Consideration hereunder shall
have executed and delivered to APP the Stockholder Representation Letter in
substantially the form of Exhibit C. Each Stockholder shall have executed and
delivered to APP the Indemnification Agreement in substantially the form of
Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties
of each Company and its related entities to be transferred to NewCo pursuant to
the Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician
Employee and such other radiologists whose names are set forth on the
Disclosure Schedules shall have entered into a Physician Employment Agreement
between NewCo and each such Physician Employee in a form reasonably consistent
to the form attached as Exhibit E and satisfactory to APP in its sole
discretion (the "Physician Employment Agreements").
Section 10.15 Merger Into Merger PC; Amendment. The merger of each
Company with and into Merger PC shall have been filed and approved by the
Secretary of State of the State of Maryland. This
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Agreement shall be amended to reflect the changes which result from each
Company's merger into Merger PC.
ARTICLE XI
Conditions Precedent of each Company
Except as may be waived in writing by each Company, the obligations of
each Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations
and warranties of APP and APP Sub contained herein shall be true and correct in
all material respects when initially made and shall be true and correct in all
material respects as of the Effective Date.
Section 11.2 Covenants. APP and APP Sub shall have performed and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Effective
Date.
Section 11.3 Legal Opinions. Counsel to APP and APP Sub shall
have delivered to the Company their opinion, dated as of the Effective Date, in
form and substance substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. Each
Company, the Stockholders, NewCo, APP and APP Sub shall have obtained all
licenses, permits and all necessary government and other third-party approvals
and consents required under any law, contracts or any statute, rule, regulation
or ordinances to consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The
Registration Statements shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the Registration Statements
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC. At or prior to the Effective Date, APP
shall have received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. At or prior to the Effective
Date, the APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 11.7 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received
all Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to the Company referred to in Section
12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse
Effect on APP or APP Sub shall have occurred since __________, 1997, whether or
not such change shall have been caused by the deliberate act or omission of APP
or APP Sub.
Section 11.10 Service Agreement Analysis. Each Company shall have
received from Shattuck Hammond Partners, Inc. its opinion and analysis, in form
satisfactory to the Company, that the terms of the Service Agreement are fair
and commercially reasonable.
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Section 11.11 Tax Opinion. The Company shall have received from
Haynes and Boone, L.L.P., a tax opinion, substantially in the form set forth in
Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the
Effective Date, each Company shall deliver to APP the following, all of which
shall be in a form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of
the Company authorizing the execution, delivery and performance of this
Agreement and the Service Agreement and all related documents and agreements
and consummation of the Merger, each certified by the Secretary of the Company
as being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of
NewCo authorizing the execution, delivery and performance of the Service
Agreement, the Security Agreement and the Physician Employment Agreements each
certified by the Secretary of NewCo as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(c) a certificate of the President of the Company dated
the Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated
the Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by
the Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and
officers of such corporation and as to the signatures of such directors and
officers who have executed documents delivered at the Closing on behalf of that
corporation;
(f) certificates, dated within ten (10) days prior to
the Effective Date, of the Secretary of State of Maryland for the Company and
NewCo establishing that each such corporation is in existence, has paid all
franchise or similar taxes, if any, and, if applicable, otherwise is in good
standing to transact business in the state of Maryland;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the
form attached hereto as Exhibit F, as revised in accordance with changes
reasonably deemed necessary or advisable by legal counsel retained by APP, the
Company and NewCo in the State of Maryland to address regulatory and compliance
issues (the "Service Agreement");
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(k) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Code, of each Stockholder, signed under a
penalty of perjury and dated as of the Closing Date, to the effect that such
Stockholder is a United States citizen or a resident alien (and thus not a
foreign person) and providing such Stockholder's United States taxpayer
identification number;
(m) an executed Stockholder Release by the Stockholders
in substantially the form attached hereto as Exhibit G (the "Stockholder
Release");
(n) Intentionally omitted; and
(o) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of
this Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective
Date, APP shall deliver to each Company the following, all of which shall be in
a form reasonably satisfactory to each Company:
(a) a copy of resolutions of the Board of Directors of
APP authorizing the execution, delivery and performance of this Agreement, and
all related documents and agreements, certified by APP's Secretary as being
true and correct copies of the originals thereof subject to no modifications or
amendments;
(b) a copy of resolutions of the Board of Directors of
APP Sub authorizing the execution, delivery and performance of this Agreement,
the Service Agreement and the Security Agreement, each certified by the
Secretary of APP Sub as being true correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of APP and APP Sub
dated the Closing Date as to the truth and correctness of the representations
and warranties of APP and APP Sub contained herein on and as of the Effective
Date;
(d) a certificate of the President of APP and APP Sub
dated the Closing Date, (i) as to the performance and compliance by APP or APP
Sub with all covenants contained herein on and as of the Effective Date and
(ii) certifying that all conditions precedent required to be satisfied by APP
and APP Sub shall have been satisfied;
(e) a certificate of the Secretary of APP and APP Sub
certifying as to the incumbency and to the signatures of the officers of APP or
APP Sub who have executed documents delivered at the Closing on behalf of APP
or APP Sub;
(f) a certificate, dated within ten (10) days prior to
the Effective Date, of the secretary of state of incorporation establishing
that APP and APP Sub are, respectively, in existence, have paid all franchise
or similar taxes, if any, and otherwise are in good standing to transact
business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within
ten (10) days prior to the Effective Date, of the Secretaries of State of the
states in which either APP and APP Sub is qualified to do business, to the
effect that APP and APP Sub is qualified to do business and is in good standing
as a foreign corporation in such state;
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(h) the executed Service Agreement as revised in
accordance with the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II and Exhibit B
hereof; and
(k) such other instrument or instruments of transfer
prepared by the Company as shall be necessary or appropriate, as the Company or
its counsel shall reasonably request, to carry out and effect the purpose and
intent of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the
Closing, at the request of APP or the Surviving Corporation and at APP's sole
cost and expense, the Stockholders and each Company shall deliver any further
instruments of transfer and take all reasonable action as may be necessary or
appropriate to carry out the purpose and intent of this Agreement. Following
the Closing, at the request of NewCo and at NewCo's sole cost and expense, APP
or the Surviving Corporation shall deliver any further instruments of transfer
and take all reasonable action as may be necessary and appropriate to carry out
the purpose and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which each Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Code, to
report the Merger as a Reorganization and such opinion either is furnished
prior to the Effective Time or is based on facts or events not known at the
Effective Time. Each party shall provide to each other party such tax
information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Merger as a
Reorganization.
(c) The parties agree that no Stockholder shall be liable for any
taxes incurred by each Company and for which APP has successor liability
therefor which arise solely as a result of the Merger or the consummation of
the transactions contemplated hereby; provided that the foregoing shall not
limit or otherwise be deemed a waiver of any right of indemnification under
Section 14.1 for a breach of any representation, warranty or covenant of each
Company or any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of each Company to meet the requirements of
Rule 145(d) under the Securities Act.
ARTICLE XIV
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Remedies
Section 14.1 Indemnification by each Company. Subject to the
terms and conditions of this Article XIV, each Company agrees to indemnify,
defend and hold APP and the Surviving Corporation and their respective
directors, officers, stockholders, employees, agents, attorneys, consultants
and Affiliates harmless from and against all losses, claims, obligations,
demands, assessments, penalties, liabilities, costs, damages, reasonable
attorneys' fees and expenses (including, without limitation, all costs of
experts and all costs incidental to or in connection with any appellate
process) (collectively, "Damages") asserted against or incurred by such
individuals and/or entities arising out of or resulting from:
(a) a breach by the Company of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of the
Company contained in this Agreement or in any Disclosure Schedule or
certificate delivered thereunder;
(b) any violation (or alleged violation) by the Company
and/or any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons
in which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any (i) untrue
statement of material fact in any Registration Statement or any prospectus
forming or part thereof, or any amendment thereof or supplement thereto
relating to the Company (including any Company Subsidiary) or NewCo required to
be stated therein or (ii) failure to state information necessary to make the
statements therein not misleading, which untrue statement or failure to state
information arises or results solely from information provided in writing to
APP or its counsel by the Company or any Stockholder or their agents
specifically for inclusion in any such Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP and APP Sub. Subject to the
terms and conditions of this Article XIV, APP and APP Sub jointly and severally
hereby agree to indemnify, defend and hold the Stockholders, the Company and
NewCo and their respective directors, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates harmless from and against all
Damages asserted against or incurred by such individuals and/or entities
arising out of or resulting from:
(a) a breach by APP or APP Sub of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of APP or
APP Sub contained in this Agreement or in any schedule or certificate delivered
hereunder; and
(b) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any untrue statements
of material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or required to be
stated therein or failure to state information necessary to make the statements
therein not misleading (except for any liability based upon any actual or
alleged untrue statement of material fact or an omission to state a material
fact relating to NewCo, the Company or any Stockholder to the extent derived
from any information provided in writing by the Company or a Company Subsidiary
or any of their agents contained in the representations and
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warranties set forth in this Agreement or any certificate, exhibit, schedule or
instrument required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
of any of the parties hereto of liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the
Agreement (an "Indemnified Party") shall promptly (and, in the event, at least
ten (10) days prior to the due date for any responsive pleadings, filings or
other documents) (i) notify the party for whom indemnification is sought (the
"Indemnifying Party) of any third-party claim or claims asserted against the
Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying
Party a written notice ("Claim Notice") describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), an estimate of the amount of Damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. The failure to promptly deliver a Claim
Notice shall not relieve any Indemnifying Party of its obligations to any
Indemnified Party with respect to the related Third Party Claim except to the
extent that the resulting delay is materially prejudicial to the defense of
such claim. Within thirty (30) days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(x) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article XIV with respect to such Third Party Claim
and (y) whether the Indemnifying Party desires, at the sole cost and expense of
such Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim.
(b) If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall have
the right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set
forth in Section 14.3(f) below, the Indemnifying Party shall have full control
of such defense and proceedings, including any compromise or settlement
thereof. The Indemnified Party is hereby authorized, at the sole cost and
expense of the Indemnifying Party (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period,
any motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party and not prejudicial to the Indemnifying Party. If requested by the
Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Party, to cooperate with the Indemnifying Party and their
counsel in contesting any Third Party Claim that the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 14.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and upon written
notification thereof, the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of the Indemnified Party; provided further
that the Indemnifying Party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
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liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 14.3(b), or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
14.3(b) but fails diligently and promptly to prosecute or settle the Third
Party Claim, then the Indemnified Party shall have the right to defend, at the
sole cost and expense of the Indemnifying Party (if the Indemnified Party is
entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense and proceedings,
provided, however, that the Indemnified Party may not enter into, without the
Indemnifying Party's consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes their
potential liability to the Indemnified Party under this Article XIV and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all costs and expenses of such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
Section 14.3(c), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation; provided, however, that if the
named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnifying Party
has been advised by counsel that there may be one or more legal defenses
available to it that are different from or additional to those available to the
Indemnified Party, then the Indemnifying Party may employ separate counsel and
upon written notification thereof, the Indemnified Party shall not have the
right to assume the defense of such action on behalf of the Indemnifying Party.
(d) In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder that does not involve a Third
Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the
Indemnified Party within sixty (60) days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes such claim, the claim specified by
the Indemnified Party in the Indemnity Notice shall be deemed a liability of
the Indemnifying Party hereunder. If the Indemnifying Party has timely
disputed such claim, as provided above, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction if the parties do
not reach a settlement of such dispute within thirty (30) days after notice of
a dispute is given.
(e) Payments of all amounts owing by any Indemnifying
Party pursuant to this Article XIV relating to a Third Party Claim shall be
made within thirty (30) days after the latest of (i) the settlement of such
Third Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice
period or (ii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under this
Agreement.
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(f) The Indemnifying Party shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or
compromise a Third Party Claim against an Indemnified Party. If a firm offer
is made to settle such a claim solely by the payment of money damages and the
Indemnifying Party notifies the Indemnified Party in writing that the
Indemnifying Party agrees to such settlement, but the Indemnified Party elects
not to accept and agree to it, the Indemnified Party may continue to contest or
defend such Third Party Claim and, in such event, the total maximum liability
of the Indemnifying Party to indemnify or otherwise reimburse the Indemnified
Party hereunder with respect to such a claim shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable out-of-pocket costs
and reasonable expenses (including reasonable attorneys' fees and
disbursements) to the date of notice that the Indemnifying Party desired to
accept such settlement.
(g) Notwithstanding any provision herein to the contrary,
the obligation of an Indemnifying Party to provide indemnification to an
Indemnified Party for breach of any representation or warranty as provided in
Sections 14.1(a) or 14.2(a) hereof shall not take effect unless and until the
Damages asserted against or incurred in the aggregate and on a collective basis
by the Indemnified Parties pursuant to either Section 14.1 or 14.2 (as
applicable) as a result of such a breach or breaches exceeds [$____________].
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount
of any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and
the Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and
delivered by the Company or any Stockholder pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or any
Stockholder fails to comply in any material respect with any material covenant
or agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within thirty (30) days after receipt
of written notice thereof;
(c) at any time prior to the Effective Date by the
Company if any representation or warranty of APP or APP Sub contained in this
Agreement or in any certificate or other document executed and delivered by APP
or APP Sub pursuant to this Agreement is or becomes untrue in any material
respect of if APP fails to comply in any material respect with any covenant or
agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within thirty (30) days after receipt
of written notice thereof;
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(d) at any time prior to the Effective Date by APP if, as
a result of the conduct of due diligence and regulatory compliance procedures,
APP deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have
been consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in
Section 16.3, in the event this Agreement is terminated pursuant to this
Article XV, this Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. Each Company and NewCo
recognize and acknowledge that each has in the past, currently has, and in the
future may possibly have, access to certain Confidential Information of APP and
the Surviving Corporation that is valuable, special and a unique asset of such
entity's business. APP and APP Sub acknowledge that they had in the past,
currently have, and in the future may possibly have, access to certain
Confidential Information of each Company and NewCo that is valuable, special
and a unique asset of each such business. Each Company, NewCo, APP, and APP
Sub, severally, agree that they will not disclose such Confidential Information
to any person, firm, corporation, association or other entity for any purpose
or reason whatsoever, except (a) to authorized representatives of APP, APP Sub,
Surviving Corporation, NewCo and each Company and (b) to counsel and other
advisers to APP, APP Sub, Surviving Corporation, NewCo and each Company
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 16.1, unless (i) such information becomes available
to or known by the public generally through no fault of the Company, NewCo, APP
or APP Sub, as the case may be, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (iii) each Company, NewCo,
APP or APP Sub, as the case may be, shall, if possible, give prior written
notice thereof to the Company, NewCo, APP or APP Sub and provide each Company,
APP or APP Sub with the opportunity to contest such disclosure, (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, or (iv)
the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Merger or otherwise. In the event of a breach
or threatened breach by each Company, on the one hand, and APP or APP Sub, on
the other hand, of the provisions of this Section, APP, APP Sub, the Surviving
Corporation, NewCo and each Company shall be entitled to an injunction
restraining the other party, as the case may be, from disclosing, in whole or
in part, such Confidential Information. Nothing herein shall be construed as
prohibiting any of such parties from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages.
Section 16.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, APP Sub, the Surviving
Corporation, NewCo and each Company agree that, in the event of a breach by
either of them of the foregoing covenant, the covenant may be enforced against
them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms
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and conditions hereof must be in writing, and signed by the parties hereto.
The waiver of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any other terms and conditions hereof.
Section 17.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by APP to a wholly owned subsidiary of APP; provided that any such
assignment shall not relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP and APP Sub
acknowledge and agree that the rights and remedies of each Company under this
Agreement will be directly available to the Stockholders as third party
beneficiaries of the rights and remedies of each Company under this Agreement,
including, without limitation, the rights and remedies under Article 14 hereof
to indemnification from APP and APP Sub against Damages incurred by the
Stockholders resulting from a breach by APP or APP Sub of any representation,
warranty or covenant of APP or APP Sub contained herein. Except as provided in
the preceding sentence or as otherwise provided herein, neither this Agreement
nor any other agreement contemplated hereby shall be deemed to confer upon any
person not a party hereto or thereto any rights or remedies hereunder or
thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and
Covenants. The representations, warranties and covenants contained herein
shall survive the Closing and all statements contained in any certificate,
exhibit or other instrument delivered by or on behalf of each Company, any
Stockholder, APP or APP Sub pursuant to this Agreement shall be deemed to have
been representations and warranties by the Company, such Stockholder, APP and
APP Sub. Notwithstanding any provision in this Agreement to the contrary, the
representations and warranties contained herein shall survive the Closing until
the second anniversary of the Closing Date except that (a) the representations
and warranties set forth in Section 3.21 with respect to environmental matters
shall survive for a period of ten (10) years, (b) the representations and
warranties set forth in Section 3.30 with respect to tax matters shall survive
until such time as the limitations period has run for all tax periods ended
prior to the Closing Date, (c) the representations and warranties contained in
Section 3.27 and Section 3.33 with respect to healthcare matters shall survive
for a period of six (6) years and (d) solely for purposes of Section 14.1(c)
and Section 14.2(c), and solely to the extent that any party to be indemnified
pursuant to such provisions actually incurs liability under the Securities Act,
the Exchange Act or any other federal or state securities law, the
representations and warranties set forth therein shall survive until the
expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN
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ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF
LAWS) OF THE STATE OF MARYLAND.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
Section 17.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each
party shall keep this Agreement and its terms confidential, and shall make no
press release or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge and
consent of the other parties hereto; provided that the foregoing shall not
prohibit any disclosure (a) by press release, filing or otherwise that APP has
determined in its good faith judgment and after advice of legal counsel to be
required by federal securities laws or the rules of the National Association of
Securities Dealers, (b) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request
or demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by telex,
telegram or courier service, when delivered to the party to whom notice is
sent, (ii) if delivered by facsimile transmission, when so sent and receipt
acknowledged by receipt or (iii) if delivered by mail (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may
designate by written notice to all other parties in accordance herewith):
If to APP and APP Sub: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Advanced Radiology, LLC
7253 Ambassador Road
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<PAGE> 415
Baltimore, Maryland 21244
Fax No.: (410) 281-2560
Attn: Michael L. Sherman, M.D.
with a copy to: Law Offices of Peter G. Angelos
300 East Lombard, 18th Floor
Baltimore, Maryland 21202-3219
Fax No.: (410) 659-1780
Attn: Theodore W. Hirsh, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any
act (except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in
this Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
----------------------------------
Gregory L. Solomon, President
APP SUB:
[AMERICAN PHYSICIAN PARTNERS,
SUBSIDIARY, INC.]
By:
----------------------------------
Its:
---------------------------------
HARBOR RADIOLOGISTS, P.A.
By:
----------------------------------
Its:
---------------------------------
DRS. THOMAS, WALLOP, KIM & LEWIS, P.A.
By:
----------------------------------
Its:
---------------------------------
CARROLL IMAGING ASSOCIATES, P.A.
By:
----------------------------------
Its:
---------------------------------
DRS. COPELAND, HYMAN & SHACKMAN, P.A.
By:
----------------------------------
Its:
---------------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 417
DRS. DECARLO, LYON, HEARN & PAZOUREK,
P.A.
By:
----------------------------------
Its:
---------------------------------
PERILLA, SINDLER & ASSOCIATES, P.A.
By:
----------------------------------
Its:
---------------------------------
DIAGNOSTIC IMAGING ASSOCIATES, P.A.
By:
----------------------------------
Its:
---------------------------------
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EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-57
<PAGE> 419
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
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<PAGE> 420
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
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<PAGE> 421
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
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EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
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<PAGE> 423
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
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<PAGE> 424
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
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<PAGE> 425
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth
therein are delivered in connection with that certain Agreement and Plan of
Reorganization and Merger dated ____________, 1997, by and between American
Physician Partners, Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made
pursuant to one section number can reasonably be interpreted by other parties
to be a disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain
exceptions to the representations and warranties set forth in Article III of
the Agreement, the inclusion of an item on these Disclosure Schedules shall not
be deemed an admission by American Physician Partners, Inc. that such item is
material to American Physician Partners, Inc., APP Sub, the Company, NewCo or
any Company Subsidiary or that it will have a material adverse effect on
American Physician Partners, Inc., APP Sub, the Company, NewCo or any Company
Subsidiary.
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<PAGE> 426
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and CARROLL
IMAGING ASSOCIATES, P.A., DIAGNOSTIC IMAGING ASSOCIATES, P.A., DRS. THOMAS,
WALLOP, KIM & LEWIS, P.A., DRS. COPELAND, HYMAN & SHACKMAN, P.A., DRS. DECARLO,
LYON, HEARN & PAZOUREK, P.A., HARBOR RADIOLOGISTS, P.A., AND PERILLA, SINDLER &
ASSOCIATES, P.A., each a Maryland professional association (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not have
been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
[signatures continued on next page]
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<PAGE> 427
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and between
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)
and
THE IDE GROUP, P.C.
(a New York professional corporation)
================================================================================
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Rules Of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Certificate of Incorporation of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.5 Bylaws of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6 Directors of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.7 Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.8 Conversion of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.9 Exchange of Certificates Representing Shares of the Company Common Stock . . . . . . . . . . . . 7
Section 2.10 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.5 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.6 Continuity of Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.7 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.8 Absence of Conflicting Agreements or Required Consents . . . . . . . . . . . . . . . . . . . . . 9
Section 3.9 Intentionally omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.10 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.11 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.12 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.13 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.14 Lease Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.15 Real and Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.16 Indebtedness for Borrowed Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.17 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.18 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.19 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.20 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.22 Filing Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.23 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.24 Accounts Receivable; Payors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.25 Accounts Payable; Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.26 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.27 Licenses, Authorization and Provider Programs . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.28 Inspections and Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.29 Proprietary Rights and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.30 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Section 3.31 Related Party Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.32 Banking Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.33 Fraud and Abuse and Self Referral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.34 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.35 Agreements in Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.36 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.37 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.38 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV Representations and Warranties of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.2 Authorization and Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.5 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.6 Absence of Conflicting Agreements or Required Consents . . . . . . . . . . . . . . . . . . . . . 23
Section 4.7 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.8 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.9 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.10 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.11 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.13 Related Party Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.14 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.15 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.16 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.17 Agreements in Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE V Closing Date Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . 25
Section 5.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.3 Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.4 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.6 No Business, Agreements, Assets or Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI ARTICLE VI INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VII Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.1 Conduct of The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.2 Title to Assets; Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.4 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.5 Compliance With Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.6 Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.7 Intentionally omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.8 Stockholders' Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.9 Obligations of Company and Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.10 Funding of Accrued Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.11 Accounting and Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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Section 7.12 Spin-Off Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.13 "F" Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VIII Covenants of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.1 Consummation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.2 Requirements to Effect the Merger and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.4 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.5 Qualified Retirement Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IX Covenants of APP and the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.1 Filings; Other Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.2 Amendments of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.3 Actions Contrary to Stated Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.4 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.6 Patient Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.7 Registration Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE X Conditions Precedent of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.3 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.5 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.6 Government Approvals and Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.7 Securities Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.9 Closing of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.10 Closing of Related Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.11 Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.12 Stockholder Representation Letter; Indemnification Agreement . . . . . . . . . . . . . . . . . . 34
Section 10.13 Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.15 Completion of "F" Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE XI Conditions Precedent of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.3 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.5 Government Approvals and Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.7 Closing of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.9 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.10 Service Agreement Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.11 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XII Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.1 Deliveries of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.2 Deliveries of APP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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ARTICLE XIII Post Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.1 Further Instruments of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.2 Merger Tax Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.3 Current Public Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XIV Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.1 Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.2 Indemnification by APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 14.4 Costs, Expenses and Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 14.5 Tax Benefits; Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XV Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 15.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 15.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XVI Nondisclosure of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 16.1 Non-Disclosure Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 16.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 16.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XVII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.1 Amendment; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.3 Parties in Interest; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.6 Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.9 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.10 Intentionally omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.11 Confidentiality; Publicity and Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.12 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.13 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.15 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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EXHIBITS
Exhibit A - List of Target Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Stockholder Representation Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D - Indemnification Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E - Physician Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
Exhibit F - Service Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit G - Stockholder Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
</TABLE>
Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
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<PAGE> 433
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP") and THE IDE GROUP, P.C., a New
York corporation (the "Company").
RECITALS
A. The Company owns and operates (i) [a] professional medical
practice specializing in radiology and radiation oncology and (ii) diagnostic
imaging centers. All of the shares of the common stock, par value $1.00 per
share, of the Company (the "Company Common Stock") are owned beneficially and
of record by the Stockholders.
B. APP is engaged in the business of owning, operating and
acquiring the assets of, and managing the non-medical aspects of, radiology
practices and diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that
the Company be merged with and into APP, and that APP be the sole surviving
corporation (sometimes referred to hereinafter as the "Surviving Corporation"),
and the Company be the disappearing corporation (sometimes referred to
hereinafter as the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) the Company will merge
with and into APP upon the terms and conditions set forth herein and in
accordance with the laws of the State of New York and (ii) the outstanding
shares of the Company Common Stock shall be converted at such time into cash
and shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein.
E. Prior to the Merger, the Company intends to transfer certain
of its assets most of which relate solely to the practice of medicine to a
newly formed professional corporation ("NewCo") in exchange for all of the
capital stock of NewCo and to thereafter distribute such NewCo stock to the
Stockholders (the "Spin-Off Transaction"). The Company intends the Spin-Off
Transaction to qualify under Section 355 of the Code.
F. APP and APP Subsidiaries have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement
with interest holders (together with the Stockholders, the "Target Interest
Holders") of each of the entities listed on Exhibit A (together with the
Company, the "Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder.
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<PAGE> 434
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, NewCo and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed on Exhibit 1.1, director or executive officer of such
entity after reasonable investigation and inquiry by the executive officers of
such entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director
or executive officer of the Company actually possesses without the necessity of
any special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the
recitals to this Agreement.
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"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section
3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person,
including, but not limited to, information derived from reports, processes,
data, know-how, software programs, improvements, inventions, strategies,
compensation structures, reports, investigations, research, work in progress,
codes, marketing and sales programs and plans, financial projections, cost
summaries, formulae, contract analyses, financial information, forecasts,
confidential filings with any state or federal agency, and all other
confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section
3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the
terms hereof, as such may be amended or supplemented from time to time pursuant
to the provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement
is declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
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"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering
of APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section
14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or
other fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred
to, taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste,
(xi) any substance, pollutant, material, or contaminant listed or regulated
under any Medical Waste Law, and (xii) other biological waste and discarded
materials contaminated with or exposed to blood, excretion, or secretions from
human beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651 et seq.,
(v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-
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119, and (vi) any other federal, state, regional, county, municipal, or other
local laws, regulations, and ordinances insofar as they are applicable to any
of the Company's assets or operations and purport to regulate Medical Waste or
impose requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock, $1.00 par value per
share, of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.
"Physician Employee" shall mean each radiologist and radiation
oncologist employed by the Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the
recitals to this Agreement.
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"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth
in Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in
which such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed
to be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time, the Company shall be merged with and
into the Company in accordance with this Agreement and the separate corporate
existence of the Disappearing Corporation shall thereupon cease (the "Merger").
APP shall be the Surviving Corporation in the Merger and shall continue to be
governed by the laws of the State of New York, and the separate corporate
existence of APP with all its rights, privileges, powers, immunities, purposes
and franchises shall continue unaffected by the Merger, except as set forth
herein. The Surviving Corporation may, at any time concurrent with and/or
after the Effective Time, take any action in the name of or on behalf of the
Disappearing Corporation in order to effectuate the transactions contemplated
by this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take
place at 10:00 a.m., local time, at the offices of APP located at 2301
NationsBank Plaza, 901 Main Street, Dallas, Texas on the day on which the
transactions contemplated by the Initial Public Offering are consummated. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
Section 2.3 Effective Time. If all the conditions to the Merger
set forth in Articles XI and XII shall have been fulfilled or waived in
accordance herewith and this Agreement shall not have been terminated in
accordance with Article XVI, the parties hereto shall cause to be properly
executed and filed on the Closing Date, Certificates of Merger meeting the
requirements of Section 904 of the New York Business Corporation Law. The
Merger shall become effective at the time of the filing of such documents with
the Secretary of State of the State of New York, in accordance with such law or
at such later time
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which the parties hereto have theretofore agreed upon and designated in such
filings as the effective time of the Merger (the "Effective Time").
Section 2.4 Certificate of Incorporation of Surviving
Corporation. Effective at the Effective Time, the Certificate of Incorporation
of APP in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation without any amendment
or modification as a result of the Merger.
Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP
in effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger.
Section 2.6 Directors of the Surviving Corporation. The persons
who are directors of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time.
Section 2.7 Officers of the Surviving Corporation. The persons
who are officers of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on
the part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the
Company's treasury, if any, at the Effective Time, by virtue of the Merger,
shall be cancelled and retired without payment of any consideration therefor
and shall cease to exist.
(c) Each Company Right outstanding at the Effective Time
shall be terminated and cancelled, without payment of any consideration
therefor, and shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged
and remain outstanding as a validly issued, fully paid and nonassessable share
of APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the
Company Common Stock.
(a) At or after the Effective Time and at the Closing (i)
the Stockholders, as holders of a certificate or certificates representing
shares of the Company's Common Stock, shall upon surrender of each certificate
or certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until
each certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of
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Company Common Stock converted into Merger Consideration shall by virtue of the
Merger and without any action on the part of the holders thereof, cease to be
outstanding, be cancelled and returned and all shares of APP Common Stock
issuable to the Stockholders in the Merger as part of the Merger Consideration
shall be deemed for all purposes to have been issued by APP at the Effective
Time.
(b) Each Stockholder shall deliver to APP at the Closing
the certificates representing Company Common Stock owned by him, her or it,
duly endorsed in blank by the Stockholder, or accompanied by duly executed
stock powers in blank, and with all necessary transfer tax and other revenue
stamps, acquired at the Stockholder's expense, affixed and cancelled. Each
Stockholder agrees to cure any deficiencies with respect to the endorsement of
the certificates or other documents of conveyance with respect to such Company
Common Stock or with respect to the stock powers accompanying any Company
Common Stock. Upon such delivery (or completion of appropriate affidavit of
lost certificate and indemnity), each Stockholder shall receive in exchange
therefor the Merger Consideration pursuant to Exhibit B and Section 2.10
hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other
provision herein, no fractional shares of APP Common Stock will be issued and
any Stockholder otherwise entitled to receive a fractional share of APP Common
Stock as part of the Merger Consideration hereunder shall receive a cash
payment in lieu thereof reflecting such Stockholder's proportionate interest in
a share of APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to consummate
the Merger and except as set forth in the Disclosure Schedules attached hereto
and incorporated herein by this reference, the Company represents and warrants
to APP both as of the date hereof and as of the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, with all requisite corporate
power and authority to own, operate and lease its assets and properties and to
carry on its business as currently conducted. The Company and each Company
Subsidiary is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in
good standing would not have a Material Adverse Effect on the Company. Copies
of the articles or certificates of incorporation and all amendments thereto of
the Company and each Company Subsidiary and the bylaws of the Company and each
Company Subsidiary, as amended, and copies of the corporate minutes of the
Company, all of which have been or will be made available to APP for review,
are true and complete as in effect on the date of this Agreement and, in the
case of the corporate minutes, accurately reflect all material proceedings of
the Stockholders and directors of the Company (and all committees thereof).
The stock record books of the Company, which have been or will be made
available to APP for review, contain true, complete and accurate records of the
stock ownership of record of the Company and the transfer record of the shares
of its capital stock.
Section 3.2 Authorization and Validity. The Company has all
requisite corporate power to enter into this Agreement and all other agreements
entered into in connection with the transactions contemplated hereby and to
consummate the transactions contemplated hereby. The execution, delivery and,
subject to approval of this Agreement and the Merger by the Stockholders,
performance by the Company of this Agreement and the agreements contemplated
herein, and the consummation by the Company of the transactions contemplated
hereby and thereby are within the Company's respective corporate powers and
have been duly authorized by all necessary action on the part of the Company's
Board of Directors. Subject to the approval of this Agreement and the Merger
by the Stockholders, this
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Agreement has been duly executed by the Company, and this Agreement and all
other agreements and obligations entered into and undertaken in connection with
the transactions contemplated hereby to which the Company is a party
constitute, or upon execution will constitute, valid and binding agreements of
the Company, enforceable against it in accordance with their respective terms,
except as enforceability may be limited by bankruptcy or other laws affecting
the enforcement of creditors' rights generally, or by general equity
principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger (as
contemplated by Section 2.3) and any other required documents related to the
Merger, and other than consents, filings or notifications required to be made
or obtained solely by APP (including, without limitation, in connection with
the Initial Public Offering, Form S-4 or any Hart-Scott-Rodino filing to be
made by APP, if any), the execution, delivery and performance by the Company of
this Agreement and the agreements provided for herein, and the consummation of
the transactions contemplated hereby and thereby by the Company require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority.
Section 3.4 Capitalization. The authorized capital stock of the
Company consists of [_____] shares of the Company Common Stock, of which [____]
shares are issued and outstanding. The Stockholders collectively are and will
be immediately prior to the Effective Time the record and beneficial owners of
all the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common
Stock are owned by the Company in treasury. No shares of Company Common Stock
have been issued or disposed of in violation of any preemptive rights, rights
of first refusal or similar rights of any of the Stockholders. Other than
Company Common Stock, the Company has no securities, bonds, debentures, notes
or other obligations the holders of which have the right to vote (or are
convertible into or exercisable for securities having the right to vote) with
the Stockholders on any matter.
Section 3.5 Transactions in Capital Stock. There exist no
Company Rights. The Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Company nor the relative
ownership of shares among any of its Stockholders has been altered or changed
in contemplation of the Merger within the two (2) years preceding the date of
this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not
been any sale, distribution or spin-off of significant assets of the Company or
any of its Affiliates other than in the ordinary course of business within the
(2) two years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not
own, directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required
Consents. Subject to approval of this Agreement and the Merger by the
Stockholders of the Company, the execution, delivery and performance by the
Company of this Agreement and any other documents contemplated hereby (with or
without the giving of notice, the lapse of time, or both): (i) do not require
the consent of any governmental or regulatory body or authority or any other
third party except for such consents, for which the failure to obtain would not
result in a Material Adverse Effect on the Company; (ii) will not conflict with
or result in a violation of any provision of the Company's articles or
certificate of incorporation or bylaws, (iii) will not conflict with, result in
a violation of, or constitute a default under any law, rule, ordinance,
regulation
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or any ruling, decree, determination, award, judgment, order or injunction of
any court or governmental instrumentality which is applicable to the Company or
by which the Company or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or modify,
or permit any person to accelerate or modify, any performance required by the
terms of any agreement, instrument, license or permit, to which the Company is
a party or by which the Company or any of its properties are subject or bound
except for such conflict, termination, breach or default, the occurrence of
which would not result in a Material Adverse Effect on the Company; and (v)
except as contemplated by this Agreement, will not create any Encumbrance or
restriction upon the Company Common Stock or any of the assets or properties of
the Company.
Section 3.9 Intentionally omitted.
Section 3.10 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, the Company has conducted
its business only in the ordinary course and has not:
(a) suffered any change or changes in its working
capital, condition (financial or otherwise), assets, liabilities, reserves,
business or operations (whether or not covered by insurance) that individually
or in the aggregate has had or could reasonably be expected to have a Material
Adverse Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business;
(c) written off as uncollectible any receivable, except
for write-offs in the ordinary course of business;
(d) except in the ordinary course of business and
consistent with past practice, cancelled or compromised any debts or waived or
permitted to lapse any claims or rights or sold, transferred or otherwise
disposed of any of its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment
policies;
(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject,
any of its assets, tangible or intangible, to any claim or Encumbrance, except
for liens for current personal property taxes not yet due and payable,
mechanics, landlords, materialmen, and other statutory liens, purchase money
security interests, sale-leaseback interests granted and all other Encumbrances
granted in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee
benefits for any employee of the Company, except in the ordinary course of
business and consistent with past practice;
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(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends
or other distributions to any Stockholder or any other holder of capital stock
of the Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its
knowledge, the Company does not have any liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected or reserved against
in the Company's Current Balance Sheet.
Section 3.12 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of the
Company, threatened against, or affecting the Company, any Company Subsidiary,
any Stockholder, the Physician Employees or any other licensed professional or
other individual affiliated with the Company affecting or that would reasonably
be likely to affect the Company Common Stock or the operations, business
condition, (financial or otherwise), or results of operations of the Company
which (i) if successful, may, individually or in the aggregate, have a Material
Adverse Effect on the Company or (ii) could adversely affect the ability of the
Company or any Company Subsidiary to effect the transactions contemplated
hereby, and to the knowledge of the Company there is no basis for any such
action or any state of facts or occurrence of any event which would reasonably
be likely to give rise to the foregoing. There are no unsatisfied judgments
against the Company or any Company Subsidiary or any licensed professional or
other individual affiliated with the Company or any Company Subsidiary relating
to services provided on behalf of the Company or any Company Subsidiary or any
consent decrees to which any of the foregoing is subject. Each of the matters,
if any, set forth in this Section 3.12 is fully covered by policies of
insurance of the Company or any Company Subsidiary as in effect on the date
hereof.
Section 3.13 No Violation of Law. Neither the Company nor any
Company Subsidiary has been, nor shall be as of the Effective Time (by virtue
of any action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever), in violation of any applicable local,
state or federal law, ordinance, regulation, order, injunction or decree, or
any other requirement of any governmental body, agency, authority or court
binding on it, or relating to its properties, assets or business or its
advertising, sales or pricing practices, except for violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a
true, accurate and complete list of all the lease agreements and license
agreements to which the Company or any Company Subsidiary is a party and
pursuant to which the Company or any Company Subsidiary leases (whether as
lessor or lessee) or licenses (whether as licensor or licensee) any real or
personal property related to the operation of its business and which requires
payments in excess of $12,000 per year (the "Lease Agreements"). The Company
has delivered to APP true and complete copies of all of the Lease Agreements.
Each Lease Agreement is valid, effective and in full force in accordance with
its terms, and there is not under any such lease (i) any existing or claimed
material default by the Company or any Company Subsidiary (as applicable) or
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by the Company or any Company Subsidiary
(as applicable) and, individually or in the aggregate, may reasonably result in
a Material Adverse Effect on the Company, or, (ii) to the knowledge of the
Company, any existing material default by any other party under any of the
Lease Agreements or any event of material default or event which with notice or
lapse of time, or both, would constitute a material default by any such party.
To the knowledge of the Company, there is no pending or threatened reassessment
of any property covered by the Lease Agreements. The
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Company or any Company Subsidiary will use reasonable good faith efforts to
obtain, prior to the Effective Time, the consent of each landlord or lessor
whose consent is required to the assignment of the Lease Agreements and will
use reasonable good faith efforts to deliver to APP in writing such consents as
are necessary to effect a valid and binding transfer or assignment of the
Company's or any Company Subsidiary's rights thereunder. The Company has a
good, clear, valid and enforceable leasehold interest under each of the Lease
Agreements. The Lease Agreements comply with the exceptions to ownership
interests and compensation arrangements set out in 42 U.S.C. Section 1395nn,
42 C.F.R. Section 1001.952, and any similar applicable state law safe harbor or
other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns
any interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein which it purports to own
including, without limitation, all the property and assets reflected in the
Company Current Financial Statements; and (ii) owns such rights, interests,
assets and property free and clear of all Encumbrances, title defects or
objections (except for taxes not yet due and payable). The personal property
presently used in connection with the operation of the business of the Company
and the Company Subsidiaries constitutes the necessary personal property assets
to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, the Company does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in
any manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies,
of each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate
(other than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000
in any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is
with unrelated third parties and was entered into on an arms-length basis in
the ordinary course of business and, assuming the receipt of the appropriate
consents, all will continue to be binding in accordance with their terms after
consummation
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of the transaction contemplated herein; there are no contracts, agreements or
other instruments to which the Company is a party or is bound (other than
physician employment contracts and insurance policies) which could either
singularly or in the aggregate have a Material Adverse Effect on the value to
APP of the assets and properties to be acquired by APP from the Company, or
which could inhibit or prevent the Company from transferring to or vesting in
APP good and sufficient title to the assets and properties to be acquired by
APP and the Surviving Corporation except where the failure to transfer would
not have a Material Adverse Effect on APP. In every instance where consent is
necessary, the Company shall, on or before the Closing Date, use reasonable
good faith efforts to obtain and deliver to APP in writing, effective as of the
Closing Date, such consents as are necessary to enable the Surviving
Corporation to enjoy all of the rights now enjoyed by the Company under such
contracts. Any and all such consents shall be in a form reasonably acceptable
to APP and shall contain an acknowledgment by the consenting party that the
Company has fully complied with and is not in default under any provision of
the particular contract or agreement. Notwithstanding the foregoing, the
Company shall not transfer to APP any contracts or agreements relating to the
provision of professional medical services or other such agreements and
contracts that APP consents to in writing to be transferred to NewCo in the
Spin-off Transaction. No contract with a health care provider or Payor has
been materially amended or terminated within the last twelve (12) months.
(b) The Company (i) has not received notice of any plan
or intention of any other party to exercise any right to cancel or terminate
any contract, agreement or instrument required to be disclosed pursuant to
Section 3.17(a), and to the knowledge of the Company there are no fact(s) that
would justify the exercise of such a right; and (ii) does not currently
contemplate, or have reason to believe any other Person currently contemplates,
any amendment or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a
party to any employment contract (except for oral employment agreements which
are terminable at will), consulting or collective bargaining contracts,
deferred compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit
sharing, bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected
to receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
Upon termination of employment of any employee or Physician Employee, no
severance or other payments will become due and the Company has no policy, past
practice or plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair
labor practice, charge or complaint or any other employment- related matter
against or involving the Company pending or threatened before the National
Labor Relations Board or any federal, state or local agency, authority or
court;
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(c) To the knowledge of the Company, there are no
charges, investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or
court against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the
Immigration Reform and Control Act of 1986, as amended, and all applicable
regulations promulgated thereunder; and
(e) To the knowledge of the Company, there are no
inquiries, investigations or monitoring activities of any licensed, registered,
or certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided to APP copies of all plan documents (as they may have been
amended to the date hereof), determination letters, pending determination
letter applications, trust instruments, insurance contracts or policies related
to an Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee
Benefit Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any
notice that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach
of any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or
other liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the
Company's knowledge, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
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(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or
501(c)(9) of the Code and/or tax-exempt within the meaning of Section 501(a) of
the Code and, to the best knowledge of the Company and each Stockholder, has
been continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation
of any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency
(within the meaning of Section 412 of the Code), whether waived or unwaived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Code) in which the Company is a member (a "Controlled Group"). With respect to
each Employee Benefit Plan subject to Title IV of ERISA, the assets of each
such plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. With respect to each
Employee Benefit Plan described in Section 501(c)(9) of the Code, the assets of
each such plan are at least equal in value to the present value of accrued
benefits, based upon the most recent actuarial valuation as of a date no more
than ninety (90) days prior to the date hereof. The Disclosure Schedules
contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of
a Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any
member of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section
412 of the Code.
(j) PBGC. No facts or circumstances are known to the
Company that would result in the imposition of liability against APP or any of
its Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result
of any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any
Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or
commitment to provide medical, dental or life insurance benefits to or on
behalf of any of its employees who may retire or any of its former employees
who have retired except as may be required pursuant to the continuation of
coverage provisions of Section 4980B of the Code and the applicable provisions
of ERISA.
(l) Other Compensation Arrangements. Neither the Company
nor, to the Company's knowledge, any Stockholder or Physician Employee is a
party to any compensation or debt arrangement with any Person relating to the
provision of health care related services other than arrangements with the
Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has,
within the five (5) years preceding the date hereof, through the Effective
Time, received from any federal, state or local governmental body, agency,
authority or entity, or any other Person, any written notice, demand, citation,
summons, complaint or order or any notice of any penalty, lien or assessment,
and to the knowledge of the Company no investigation or review is pending by
any governmental entity, with respect to any (i) alleged violation by the
Company of any Environmental Law (as defined in subsection (e) below) (ii)
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alleged failure by the Company to have any environmental permit, certificate,
license, approval, registration or authorization required pursuant to any
Environmental Law in connection with the conduct of its business; or (iii)
alleged illegal Regulated Activity (as defined in subsection (e) below) by the
Company.
(b) Neither the Company nor any Company Subsidiary has
used, transported, disposed of or arranged for the disposal of (as those terms
are defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein)
that would be reasonably likely to give rise to any Environmental Liabilities
(as defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
The Disclosure Schedules disclose any known presence of asbestos in or on the
Company's or any Company Subsidiary's owned or leased premises. To the
knowledge of the Company, there is no friable asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises.
(c) To the knowledge of the Company, no soil or water in
or under any assets currently or formerly held for use or sale by the Company
or any Company Subsidiary is or has been contaminated by any Hazardous
Substance while such assets or premises were owned, leased, operated or
managed, directly or indirectly by the Company or any Company Subsidiary, where
such contamination had, or would be reasonably likely to have, a Material
Adverse Effect on the Company.
(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of the
Company, concerning the Company or any Company Subsidiary within the five (5)
years preceding the date hereof through the Effective Time with respect to any
real property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following
terms have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended
to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect
to, or list or define air, water, groundwater, solid waste, hazardous,
toxic, or radioactive substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public in each case as in
effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
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Section 3.22 Filing Reports. All returns, reports, plans and
filings of any kind or nature necessary to be filed by the Company with any
governmental agency or authority have been properly completed and timely filed
in compliance with all applicable requirements, except where failure to so file
would not have a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list
and briefly describe the Company's policies of insurance to which the Company
or any Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and
enforceable policies, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies and all premiums with respect thereto which
are due and payable are currently paid. All Insurance Policies currently
maintained by the Company or any Company Subsidiary ("Current Policies") taken
together, (i) provide adequate insurance coverage for the assets, properties
and operations of the Company and its Affiliates for all risks normally insured
against by a Person carrying on a substantially similar business or businesses
as the Company and its Affiliates, (ii) are sufficient for compliance with
legal and contractual requirements to which the Company or any of its
Affiliates is a party or by which any of them may be bound, and (iii) shall be
maintained in force (including the payment of all premiums and compliance with
their terms) without interruption up to and including the Closing Date. True,
complete and correct copies of all Insurance Policies have been provided to
APP. Neither the Company nor any Company Subsidiary nor any officer or
director thereof has received any notice or other written communication from
any issuer of any Current Policy cancelling such policy, materially increasing
any deductibles or retained amounts thereunder, or materially increasing the
annual or other premiums payable thereunder and, to the knowledge of the
Company, no such cancellation or increase of deductibles, retainages or
premiums is threatened. There are no outstanding claims, settlements or
premiums owed against any Insurance Policy, and all required notices have been
given and all known potential or actual claims under any Insurance Policy have
been presented in due and timely fashion. Within the five (5) years preceding
the Agreement, neither the Company nor any Company Subsidiary has filed a
written application for any professional liability insurance coverage which has
been denied by an insurance agency or carrier. The Disclosure Schedules also
set forth a list of all claims under any Insurance Policy in excess of $10,000
per occurrence filed by the Company or any Company Subsidiary during the
immediately preceding three-year period. Each Physician Employee has, at all
times while a Physician Employee, maintained or been covered by professional
malpractice insurance in such types and amounts as are customary for such a
physician practicing the same type of medicine in the same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging
of all accounts receivable of the Company as of March 31, 1997, which list is
complete, true and accurate in all material respects. All such accounts
receivable arose in the ordinary course of business and have not been
previously written off as bad debts and, are, to the extent still uncollected,
to the knowledge of the Company collectible in the ordinary course of business,
net of reserves for doubtful and uncollectible accounts shown in the Company
Financial Statements or on the accounting records of the Company (which
reserves are calculated consistent with generally accepted accounting
principles and past practice).
(b) The Disclosure Schedules set forth (i) a true,
correct and complete list of the names and addresses of each Payor of the
Company as of such date, which accounted for more than 5% of the revenues of
the Company in the fiscal year ended December 31, 1996, or which is reasonably
expected to account for more than 5% of the revenues of the Company for the
fiscal year to end December 31, 1997, and (ii) a single line item listing for
all private-pay patients in the aggregate of the Company. The Company has
satisfactory relations with such Payors set forth in (i) above and none of such
Payors has notified the Company that it intends to discontinue its relationship
with the Company or to deny any payments due from, or any claims for payment
submitted to any such party.
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Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and
complete (i) list of the accounts payable of the Company as of March 31, 1997,
and (ii) list of each individual indebtedness owed by the Company of $5,000 or
more, setting forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct
and complete list of the names and addresses of each of the providers/suppliers
of products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company
Current Balance Sheet contained in the Company Financial Statements consisted,
and all such items on hand on the date of this Agreement consist, and all such
items on hand at the Effective Time will consist, net of all applicable
reserves with respect thereto (calculated consistent with past practice), of
items of a quality and a quantity usable and saleable in the ordinary course of
the Company's business and conform to generally accepted standards in the
industry of which the Company is a part. The value of the inventories
reflected on the Company Current Balance Sheet contained in the Company
Financial Statements are net of adequate reserves for damaged, excess, and
unusable items. Purchase commitments of the Company for inventory are not
materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or practice his or her specialty and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which the Company is eligible and which are listed in the Disclosure Schedules
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any
private insurance program) under which the Company is presently receiving
payments directly or indirectly from any Payor for patient care provided by
such Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to
APP. No violation, default, order or deficiency exists with respect to any of
the items listed in the Disclosure Schedules except for such violations,
defaults, orders or deficiencies which would not be reasonably likely to have a
Material Adverse Effect on the Company, and there is no action pending or to
the Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program,
and no event has occurred which, with or without notice or lapse of time, or
both, would constitute grounds for a violation, order or deficiency with
respect to any of the items listed in the Disclosure Schedules to revoke,
withdraw or suspend any material license to operate its business as is
presently being conducted by it. To the knowledge of the Company, there has
been no decision not to renew any existing agreement with any provider or Payor
relating to the Company's business as presently being conducted by it. Neither
the Company nor any Physician Employee (i) has had his/her/its professional
license, Drug Enforcement
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Agency number, Medicare/Medicaid provider status or staff privileges at any
hospital or diagnostic imaging center suspended, relinquished, terminated or
revoked (including orders that have been entered by any such entities but
stayed), (ii) has been reprimanded in writing, sentenced, or disciplined by any
licensing board, state agency, regulatory body or authority, hospital, Payor or
specialty board (including orders that have been entered by any such entities
but stayed), or (iii) is the subject of an initial or final determination by
any federal or state authority that could result in any demand or reimbursement
under the Medicare, Medicaid or Government Programs or any exclusion or which
monetary penalty under federal or state law or (iv) has had a final judgment or
settlement entered against him/her/it in connection with a malpractice or
similar action.
(b) The Company is not required, or for the 72-month
period prior to the Effective Time was not required, to file any cost reports
or other reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of
the Company, or any Physician Employee, nor the right of any licensed
professional or other individual affiliated with the Company to receive
reimbursements pursuant to any Governmental Program or Private Program has been
terminated or otherwise materially and adversely affected as a result of any
investigation or action whether by any federal or state governmental regulatory
authority or other third party. No Physician Employee, licensed professional
or other individual affiliated with the business has, during the past three (3)
years prior to the Effective Time, had their professional license or staff
privileges limited, suspended or revoked by any governmental regulatory
authority or agency, hospital, integrated delivery system, trade association,
professional review organization, accrediting organization or certifying agency
(including orders that have been entered by any such entities but stayed).
True, correct and complete copies of all reports, correspondence, notices and
other documents relating to any matter described or referenced in this Section
3.28 have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete
and accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v)
other similar agreements relating to the foregoing to which the Company or any
Company Subsidiary is a party (including expiration date if applicable)
(collectively, the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and
accurate list and summary description of all agreements relating to technology,
trade secrets, know-how or processes that the Company is licensed or authorized
to use by others (other than technology, know-how or processes generally
available to other health care providers) or which it licenses or authorizes
others to use, true, correct and complete copies of which have been provided to
APP. There are no outstanding and, to the Company's knowledge, any threatened
disputes or disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and
the Proprietary Rights are freely transferable. To the knowledge of the
Company, no claim has been asserted by any person to the ownership of or for
infringement by the Company of any Proprietary Right of any other Person, and
neither the Company nor any Stockholder is aware of any valid basis for any
such claim.
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To the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the
performance and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and
timely filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All
such Tax Returns or reports are complete and accurate in all material respects
and properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the
Company may be disputing in good faith by proceedings in compliance with
applicable law, which are described in the Disclosure Schedules, (i) the
Company has paid all taxes, penalties, assessments and interest that have
become due with respect to any Tax Returns that it has filed and has properly
accrued on its books and records in accordance with generally accepted
accounting principles for all of the same that have not yet become due and
payable and (ii) the Company is not delinquent in the payment of any tax,
assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to
be asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated
any applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has
not granted an extension to any taxing authority of the statute of limitation
period during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for
all income, social security, unemployment insurance, sales, excise, use, and
other taxes have been collected or withheld and paid to the respective
governmental agencies.
(f) Foreign Person. Neither the Company nor any
Stockholder is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets
of the Company constitutes property that the Company, APP or any Affiliate of
APP, will be required to treat as being owned by another person pursuant to the
"Safe Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal
by the Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties
of the Company are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
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(i) Collapsible Corporation. The Company has not at any
time consented to have the provisions of Section 341(f)(2) of the Code apply to
it.
(j) Boycotts. The Company has not at any time
participated in or cooperated with any international boycott as defined in
Section 999 of the Code.
(k) Parachute Payments. No payment required or
contemplated to be made by the Company will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election
to be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or
has not been a personal holding company within the meaning of Section 542 of
the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to
the Company's business. There is no commitment to, and no income reflected in
the Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.) and
the Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the
Company nor any Company Subsidiary has engaged and, to the knowledge of the
Company, neither the Company's officers and directors nor the Physician
Employees or other Persons and entities providing professional services for or
on behalf of the Company have engaged, in any activities which are prohibited
under 42 U.S.C. Section Section 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn
(subject to the exceptions or safe harbor provisions set forth in such
legislation), or the regulations promulgated thereunder or pursuant to similar
state or local statutes or regulations, or which are prohibited by applicable
rules of professional conduct or 18 U.S.C. Section Section 24, 287, 371, 664,
669, 1001, 1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no
material agreement, judgment, injunction, order or decree binding upon the
Company, any Company Subsidiary or officer, director or key employee of the
Company or Company Subsidiary, which has or reasonably could be expected to
have the effect of prohibiting or materially impairing the current medical
practice of the Company or any Company Subsidiary or the continuation of that
medical practice in the future by NewCo, any acquisition of property by the
Company, any Company Subsidiary or the conduct of business by the Company or
any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are
valid and binding, and are in full force and effect and are enforceable in
accordance with their terms, except to the extent that the validity or
enforceability thereof may be limited by bankruptcy or other laws affecting the
enforcement of creditors' rights generally, or by general equity principles, or
by public policy. There is no pending or, to the knowledge of the Company,
threatened bankruptcy, insolvency or similar proceeding with respect to any
other party to such agreements, and no
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event has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default
thereunder by the Company or any other party thereto. No contract with a
Physician Employee has been terminated in the last twelve (12) months.
Section 3.36 Statements True and Correct. No representation or
warranty made herein by the Company or any Stockholder, nor any statement,
certificate, information, exhibit or instrument to be furnished by the Company
or any Stockholder to APP or any of its respective representatives pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules
required by Article III hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
any of the Stockholders or the Company who is entitled to any fee or commission
upon consummation of the transactions contemplated by this Agreement or
referred to herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger and, except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
Section 4.1 Organization and Good Standing; Qualification. APP
is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. APP is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where such failure to be so
qualified or in good standing would not have a Material Adverse Effect on APP.
Copies of the certificate of incorporation and all amendments thereto of APP
and the bylaws of APP, as amended, and copies of the corporate minutes of APP
regarding the Merger and the transactions contemplated hereby, all of which
have been or will be made available to the Company for review, are true,
correct and complete as in effect on the date of this Agreement and accurately
reflect all material proceedings of the stockholders and directors of APP (and
all committees thereof) regarding the Merger and the transactions contemplated
hereby. The stock record books of APP, which have been or will be made
available to the Company for review, contain true, complete and accurate
records of the stock ownership of APP and the transfer of the shares of its
capital stock.
Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and the Other Agreements
and to consummate the Merger and the transactions contemplated hereby. The
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, including the Other Agreements and the consummation by APP
of the transactions contemplated hereby and thereby are within APP's corporate
powers and have been duly authorized by all necessary action on the part of
APP's Board of Directors. This Agreement has and the Other Agreements have
been duly executed by APP. This Agreement and all other agreements and
obligations entered into and undertaken in connection with the Merger and the
transactions contemplated hereby to which APP is a party constitute, or upon
execution will constitute, valid and binding agreements of APP, enforceable
against it in accordance with their respective terms, except as may be limited
by
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bankruptcy or other laws affecting creditors' rights generally, or by general
equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger and any
other required documents related to the Merger, and other than consents,
filings or notifications required to be made or obtained solely by the Company,
the execution, delivery and performance by APP of this Agreement and the
agreements provided for herein, and the consummation of the Merger and the
transactions contemplated hereby and thereby by APP requires no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of [20,000,000] shares of APP Common Stock, of which [2,000,000]
shares are issued and outstanding and [10,000,000] shares of APP Preferred
Stock, none of which are outstanding. Each outstanding share of APP Common
Stock has been legally and validly issued and is fully paid and nonassessable,
and was issued pursuant to a valid exemption from registration under (i) the
Securities Act of 1933, as amended, and (ii) all applicable state securities
laws. No shares of capital stock are owned by APP in treasury. No shares of
capital stock of APP have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any
stockholders of APP. APP has no bonds, debentures, notes or other obligations
the holders of which have the right to vote (or are convertible into or
exercisable for securities having the right to vote) with the stockholders of
APP on any matter. There exist no options, warrants, subscriptions, calls,
commitments or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of APP and no
option, warrant, subscription, call, or commitment or commission right of any
kind exists which obligates APP to issue any of its authorized but unissued
capital stock. APP has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance of this Agreement by APP and
any other documents contemplated hereby (with or without the giving of notice,
the lapse of time, or both): (i) does not require the consent of any
governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on APP; (ii) will not conflict with any provision of
APP's certificate of incorporation or bylaws; (iii) will not conflict with,
result in a violation of, or constitute a default under any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or governmental
instrumentality to which APP is a party or by which APP or its properties are
subject or bound; (iv) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, require any
notice under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit, material
to this transaction, to which APP is a party or by which APP or any of its
properties are bound except for such conflict, termination, breach or default,
the occurrence of which would not result in a Material Adverse Effect on APP;
and (v) will not create any Encumbrance or restriction upon APP Common Stock or
any of the assets or properties of APP. The financial statements of APP
contained in the Registration Statements (a) have been prepared in accordance
with generally accepted accounting principles consistently applied (except as
may be indicated therein or in the notes thereto), (b) present fairly the
financial position of APP and APP Subsidiaries as of the dates indicated and
present fairly the results of APP's and APP Subsidiaries' operations for the
periods then ended, and (c) are in accordance with the books and records of APP
and APP Subsidiaries, which have been properly maintained and are complete and
correct in all material respects.
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Section 4.7 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, there has not been (i)
any change in the working capital, condition (financial or otherwise), assets,
liabilities, reserves, business or operations of APP that has had or is
reasonably likely to have a Material Adverse Effect on APP; or (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in
the Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.
Section 4.9 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of APP,
threatened against, or affecting APP. There are no unsatisfied judgments
against APP or any consent decrees to which APP is subject. Each of the
matters, if any, set forth in the Disclosure Schedules are fully covered by
policies of insurance of APP as in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be
as of the Effective Time (by virtue of any action, omission to act, contract to
which it is a party or any occurrence or state of facts whatsoever), in
violation of any applicable local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any governmental body,
agency or authority or court binding on it, or relating to its property or
business or its advertising, sales or pricing practices, except for violations
which are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form
S-4, APP does not have any material arrangements, agreements or plans with any
person with respect to the employment by APP of such person or whereby such
person is to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any
Tax Returns that it has filed and has properly accrued on its books and records
for all of the same that have not yet become due and (ii) APP is not delinquent
in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. APP has not received any notice that any tax deficiency or
delinquency has been asserted against APP. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of APP that could be asserted by any taxing authority. There is
no taxing authority audit of APP pending, or to the knowledge of APP,
threatened, and the results of any completed audits are properly reflected in
the financial statements of APP. APP has not violated any federal, state,
local or foreign tax law.
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(d) No Extension of Limitation Period. APP has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Code.
(j) Parachute Payments. No payment required or
contemplated to be made by APP will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. The Disclosure Schedules
or Form S-4 sets forth a description of any interest held, directly or
indirectly, by any officer, director or other Affiliate of APP in any property,
real or personal or mixed, tangible or intangible, used in or pertaining to
APP's business and any arrangement or agreement with any such person concerning
the provision of goods or services or other matters pertaining to APP's
business.
Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to the Company or a Stockholder
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules
required by Article IV hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
APP who is entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy
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or other laws affecting the enforcement of creditors' rights generally, or by
general equity principles, or by public policy. There is no pending or, to the
knowledge of APP, threatened bankruptcy, insolvency or similar proceeding with
respect to any other party to such agreements, and no event has occurred which
(whether with or without notice, lapse of time or the happening or occurrence
of any other event) would constitute a default thereunder by APP or any other
party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true
and correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo
is a professional corporation duly organized, validly existing and in good
standing under the laws of its state of organization, with all requisite
corporate power and authority to carry on the business in which it intends to
engage, to own the properties it intends to own, and to execute and deliver the
Service Agreement, the Security Agreement and the Physician Employment
Agreements and consummate the transactions and perform the services
contemplated thereby. NewCo is duly qualified and licensed to do business and
is in good standing in all jurisdictions where the nature of its intended
business makes such qualification necessary, which jurisdictions are listed in
the Disclosure Schedules, except where the failure to be so qualified shall not
have a Material Adverse Effect on NewCo.
Section 5.2 Capitalization. The authorized capital stock of
NewCo consists of [_____] shares of NewCo Common Stock, of which [______]
shares are issued and outstanding, and no shares of capital stock of NewCo are
held in treasury. The Stockholders own all of the issued and outstanding
shares of NewCo Common Stock, free and clear of any Encumbrance. Each
outstanding share of NewCo Common Stock has been legally and validly issued and
is fully paid and nonassessable. There exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of NewCo. No
shares of capital stock of NewCo have been issued or disposed of in violation
of the preemptive rights, rights of first refusal or similar rights of any of
NewCo's stockholders.
Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and
complete copies thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery
and performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict
with any applicable local, state or federal law, ordinance, regulation, order,
injunction or
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decree, or any other requirement of any governmental body, agency or authority
or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities.
NewCo has not commenced business since its incorporation. Other than its
articles or certificate of incorporation and bylaws, and as of the Closing
Date, the Service Agreement, the Security Agreement, the Physician Employment
Agreements, and the other contracts and agreements assigned to NewCo as part of
the Spin-Off Transaction, NewCo is not a party to or subject to any agreement,
indenture or other instrument. NewCo does not own any assets (tangible or
intangible) other than the consideration received upon the issuance of shares
of its capital stock or pursuant to the Spin-Off Transaction, and NewCo does
not have any liabilities, accrued, contingent or otherwise (known or unknown
and asserted or unasserted) other than those assumed pursuant to the Spin-Off
Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure
to so comply or file would not, individually or in the aggregate, have a
Material Adverse Effect on NewCo.
ARTICLE VI
ARTICLE VI INTENTIONALLY OMITTED.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant
to the Spin-Off Transaction or the "F" Reorganization, from the date hereof
until the Effective Time, the Company shall, in all material respects, conduct
its business in the ordinary and usual course consistent with past practices
and shall use reasonable efforts to:
(a) preserve intact its business and its relationships
with Payors, referral sources, customers, suppliers, patients, employees and
others having business relations with it;
(b) maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the
conduct of the business of the Company;
(c) continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof. In addition, without the written consent of APP, the Company shall
not:
(1) amend its articles or certificate of
incorporation or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or
sale, shares of any class of its securities (including, but
not limited to, by way of stock split, dividend,
recapitalization or other reclassification) or any
subscriptions, options, warrants, rights or convertible
securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such securities;
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(3) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such
shares;
(4) declare or pay any dividend or other
distribution (whether in cash, stock or other property) with
respect to its capital stock (except as expressly contemplated
herein);
(5) voluntarily sell, transfer, surrender,
abandon or dispose of any of its assets or property rights
(tangible or intangible) other than the sale of inventory, if
any, in the ordinary course of business consistent with past
practices;
(6) grant or make any mortgage or pledge or
subject itself or any of its properties or assets to any lien,
charge or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital
expenditures which are not reasonably necessary for the
conduct of its business;
(9) grant any increase in the compensation
payable or to become payable to directors, officers,
consultants or employees other than merit increases to
employees of the Company who are not directors or officers of
the Company, except in the ordinary course of business and
consistent with past practices;
(10) change in any manner any accounting
principles or methods other than changes which are consistent
with generally accepted accounting principles;
(11) enter into any material commitment or
transaction other than in the ordinary course of business;
(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;
(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;
(14) agree, whether in writing or otherwise, to do
any of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective
Time, the Company shall (i) except for sales of assets held as inventory, if
any, in the ordinary course of business prior to the Effective Time and except
as otherwise specifically described in the Disclosure Schedules to this
Agreement, have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or
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indirect indebtedness except for indebtedness disclosed in the Company
Financial Statements, the Disclosure Schedules hereto or for normal and
recurring accrued obligations of the Company arising in connection with its
business operations in the ordinary course of business and which arise from the
purchase of merchandise, supplies, inventory and services used in connection
with the provision of services.
Section 7.3 Access. At all times prior to the Effective Time,
APP's employees, attorneys, accountants, agents and other authorized and
designated representatives will be allowed full access upon reasonable prior
notice and during regular business hours (and at such other times as the
parties may reasonably agree) to the properties, books and records of the
Company, including, without limitation, deeds, title documents, leases, patient
lists, insurance policies, minute books, share certificate books, share
registers, accounts, tax returns, financial statements and all other data that,
in the reasonable opinion of APP, are required for APP to make such
investigation as it may desire of the properties and business of the Company.
APP shall also be allowed full access upon reasonable prior notice and during
regular business hours (and at such other times as the parties may reasonably
agree) to consult with the officers, employees (after announcement by the
Company of the Merger to its employees which shall occur no later than three
(3) days subsequent to execution hereof by the Company), accountants, counsel
and agents of the Company in connection with such investigation of the
properties and business of the Company. No investigation by APP shall diminish
or otherwise affect any of the representations, warranties, covenants or
agreements of the Company under this Agreement. Any access or investigation
referred to in this Section 7.3 shall be conducted in such a manner as to
minimize the disruption to the Company's ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and
shall cause each of its directors, officers, employees or agents not to
directly or indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire
all or a substantial portion of the business, properties or capital stock of
the Company, whether by merger, consolidation, share exchange, business
combination, purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of the Company, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of the Company. If the Company receives any
offer or proposal after the date hereof, written or otherwise, of the type
referred to above, the Company shall promptly inform APP of such offer or
proposal, decline such offer and furnish APP with a copy thereof if such offer
or proposal is in writing.
Section 7.5 Compliance With Obligations. Prior to the Effective
Time, the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all
material agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly
notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
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(c) any termination of employment by, or threat to
terminate employment received from, any salaried or non-hourly, skilled
employee of the Company;
(d) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting the Company which, if pending on the date of this
Agreement, would have been required to have been disclosed to APP hereunder or
which relate to the consummation of the transactions contemplated by this
Agreement;
(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a
material deterioration in the relationship with any Payor or supplier or key
employee of the Company and, if requested by APP, will exert its reasonable
best efforts to restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its
best efforts to obtain the unanimous approval of its Stockholders to the
Merger. In seeking the approval of its Stockholders, the Company shall provide
each Stockholder with the Form S-4 which shall include information as may be
required by applicable law or as APP shall deem appropriate. The Board of
Directors of the Company shall recommend the approval of the Merger by the
Stockholders of the Company. If the Stockholders' approval is not unanimous,
the Company shall give notice to the nonconsenting Stockholders of the action
taken by the consenting Stockholders as may be required by applicable law;
provided, however, that this covenant shall not require the Company to make any
expenditures that are not expressly set forth in this Agreement or otherwise
contemplated herein.
Section 7.9 Obligations of Company and Stockholders. Subject to
Section 7.8 hereof, the Company will take all action reasonably necessary to
cause the Company to perform its obligations under this Agreement and all
related agreements and to consummate the Merger and other transactions
contemplated hereby and thereby on the terms and conditions set forth in this
Agreement and such agreements.
Section 7.10 Funding of Accrued Employee Benefits. The Company
hereby covenants and agrees that it will take whatever steps are necessary to
pay for or fund completely any accrued benefits, where applicable, or vested
accrued benefits for which the Company or any entity might have any liability
whatsoever arising from any tax-qualified plan as required under applicable
law. The Company acknowledges that the purpose and intent of this covenant is
to assure that APP shall have no liability whatsoever at any time after the
Closing Date with respect to any such tax-qualified plan, unless such plan is
merged with a plan sponsored by APP.
Section 7.11 Accounting and Tax Matters. The Company will not
change in any material respect the accounting methods or practices followed by
the Company (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. The Company will
not make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement,
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settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (without regard to any extensions of
time) file all returns, information statements and other documents relating to
taxes of the Company required to be filed by it, and pay all taxes required to
be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form,
organize and incorporate NewCo in the state of New York, and the articles or
certificate of incorporation and bylaws of NewCo shall be in form and substance
reasonably satisfactory to APP. Except for consummating the Spin-Off
Transaction, NewCo shall not commence business until the Closing Date. On or
prior to the Closing, the Company shall take all actions and execute all
documents, agreements or instruments necessary pursuant to and in compliance
with applicable law to effect the Spin-Off Transaction, including without
limitation, the following: Prior to the Closing, the Company shall transfer to
NewCo good, valid and marketable title to all of the Company's right, title and
interest in and to the Employee Benefit Plans, all contracts and agreements and
other assets listed on the Disclosure Schedules (to be delivered by the Company
prior to Closing, which schedule will be subject to the approval of APP, which
approval shall not be unreasonably withheld) which by law either cannot be
acquired or cannot be used by APP because they relate to the practice of
medicine or radiology, and shall contribute to NewCo such other consideration
and assets of the Company as may be required under applicable law, in exchange
for the issuance by NewCo of shares of NewCo Common Stock, such shares being
all of the issued and outstanding shares of NewCo Common Stock. The Company
shall then distribute the shares of NewCo Common Stock to the Stockholders in
proportion to their respective ownership interest in the Company.
Section 7.13 "F" Reorganization. The Company shall convert its
corporate status from that of a professional medical corporation to that of a
general business corporation in a transaction which will qualify as a tax-free
transaction under Section 368(a)(2)(F) of the Code (the "F" Reorganization").
The Company shall prepare and execute all documents necessary to effectuate the
"F" Reorganization prior to the Closing. At or prior to the Closing, the
Company shall cause an amendment to this Agreement to be executed which will
reflect the changes which result from the "F" Reorganization.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Merger; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
Section 8.2 Requirements to Effect the Merger and Acquisitions.
APP will use its best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and their authorized representatives to
inspect and, at the Company's sole expense, make copies of all documents,
records and information with respect to the affairs of APP as the Company and
their representatives may reasonably request, all for the sole purpose of
permitting the Company to become familiar with the business and assets and
liabilities of APP. No investigation by the
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Company or the Stockholders shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of APP under this
Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly
inform the Company in writing of (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by APP subsequent to the date of this
Agreement and prior to the Effective Time under any contract, agreement or
investment material to APP's condition (financial or otherwise), operations,
assets, liabilities or business and to which it is subject; (b) any material
adverse change in APP's condition (financial or otherwise), operations, assets,
liabilities or business or (c) defaults or disputes regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP and APP Sub shall
use their best efforts to establish a qualified plan and trust for NewCo,
within the meaning of Section 401(a) and 501(a), respectively, of the Code
("New Qualified Plan") that will provide benefits comparable (as determined
under Section 401(a)(4) of the Code) to the benefits provided under the
qualified plans referenced in the Disclosure Schedules, if any, sponsored by
the Company as of March 31, 1997. APP will file for a favorable determination
letter from the IRS on the New Qualified Plan and request a favorable
determination from the IRS that NewCo is not a member of an affiliated service
group (as defined in Section 414(m) of the Code) or a recipient organization of
leased employee services (as defined in Section 414(n) of the Code). Any
benefits provided under the New Qualified Plan shall be conditioned on a
favorable determination letter from the IRS. Costs associated with the
establishment and design of the New Qualified Plan shall be paid by APP or APP
Sub. The NewCo shall be responsible for funding any contributions to, or any
ongoing administrative costs of, the New Qualified Plan.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and
file with the SEC the Registration Statements on Form S-1 and Form S-4 (or
other appropriate Forms) to be filed by APP in connection with its Initial
Public Offering and offering of the shares of APP Common Stock to the Target
Interest Holders pursuant to the transactions contemplated by this Agreement
and the Other Agreements (including the prospectus constituting parts thereof,
the "Registration Statements"). APP shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. The Company shall cooperate with
APP in the preparation of the Registration Statements and shall furnish all
information concerning the Company and NewCo as may be reasonably requested in
connection with any such action in a timely manner.
(b) The Company and APP and each separately represent and warrant
that (i) in the case of the Company, none of the written information or
documents supplied or to be supplied by it specifically for inclusion in the
Registration Statements, by exhibit or otherwise and (ii) in the case of APP,
will, at the time the Registration Statements and each amendment and supplement
thereto, if any, becomes effective under the Securities Act, none of them
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The Company shall be entitled to review the Registration Statements and each of
the amendments thereto, if any, prior to the time each becomes effective under
the Securities Act. The Company shall have no responsibility for information
contained in the Registration Statements except for information provided by the
Company specifically for inclusion therein. The Company's review of the
Registration Statements shall not diminish or otherwise affect the
representations, covenants and warranties of APP contained in this Agreement.
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(c) The Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners,
Stockholders and NewCo, and such other matters as may be reasonably requested
by APP in connection with the preparation of the Registration Statements and
each of the amendments or supplements thereto, or any other statement, filing,
notice or application made by or on behalf of each such party or any of its
subsidiaries to any governmental entity in connection with the Merger and the
other transactions contemplated by this Agreement.
Section 9.2 Amendments of Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to supplement or amend promptly the Disclosure Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Schedule that constitutes or reflects a
Material Adverse Effect on the Company may be made unless APP consents to such
amendment or supplement, and no amendment or supplement to a Disclosure
Schedule that constitutes or reflects a Material Adverse Effect on APP may be
made unless the Company consents to such amendment or supplement. For purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 10.1 and 11.1 have been fulfilled,
the Disclosure Schedules hereto shall be deemed to be the Disclosure Schedules
as amended or supplemented pursuant to this Section 9.2. In the event that the
Company seeks to amend or supplement a Disclosure Schedule pursuant to this
Section 9.2 and APP does not consent to such amendment or supplement, or APP
seeks to amend or supplement a Disclosure Schedule pursuant to this Section
9.2, and the Company does not consent, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto
will knowingly, either before or after the Merger, take any action that would
prevent the Merger from qualifying as a tax-free exchange within the meaning of
Section 351 of the Code.
Section 9.4 Public Announcements. The parties hereto will
consult with each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable law, will not issue any
such press release or make any such public statement prior to such
consultation, although the foregoing shall not apply to any disclosure by APP
in any filing with the DOJ, FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be
solely responsible for their own fees and expenses with respect to the
transactions contemplated herein including, without limitation, the fees
charged by attorneys, accountants and financial advisors retained by such
parties. The fees and expenses incurred by the Company and NewCo in connection
with the Merger shall be paid by the Company in full immediately prior to the
Closing and such expenses shall be the sole responsibility of the Stockholders
following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all
records and information regarding the patients of the Company and NewCo
confidential in accordance with all applicable laws.
Section 9.7 Registration Statements. APP shall prepare and file
the Registration Statements with the SEC, and shall use its reasonable good
faith efforts to cause the Registration Statements to become effective under
the Securities Act and take any action required to be taken under the
applicable state Blue Sky or other securities laws in connection with the
issuance of the shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
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Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations
and warranties of the Company contained herein and each Stockholder contained
in the Stockholders Representation Letter (as delivered pursuant to Section
10.12 hereof) shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects as of the
Effective Date.
Section 10.2 Covenants. The Company shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have
delivered to APP their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse
Effect on the Company shall have occurred since March 31, 1997, whether or not
such change shall have been caused by the deliberate act or omission of the
Company or any Stockholder.
Section 10.6 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, statements, rule, regulation or ordinance to
consummate the transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statements shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate
the transactions contemplated hereby. The APP Common Stock shall have been
approved for listing on the Nasdaq National Market, subject only to official
notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 10.11 Dissenter's Rights. The Company shall have satisfied
each of its obligations to its Stockholders regarding dissenters or related
rights under the New York Business Corporation Law, and the sum of the amount
which may become due to the Stockholders who have dissented to the Merger and
have indicated their intent to seek appraisal rights plus the cash portion of
the Merger Consideration shall not exceed 25% of the total Merger Consideration
due hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder receiving Merger Consideration shall have executed
and delivered to APP the Stockholder Representation Letter in substantially the
form of Exhibit C. Each Stockholder shall have executed and delivered to APP
the Indemnification Agreement in substantially the form of Exhibit D.
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Section 10.13 Transfer of Assets. All of the assets and properties
of the Company and its related entities to be transferred to NewCo pursuant to
the Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician
Employee and such other radiologists whose names are set forth on the
Disclosure Schedules shall have entered into a Physician Employment Agreement
between NewCo and each such Physician Employee in a form reasonably consistent
to the form attached as Exhibit E and satisfactory to APP in its sole
discretion (the "Physician Employment Agreements").
Section 10.15 Completion of "F" Reorganization. The Company shall
have (1) completed the "F" Reorganization, and all transfers and dissolutions
related thereto, and (2) amended this Agreement to reflect changes resulting
from the "F" Reorganization.
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations
and warranties of APP contained herein shall be true and correct in all
material respects when initially made and shall be true and correct in all
material respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in
all material respects with all covenants and conditions required by this
Agreement to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered
to the Company their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
material consents described in Section 3.8 of the Disclosure Schedules or
required under any law, contracts or any statute, rule, regulation or
ordinances to consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The
Registration Statements shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the Registration Statements
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC. At or prior to the Effective Date, APP
shall have received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. At or prior to the Effective
Date, the APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 11.7 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
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Section 11.8 Closing Deliveries. The Company shall have received
all Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to the Company referred to in Section
12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse
Effect on APP shall have occurred since __________, 1997, whether or not such
change shall have been caused by the deliberate act or omission of APP.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its analysis and opinion, in form
satisfactory to the Company, that the terms of the Service Agreement are fair
and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from
Haynes and Boone, L.L.P., special tax counsel to APP, an opinion regarding the
tax consequences of the transactions contemplated by this Agreement and the
Other Agreements, substantially in the form set forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the
Effective Date, the Company shall deliver to APP the following, all of which
shall be in a form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of
the Company authorizing the execution, delivery and performance of this
Agreement and the Service Agreement and all related documents and agreements
and consummation of the Merger, each certified by the Secretary of the Company
as being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of
NewCo authorizing the execution, delivery and performance of the Service
Agreement, the Security Agreement and the Physician Employment Agreements each
certified by the Secretary of NewCo as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(c) a certificate of the President of the Company dated
the Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated
the Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by
the Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and
officers of such corporation and as to the signatures of such directors and
officers who have executed documents delivered at the Closing on behalf of that
corporation;
(f) certificates, dated within ten (10) days prior to
the Effective Date, of the Secretary of State of New York for the Company and
NewCo establishing that each such corporation is in existence, has paid all
franchise or similar taxes, if any, and, if applicable, otherwise is in good
standing to transact business in the state of New York;
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(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the
form attached hereto as Exhibit F, as revised in accordance with changes
reasonably deemed necessary or advisable by legal counsel retained by APP, the
Company and NewCo in the State of New York to address regulatory and compliance
issues (the "Service Agreement");
(k) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Code, of each Stockholder, signed under a
penalty of perjury and dated as of the Closing Date, to the effect that such
Stockholder is a United States citizen or a resident alien (and thus not a
foreign person) and providing such Stockholder's United States taxpayer
identification number;
(m) an executed Stockholder Release by the Stockholders
in substantially the form attached hereto as Exhibit G (the "Stockholder
Release");
(n) Intentionally omitted; and
(o) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of
this Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective
Date, APP shall deliver to the Company the following, all of which shall be in
a form reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of
APP authorizing the execution, delivery and performance of this Agreement, and
all related documents and agreements, certified by APP's Secretary as being
true and correct copies of the originals thereof subject to no modifications or
amendments;
(b) Intentionally omitted;
(c) a certificate of the President of APP dated the
Closing Date as to the truth and correctness of the representations and
warranties of APP contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the
Closing Date, (i) as to the performance and compliance by APP with all
covenants contained herein on and as of the Effective Date and (ii) certifying
that all conditions precedent required to be satisfied by APP shall have been
satisfied;
(e) a certificate of the Secretary of APP certifying as
to the incumbency and to the signatures of the officers of APP who have
executed documents delivered at the Closing on behalf of APP;
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(f) a certificate, dated within ten (10) days prior to
the Effective Date, of the secretary of state of incorporation establishing
that APP is in existence, has paid all franchise or similar taxes, if any, and
otherwise is in good standing to transact business in the state of Delaware and
New York;
(g) certificates (or photocopies thereof), dated within
ten (10) days prior to the Effective Date, of the Secretaries of State of the
states in which APP is qualified to do business, to the effect that APP is
qualified to do business and is in good standing as a foreign corporation in
such state;
(h) the executed Service Agreement as revised in
accordance with the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article
II and Exhibit B hereof; and
(k) such other instrument or instruments of transfer
prepared by the Company as shall be necessary or appropriate, as the Company or
its counsel shall reasonably request, to carry out and effect the purpose and
intent of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the
Closing, at the request of APP or the Surviving Corporation and at APP's sole
cost and expense, the Stockholders and the Company shall deliver any further
instruments of transfer and take all reasonable action as may be necessary or
appropriate to carry out the purpose and intent of this Agreement. Following
the Closing, at the request of NewCo and at NewCo's sole cost and expense, APP
or the Surviving Corporation shall deliver any further instruments of transfer
and take all reasonable action as may be necessary and appropriate to carry out
the purpose and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Code, to
report the Merger as a Reorganization and such opinion either is furnished
prior to the Effective Time or is based on facts or events not known at the
Effective Time. Each party shall provide to each other party such tax
information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Merger as a
Reorganization.
(c) The parties agree that no Stockholder shall be liable for any
taxes incurred by the Company and for which APP has successor liability
therefor which arise solely as a result of the Merger or the consummation of
the transactions contemplated hereby; provided that the foregoing shall not
limit or otherwise be deemed a waiver of any right of indemnification under
Section 14.1 for a breach of any representation, warranty or covenant of the
Company or any Stockholder.
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Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms
and conditions of this Article XIV, the Company agrees to indemnify, defend and
hold APP and the Surviving Corporation and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and
Affiliates harmless from and against all losses, claims, obligations, demands,
assessments, penalties, liabilities, costs, damages, reasonable attorneys' fees
and expenses (including, without limitation, all costs of experts and all costs
incidental to or in connection with any appellate process) (collectively,
"Damages") asserted against or incurred by such individuals and/or entities
arising out of or resulting from:
(a) a breach by the Company of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of the
Company contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company
and/or any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons
in which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any (i) untrue
statement of a material fact in any Registration Statement or any prospectus
forming or part thereof, or any amendment thereof or supplement thereto
relating to the Company (including any Company Subsidiary) or NewCo required to
be stated therein or (ii) failure to state information necessary to make the
statements therein not misleading, which untrue statement or failure to state
information arises or results solely from information provided in writing to
APP or its counsel by the Company or any Stockholder or their agents
specifically for inclusion in any such Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP. Subject to the terms and
conditions of this Article XIV, APP hereby agrees to indemnify, defend and hold
the Stockholders, the Company and NewCo and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and
Affiliates harmless from and against all Damages asserted against or incurred
by such individuals and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of APP contained in
this Agreement or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any untrue statements
of material fact in any Registration Statement or any prospectus forming a part
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thereof, or any amendment thereof or supplement thereto, or required to be
stated therein or failure to state information necessary to make the statements
therein not misleading (except for any liability based upon any actual or
alleged untrue statement of material fact or an omission to state a material
fact relating to NewCo, the Company or any Stockholder to the extent derived
from any information provided in writing by the Company or a Company Subsidiary
or any of their agents contained in the representations and warranties set
forth in this Agreement or any certificate, exhibit, schedule or instrument
required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
of any of the parties hereto of any liability or limit any liability that it
may have in the case of fraud in connection with the transactions contemplated
by this Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the
Agreement (an "Indemnified Party") shall promptly (and, in the event, at least
ten (10) days prior to the due date for any responsive pleadings, filings or
other documents) (i) notify the party for whom indemnification is sought (the
"Indemnifying Party) of any third-party claim or claims asserted against the
Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying
Party a written notice ("Claim Notice") describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), an estimate of the amount of Damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. The failure to promptly deliver a Claim
Notice shall not relieve any Indemnifying Party of its obligations to any
Indemnified Party with respect to the related Third Party Claim except to the
extent that the resulting delay is materially prejudicial to the defense of
such claim. Within thirty (30) days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(x) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article XIV with respect to such Third Party Claim
and (y) whether the Indemnifying Party desires, at the sole cost and expense of
such Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim.
(b) If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall have
the right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set
forth in Section 14.3(f) below, the Indemnifying Party shall have full control
of such defense and proceedings, including any compromise or settlement
thereof. The Indemnified Party is hereby authorized, at the sole cost and
expense of the Indemnifying Party (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period,
any motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party and not prejudicial to the Indemnifying Party. If requested by the
Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Party, to cooperate with the Indemnifying Party and their
counsel in contesting any Third Party Claim that the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 14.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
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available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and upon written
notification thereof, the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of the Indemnified Party; provided further
that the Indemnifying Party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 14.3(b), or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
14.3(b) but fails diligently and promptly to prosecute or settle the Third
Party Claim, then the Indemnified Party shall have the right to defend, at the
sole cost and expense of the Indemnifying Party (if the Indemnified Party is
entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense and proceedings,
provided, however, that the Indemnified Party may not enter into, without the
Indemnifying Party's consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes their
potential liability to the Indemnified Party under this Article XIV and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all costs and expenses of such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
Section 14.3(c), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation; provided, however, that if the
named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnifying Party
has been advised by counsel that there may be one or more legal defenses
available to it that are different from or additional to those available to the
Indemnified Party, then the Indemnifying Party may employ separate counsel and
upon written notification thereof, the Indemnified Party shall not have the
right to assume the defense of such action on behalf of the Indemnifying Party.
(d) In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder that does not involve a Third
Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the
Indemnified Party within sixty (60) days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes such claim, the claim specified by
the Indemnified Party in the Indemnity Notice shall be deemed a liability of
the Indemnifying Party hereunder. If the Indemnifying Party has timely
disputed such claim, as provided above, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction if the parties do
not reach a settlement of such dispute within thirty (30) days after notice of
a dispute is given.
(e) Payments of all amounts owing by any Indemnifying
Party pursuant to this Article XIV relating to a Third Party Claim shall be
made within thirty (30) days after the latest of (i) the settlement of such
Third Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after
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the later of (i) the expiration of the 60-day Indemnity Notice period or (ii)
the expiration of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or
compromise a Third Party Claim against an Indemnified Party. If a firm offer
is made to settle such a claim solely by the payment of money damages and the
Indemnifying Party notifies the Indemnified Party in writing that the
Indemnifying Party agrees to such settlement, but the Indemnified Party elects
not to accept and agree to it, the Indemnified Party may continue to contest or
defend such Third Party Claim and, in such event, the total maximum liability
of the Indemnifying Party to indemnify or otherwise reimburse the Indemnified
Party hereunder with respect to such a claim shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable out-of-pocket costs
and reasonable expenses (including reasonable attorneys' fees and
disbursements) to the date of notice that the Indemnifying Party desired to
accept such settlement.
(g) Notwithstanding any provision herein to the contrary,
the obligation of an Indemnifying Party to provide indemnification to an
Indemnified Party for breach of any representation or warranty as provided in
Sections 14.1(a) or 14.2(a) hereof shall not take effect unless and until the
Damages asserted against or incurred in the aggregate and on a collective basis
by the Indemnified Parties pursuant to either Section 14.1 or 14.2 (as
applicable) as a result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount
of any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and
the Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and
delivered by the Company or any Stockholder pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or any
Stockholder fails to comply in any material respect with any material covenant
or agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within thirty (30) days after receipt
of written notice thereof;
(c) at any time prior to the Effective Date by the
Company if any representation or warranty of APP contained in this Agreement or
in any certificate or other document executed and delivered by APP pursuant to
this Agreement is or becomes untrue in any material respect or if APP fails
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to comply in any material respect with any covenant or agreement contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within thirty (30) days after receipt of written notice
thereof;
(d) at any time prior to the Effective Date by APP if, as
a result of the conduct of due diligence and regulatory compliance procedures,
APP deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have
been consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in
Section 16.3, in the event this Agreement is terminated pursuant to this
Article XV, this Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo
recognize and acknowledge that each has in the past, currently has, and in the
future may possibly have, access to certain Confidential Information of APP and
the Surviving Corporation that is valuable, special and a unique asset of such
entity's business. APP acknowledges that it had in the past, currently has,
and in the future may possibly have, access to certain Confidential Information
of the Company and NewCo that is valuable, special and a unique asset of each
such business. The Company, NewCo and APP, severally, agree that they will not
disclose such Confidential Information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of APP, NewCo and the Company and (b) to counsel and
other advisers to APP, NewCo and the Company provided that such advisers (other
than counsel) agree to the confidentiality provisions of this Section 16.1,
unless (i) such information becomes available to or known by the public
generally through no fault of the Company, NewCo or APP, as the case may be,
(ii) disclosure is required by law or the order of any governmental authority
under color of law, provided, that prior to disclosing any information pursuant
to this clause (ii) the Company, NewCo or APP, as the case may be, shall, if
possible, give prior written notice thereof to the Company, NewCo or APP and
provide the Company or APP with the opportunity to contest such disclosure,
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, or
(iv) the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Merger or otherwise. In the event of a breach
or threatened breach by the Company, on the one hand, and APP, on the other
hand, of the provisions of this Section, APP, NewCo and the Company shall be
entitled to an injunction restraining the other party, as the case may be, from
disclosing, in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting any of such parties from pursuing any other
available remedy for such breach or threatened breach, including the recovery
of damages.
Section 16.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, NewCo and the Company agree
that, in the event of a breach by either of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
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Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
Section 17.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by APP to a wholly owned subsidiary of APP; provided that any such
assignment shall not relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP
acknowledges and agrees that the rights and remedies of the Company under this
Agreement will be directly available to the Stockholders as third party
beneficiaries of the rights and remedies of the Company under this Agreement,
including, without limitation, the rights and remedies under Article 14 hereof
to indemnification from APP against Damages incurred by the Stockholders
resulting from a breach by APP of any representation, warranty or covenant of
APP contained herein. Except as provided in the preceding sentence or as
otherwise provided herein, neither this Agreement nor any other agreement
contemplated hereby shall be deemed to confer upon any person not a party
hereto or thereto any rights or remedies hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby or delivered in connection herewith constitute the entire
agreement of the parties regarding the subject matter hereof, and supersede all
prior agreements and understandings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and
Covenants. The representations, warranties and covenants contained herein
shall survive the Closing and all statements contained in any certificate,
exhibit or other instrument delivered by or on behalf of the Company, any
Stockholder or APP pursuant to this Agreement shall be deemed to have been
representations and warranties by the Company, such Stockholder and APP.
Notwithstanding any provision in this Agreement to the contrary, the
representations and warranties contained herein shall survive the Closing until
the second anniversary of the Closing Date except that (a) the representations
and warranties set forth in Section 3.21 with respect to environmental matters
shall survive for a period of ten (10) years, (b) the representations and
warranties set forth in Section 3.30 with respect to tax matters shall survive
until such time as the limitations period has run for all tax periods ended
prior to the Closing Date, (c) the representations and warranties contained in
Section 3.27 and Section 3.33 with respect to healthcare matters shall survive
for a period of six (6) years and (d) solely for purposes of Section 14.1(c)
and Section 14.2(c), and solely to the extent that any party to be indemnified
pursuant to such provisions actually incurs liability under the Securities Act,
the Exchange Act or any other federal or state securities law, the
representations and warranties set forth therein shall survive until the
expiration of any applicable limitations period.
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Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
Section 17.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each
party shall keep this Agreement and its terms confidential, and shall make no
press release or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge and
consent of the other parties hereto; provided that the foregoing shall not
prohibit any disclosure (a) by press release, filing or otherwise that APP has
determined in its good faith judgment and after advice of legal counsel to be
required by federal securities laws or the rules of the National Association of
Securities Dealers, (b) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request
or demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by telex,
telegram or courier service, when delivered to the party to whom notice is
sent, (ii) if delivered by facsimile transmission, when so sent and receipt
acknowledged by receipt or (iii) if delivered by mail (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may
designate by written notice to all other parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
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If to the Company
or any Stockholder: The IDE Group, P.C.
2273 South Clinton Avenue
Rochester, New York 14618
Fax No.: (716) 244-1023
Attn: Michael Lebowitz, M.D.
with a copy to : Underberg & Kessler LLP
1800 Chase Square
Rochester, New York 14604
Fax. No. (716) 258-2821
Attn: Steven R. Gersz, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any
act (except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in
this Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
--------------------------------------
Gregory L. Solomon, President
THE COMPANY:
THE IDE GROUP, P.C.
By:
--------------------------------------
Its:
-------------------------------------
A-118
<PAGE> 480
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-119
<PAGE> 481
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-120
<PAGE> 482
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-121
<PAGE> 483
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-122
<PAGE> 484
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
A-123
<PAGE> 485
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
A-124
<PAGE> 486
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-125
<PAGE> 487
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth
therein are delivered in connection with that certain Agreement and Plan of
Reorganization and Merger dated ____________, 1997, by and between American
Physician Partners, Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made
pursuant to one section number can reasonably be interpreted by other parties
to be a disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain
exceptions to the representations and warranties set forth in Article III of
the Agreement, the inclusion of an item on these Disclosure Schedules shall not
be deemed an admission by American Physician Partners, Inc. that such item is
material to American Physician Partners, Inc., the Company, NewCo or any
Company Subsidiary or that it will have a material adverse effect on American
Physician Partners, Inc., the Company, NewCo or any Company Subsidiary.
A-126
<PAGE> 488
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and THE IDE
GROUP, P.C. (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
THE IDE GROUP, P.C.
By:_________________________________
Its:________________________________
A-127
<PAGE> 489
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)
and
M & S X-RAY ASSOCIATES, P.A.
(a Texas professional association)
================================================================================
A-128
<PAGE> 490
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Rules Of Interpretation . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Certificate of Incorporation of Surviving Corporation . . . . . 6
Section 2.5 Bylaws of Surviving Corporation . . . . . . . . . . . . . . . . 7
Section 2.6 Directors of the Surviving Corporation . . . . . . . . . . . . . 7
Section 2.7 Officers of the Surviving Corporation . . . . . . . . . . . . . 7
Section 2.8 Conversion of Company Common Stock . . . . . . . . . . . . . . . 7
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.10 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III Representations and Warranties of the Company . . . . . . . . . 8
Section 3.1 Organization and Good Standing; Qualification . . . . . . . . . 8
Section 3.2 Authorization and Validity . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . 8
Section 3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.5 Transactions in Capital Stock . . . . . . . . . . . . . . . . . 9
Section 3.6 Continuity of Business Enterprise . . . . . . . . . . . . . . . 9
Section 3.7 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . 9
Section 3.8 Absence of Conflicting Agreements or Required Consents . . . . . 9
Section 3.9 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . 10
Section 3.10 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.11 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 10
Section 3.12 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . 11
Section 3.13 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.14 Lease Agreements . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.15 Real and Personal Property . . . . . . . . . . . . . . . . . . . 11
Section 3.16 Indebtedness for Borrowed Money . . . . . . . . . . . . . . . . 12
Section 3.17 Contracts and Commitments . . . . . . . . . . . . . . . . . . . 12
Section 3.18 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.19 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.20 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 14
Section 3.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . 15
Section 3.22 Filing Reports . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.23 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.24 Accounts Receivable; Payors . . . . . . . . . . . . . . . . . . 17
Section 3.25 Accounts Payable; Suppliers . . . . . . . . . . . . . . . . . . 17
Section 3.26 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.27 Licenses, Authorization and Provider Programs . . . . . . . . . 18
</TABLE>
A-129
<PAGE> 491
<TABLE>
<S> <C> <C>
Section 3.28 Inspections and Investigations . . . . . . . . . . . . . . . . . 18
Section 3.29 Proprietary Rights and Information . . . . . . . . . . . . . . . 19
Section 3.30 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.31 Related Party Arrangements . . . . . . . . . . . . . . . . . . . 20
Section 3.32 Banking Relations . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.33 Fraud and Abuse and Self Referral . . . . . . . . . . . . . . . 21
Section 3.34 Restrictions on Business Activities . . . . . . . . . . . . . . 21
Section 3.35 Agreements in Full Force and Effect . . . . . . . . . . . . . . 21
Section 3.36 Statements True and Correct . . . . . . . . . . . . . . . . . . 21
Section 3.37 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.38 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV Representations and Warranties of APP . . . . . . . . . . . . . 21
Section 4.1 Organization and Good Standing; Qualification . . . . . . . . . 22
Section 4.2 Authorization and Validity. . . . . . . . . . . . . . . . . . . 22
Section 4.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . 22
Section 4.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.5 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . 23
Section 4.6 Absence of Conflicting Agreements or Required Consents . . . . . 23
Section 4.7 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.8 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 23
Section 4.9 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . 23
Section 4.10 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.11 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.13 Related Party Arrangements . . . . . . . . . . . . . . . . . . . 25
Section 4.14 Statements True and Correct . . . . . . . . . . . . . . . . . . 25
Section 4.15 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.16 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.17 Agreements in Full Force and Effect . . . . . . . . . . . . . . 25
ARTICLE V Closing Date Representations and Warranties of the Company . . . 25
Section 5.1 Organization and Good Standing; Qualification . . . . . . . . . 25
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.3 Corporate Records . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.4 Authorization and Validity . . . . . . . . . . . . . . . . . . . 26
Section 5.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.6 No Business, Agreements, Assets or Liabilities . . . . . . . . . 26
Section 5.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI Closing Date Representations and Warranties Regarding APP Sub . . 26
ARTICLE VII Covenants of the Company . . . . . . . . . . . . . . . . . . . . 26
Section 7.1 Conduct of The Company . . . . . . . . . . . . . . . . . . . . . 26
Section 7.2 Title to Assets; Indebtedness . . . . . . . . . . . . . . . . . 28
Section 7.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.4 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . 28
Section 7.5 Compliance With Obligations . . . . . . . . . . . . . . . . . . 29
Section 7.6 Notice of Certain Events . . . . . . . . . . . . . . . . . . . . 29
Section 7.7 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
A-130
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<TABLE>
<S> <C>
Section 7.8 Stockholders' Consent . . . . . . . . . . . . . . . . . . . . . 29
Section 7.9 Obligations of Company and Stockholders . . . . . . . . . . . . 29
Section 7.10 Funding of Accrued Employee Benefits . . . . . . . . . . . . . . 29
Section 7.11 Accounting and Tax Matters . . . . . . . . . . . . . . . . . . . 30
Section 7.12 Spin-Off Transaction . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VIII Covenants of APP . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.1 Consummation of Agreement . . . . . . . . . . . . . . . . . . . 30
Section 8.2 Requirements to Effect the Merger and Acquisitions . . . . . . . 30
Section 8.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.4 Notification of Certain Matters . . . . . . . . . . . . . . . . 31
Section 8.5 Qualified Retirement Plans. . . . . . . . . . . . . . . . . . . 31
ARTICLE IX Covenants of APP and the Company . . . . . . . . . . . . . . . . 31
Section 9.1 Filings; Other Action . . . . . . . . . . . . . . . . . . . . . 31
Section 9.2 Amendments of Disclosure Schedules . . . . . . . . . . . . . . . 32
Section 9.3 Actions Contrary to Stated Intent . . . . . . . . . . . . . . . 32
Section 9.4 Public Announcements . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.6 Patient Confidentiality . . . . . . . . . . . . . . . . . . . . 32
Section 9.7 Registration Statements. . . . . . . . . . . . . . . . . . . . . 32
ARTICLE X Conditions Precedent of . . . . . . . . . . . . . . . . . . . . 33
Section 10.1 Representations and Warranties . . . . . . . . . . . . . . . . . 33
Section 10.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.3 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.5 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . 33
Section 10.6 Government Approvals and Required Consents . . . . . . . . . . . 33
Section 10.7 Securities Approvals . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.9 Closing of Initial Public Offering . . . . . . . . . . . . . . . 33
Section 10.10 Closing of Related Acquisitions . . . . . . . . . . . . . . . . 33
Section 10.11 Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.12 Stockholder Representation Letter; Indemnification Agreement . . 34
Section 10.13 Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE XI Conditions Precedent of the Company . . . . . . . . . . . . . . 34
Section 11.1 Representations and Warranties . . . . . . . . . . . . . . . . . 34
Section 11.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.3 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.5 Government Approvals and Required Consents . . . . . . . . . . . 34
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing . . . . . . . . . . . . . . 34
Section 11.7 Closing of Initial Public Offering . . . . . . . . . . . . . . . 34
Section 11.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.9 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . 35
Section 11.10 Service Agreement Analysis . . . . . . . . . . . . . . . . . . . 35
Section 11.11 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XII Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.1 Deliveries of the Company . . . . . . . . . . . . . . . . . . . 35
Section 12.2 Deliveries of APP. . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XIII Post Closing Matters . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.1 Further Instruments of Transfer . . . . . . . . . . . . . . . . 37
Section 13.2 Merger Tax Covenant . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.3 Current Public Information . . . . . . . . . . . . . . . . . . . 37
ARTICLE XIV Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.1 Indemnification by the Company . . . . . . . . . . . . . . . . . 38
Section 14.2 Indemnification by APP . . . . . . . . . . . . . . . . . . . . . 38
Section 14.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . 39
Section 14.4 Costs, Expenses and Legal Fees . . . . . . . . . . . . . . . . . 41
Section 14.5 Tax Benefits; Insurance Proceeds . . . . . . . . . . . . . . . . 41
ARTICLE XV Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 15.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 15.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XVI Nondisclosure of Confidential Information . . . . . . . . . . . . 42
Section 16.1 Non-Disclosure Covenant . . . . . . . . . . . . . . . . . . . . 42
Section 16.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 16.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XVII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 17.1 Amendment; Waivers . . . . . . . . . . . . . . . . . . . . . . . 42
Section 17.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 17.3 Parties in Interest; No Third Party Beneficiaries . . . . . . . 42
Section 17.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.6 Survival of Representations, Warranties and Covenants . . . . . 43
Section 17.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.9 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.10 Intentionally omitted. . . . . . . . . . . . . . . . . . . . . . 43
Section 17.11 Confidentiality; Publicity and Disclosures . . . . . . . . . . . 43
Section 17.12 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.13 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.15 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A - List of Target Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Stockholder Representation Letter . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D - Indemnification Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E - Physician Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
</TABLE>
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<TABLE>
<S> <C>
Exhibit F - Service Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit G - Stockholder Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
</TABLE>
Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
A-133
<PAGE> 495
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP") and M & S X-RAY ASSOCIATES,
P.A., a Texas professional association (the "Company").
RECITALS
A. The Company owns and operates (i) a professional medical
practice(s) specializing in radiology and (ii) a diagnostic imaging center.
All of the shares of the common stock, par value $1.00 per share, of the
Company (the "Company Common Stock") are owned beneficially and of record by
the Stockholders.
B. APP is engaged in the business of owning, operating and
acquiring the assets of, and managing the non-medical aspects of, radiology
practices and diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that
the Company be merged with and into APP, and that APP be the sole surviving
corporation (sometimes referred to hereinafter as the "Surviving Corporation"),
and the Company be the disappearing corporation (sometimes referred to
hereinafter as the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) the Company will merge
with and into APP upon the terms and conditions set forth herein and in
accordance with the laws of the State of Texas, (ii) the outstanding shares of
the Company Common Stock shall be converted at such time into cash and shares
of common stock, par value $.0001 per share, of APP (the "APP Common Stock") as
set forth herein.
E. Prior to the Merger, the Company intends to transfer certain
of its assets most of which relate solely to the practice of medicine to a
[newly formed professional corporation] ("NewCo") in exchange for all of the
capital stock of NewCo and to thereafter distribute such NewCo stock to the
Stockholders (the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement
with interest holders (together with the Stockholders, the "Target Interest
Holders") of each of the entities listed on Exhibit A (together with the
Company, the "Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder.
A-134
<PAGE> 496
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, NewCo and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed on Exhibit 1.1, director or executive officer of such
entity after reasonable investigation and inquiry by the executive officers of
such entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director
or executive officer of the Company actually possesses without the necessity of
any special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the
recitals to this Agreement.
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"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section
3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person,
including, but not limited to, information derived from reports, processes,
data, know-how, software programs, improvements, inventions, strategies,
compensation structures, reports, investigations, research, work in progress,
codes, marketing and sales programs and plans, financial projections, cost
summaries, formulae, contract analyses, financial information, forecasts,
confidential filings with any state or federal agency, and all other
confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section
3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the
terms hereof, as such may be amended or supplemented from time to time pursuant
to the provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement
is declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
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"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering
of APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section
14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or
other fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred
to, taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste,
(xi) any substance, pollutant, material, or contaminant listed or regulated
under any Medical Waste Law, and (xii) other biological waste and discarded
materials contaminated with or exposed to blood, excretion, or secretions from
human beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Section Section 2501 et seq., (iii) the
Marine Protection, Research, and Sanctuaries Act of 1972, 33 USCA Section
Section 1401 et seq., (iv) The Occupational Safety and Health Act, 29 USCA
Section Section 651 et seq., (v) the United States Department of Health and
Human Services, National Institute for Occupational Safety and Health,
Infectious Waste Disposal Guidelines, Publication No. 88-
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119, and (vi) any other federal, state, regional, county, municipal, or other
local laws, regulations, and ordinances insofar as they are applicable to any
of the Company's assets or operations and purport to regulate Medical Waste or
impose requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.
"Physician Employee" shall mean each radiologist employed by the
Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the
recitals to this Agreement.
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"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth
in Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in
which such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed
to be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time, the Company shall be merged with and
into APP in accordance with this Agreement and the separate corporate existence
of the Disappearing Corporation shall thereupon cease (the "Merger"). APP
shall be the Surviving Corporation in the Merger and shall continue to be
governed by the laws of the State of Texas, and the separate corporate
existence of the Company with all its rights, privileges, powers, immunities,
purposes and franchises shall continue unaffected by the Merger, except as set
forth herein. The Surviving Corporation may, at any time concurrent with
and/or after the Effective Time, take any action in the name of or on behalf of
the Disappearing Corporation in order to effectuate the transactions
contemplated by this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take
place at 10:00 a.m., local time, at the offices of APP located at 2301
NationsBank Plaza, 901 Main Street, Dallas, Texas on the day on which the
transactions contemplated by the Initial Public Offering are consummated. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
Section 2.3 Effective Time. If all the conditions to the Merger
set forth in Articles XI and XII shall have been fulfilled or waived in
accordance herewith and this Agreement shall not have been terminated in
accordance with Article XVI, the parties hereto shall cause to be properly
executed and filed on the Closing Date, Certificates of Merger meeting the
requirements of Section 5.04 of the Texas Business Corporation Act. The Merger
shall become effective at the time of the filing of such documents with the
Secretary of State of the State of Texas, in accordance with such law or at
such later time which the parties
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hereto have theretofore agreed upon and designated in such filings as the
effective time of the Merger (the "Effective Time").
Section 2.4 Certificate of Incorporation of Surviving
Corporation. Effective at the Effective Time, the [Certificate of
Incorporation] of the Company in effect immediately prior to the Effective Time
shall be amended and restated in a manner satisfactory to APP. The
[Certificate of Incorporation] , as so amended and restated, shall be the
[Certificate of Incorporation] of the Surviving Corporation.
Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP
Sub in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation without any amendment or modification as a result of
the Merger.
Section 2.6 Directors of the Surviving Corporation. The persons
who are directors of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time.
Section 2.7 Officers of the Surviving Corporation. The persons
who are officers of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on
the part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the
Company's treasury, if any, at the Effective Time, by virtue of the Merger,
shall be cancelled and retired without payment of any consideration therefor
and shall cease to exist.
(c) Each Company Right outstanding at the Effective Time
shall be terminated and cancelled, without payment of any consideration
therefor, and shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged
and remain outstanding as a validly issued, fully paid and nonassessable share
of APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the
Company Common Stock.
(a) At or after the Effective Time and at the Closing (i)
the Stockholders, as holders of a certificate or certificates representing
shares of the Company's Common Stock, shall upon surrender of each certificate
or certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until
each certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of
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Company Common Stock converted into Merger Consideration shall by virtue of the
Merger and without any action on the part of the holders thereof, cease to be
outstanding, be cancelled and returned and all shares of APP Common Stock
issuable to the Stockholders in the Merger as part of the Merger Consideration
shall be deemed for all purposes to have been issued by APP at the Effective
Time.
(b) Each Stockholder shall deliver to APP at the Closing
the certificates representing Company Common Stock owned by him, her or it,
duly endorsed in blank by the Stockholder, or accompanied by duly executed
stock powers in blank, and with all necessary transfer tax and other revenue
stamps, acquired at the Stockholder's expense, affixed and cancelled. Each
Stockholder agrees to cure any deficiencies with respect to the endorsement of
the certificates or other documents of conveyance with respect to such Company
Common Stock or with respect to the stock powers accompanying any Company
Common Stock. Upon such delivery (or completion of appropriate affidavit of
lost certificate and indemnity), each Stockholder shall receive in exchange
therefor the Merger Consideration pursuant to Exhibit B and Section 2.10
hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other
provision herein, no fractional shares of APP Common Stock will be issued and
any Stockholder otherwise entitled to receive a fractional share of APP Common
Stock as part of the Merger Consideration hereunder shall receive a cash
payment in lieu thereof reflecting such Stockholder's proportionate interest in
a share of APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to consummate
the Merger and except as set forth in the Disclosure Schedules attached hereto
and incorporated herein by this reference, the Company represents and warrants
to APP both as of the date hereof and as of the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, with all requisite corporate
power and authority to own, operate and lease its assets and properties and to
carry on its business as currently conducted. The Company and each Company
Subsidiary is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in
good standing would not have a Material Adverse Effect on the Company. Copies
of the articles or certificates of incorporation and all amendments thereto of
the Company and each Company Subsidiary and the bylaws of the Company and each
Company Subsidiary, as amended, and copies of the corporate minutes of the
Company, all of which have been or will be made available to APP for review,
are true and complete as in effect on the date of this Agreement, and in the
case of the corporate minutes, accurately reflect all material proceedings of
the Stockholders and directors of the Company (and all committees thereof).
The stock record books of the Company, which have been or will be made
available to APP for review, contain true, complete and accurate records of the
stock ownership of record of the Company and the transfer record of the shares
of its capital stock.
Section 3.2 Authorization and Validity. The Company has all
requisite corporate power to enter into this Agreement and all other agreements
entered into in connection with the transactions contemplated hereby and to
consummate the transactions contemplated hereby. The execution, delivery and,
subject to approval of this Agreement and the Merger by the Stockholders,
performance by the Company of this Agreement and the agreements contemplated
herein, and the consummation by the Company of the transactions contemplated
hereby and thereby are within the Company's respective corporate powers and
have been duly authorized by all necessary action on the part of the Company's
Board of Directors. Subject to the approval of this Agreement and the Merger
by the Stockholders, this
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Agreement has been duly executed by the Company, and this Agreement and all
other agreements and obligations entered into and undertaken in connection with
the transactions contemplated hereby to which the Company is a party
constitute, or upon execution will constitute, valid and binding agreements of
the Company, enforceable against it in accordance with their respective terms,
except as enforceability may be limited by bankruptcy or other laws affecting
the enforcement of creditors' rights generally, or by general equity
principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger (as
contemplated by Section 2.3) and any other required documents related to the
Merger, and other than consents, filings or notifications required to be made
or obtained solely by APP (including, without limitation, in connection with
the Initial Public Offering, Form S-4 or any Hart-Scott-Rodino filing to be
made by APP, if any), the execution, delivery and performance by the Company of
this Agreement and the agreements provided for herein, and the consummation of
the transactions contemplated hereby and thereby by the Company require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority.
Section 3.4 Capitalization. The authorized capital stock of the
Company consists of [_____] shares of the Company Common Stock, of which [____]
shares are issued and outstanding. The Stockholders collectively are and will
be immediately prior to the Effective Time the record and beneficial owners of
all the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common
Stock are owned by the Company in treasury. No shares of Company Common Stock
have been issued or disposed of in violation of any preemptive rights, rights
of first refusal or similar rights of any of the Stockholders. Other than
Company Common Stock, the Company has no securities, bonds, debentures, notes
or other obligations the holders of which have the right to vote (or are
convertible into or exercisable for securities having the right to vote) with
the Stockholders on any matter.
Section 3.5 Transactions in Capital Stock. There exist no
Company Rights. The Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Company nor the relative
ownership of shares among any of its Stockholders has been altered or changed
in contemplation of the Merger within the two (2) years preceding the date of
this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not
been any sale, distribution or spin-off of significant assets of the Company or
any of its Affiliates other than in the ordinary course of business within the
(2) two years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not
own, directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required
Consents. Subject to approval of this Agreement and the Merger by the
Stockholders of the Company, the execution, delivery and performance by the
Company of this Agreement and any other documents contemplated hereby (with or
without the giving of notice, the lapse of time, or both): (i) do not require
the consent of any governmental or regulatory body or authority or any other
third party except for such consents, for which the failure to obtain would not
result in a Material Adverse Effect on the Company; (ii) will not conflict with
or result in a violation of any provision of the Company's articles or
certificate of incorporation or bylaws, (iii) will not conflict with, result in
a violation of, or constitute a default under any law, rule, ordinance,
regulation
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or any ruling, decree, determination, award, judgment, order or injunction of
any court or governmental instrumentality which is applicable to the Company or
by which the Company or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or modify,
or permit any person to accelerate or modify, any performance required by the
terms of any agreement, instrument, license or permit, to which the Company is
a party or by which the Company or any of its properties are subject or bound
except for such conflict, termination, breach or default, the occurrence of
which would not result in a Material Adverse Effect on the Company; and (v)
except as contemplated by this Agreement, will not create any Encumbrance or
restriction upon the Company Common Stock or any of the assets or properties of
the Company.
Section 3.9 Intentionally omitted.
Section 3.10 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, the Company has conducted
its business only in the ordinary course and has not:
(a) suffered any change or changes in its working
capital, condition (financial or otherwise), assets, liabilities, reserves,
business or operations (whether or not covered by insurance) that individually
or in the aggregate has had or could reasonably be expected to have a Material
Adverse Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business;
(c) written off as uncollectible any receivable, except
for write-offs in the ordinary course of business;
(d) except in the ordinary course of business and
consistent with past practice, cancelled or compromised any debts or waived or
permitted to lapse any claims or rights or sold, transferred or otherwise
disposed of any of its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment
policies;
(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject,
any of its assets, tangible or intangible, to any claim or Encumbrance, except
for liens for current personal property taxes not yet due and payable, for
mechanics, landlords, materialmen, and other statutory liens, purchase money
security interests, sale-leaseback interests granted and all other Encumbrances
granted in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee
benefits for any employee of the Company, except in the ordinary course of
business and consistent with past practice;
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(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends
or other distributions to any Stockholder or any other holder of capital stock
of the Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its
knowledge, the Company does not have any liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected or reserved against
in the Company's Current Balance Sheet.
Section 3.12 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of the
Company, threatened against, or affecting the Company, any Company Subsidiary,
any Stockholder, the Physician Employees or any other licensed professional or
other individual affiliated with the Company affecting or that would reasonably
be likely to affect the Company Common Stock or the operations, business
condition, (financial or otherwise), or results of operations of the Company
which (i) if successful, may, individually or in the aggregate, have a Material
Adverse Effect on the Company or (ii) could adversely affect the ability of the
Company or any Company Subsidiary to effect the transactions contemplated
hereby, and to the knowledge of the Company there is no basis for any such
action or any state of facts or occurrence of any event which would reasonably
be likely to give rise to the foregoing. There are no unsatisfied judgments
against the Company or any Company Subsidiary or any licensed professional or
other individual affiliated with the Company or any Company Subsidiary relating
to services provided on behalf of the Company or any Company Subsidiary or any
consent decrees to which any of the foregoing is subject. Each of the matters,
if any, set forth in this Section 3.12 is fully covered by policies of
insurance of the Company or any Company Subsidiary as in effect on the date
hereof.
Section 3.13 No Violation of Law. Neither the Company nor any
Company Subsidiary has been, nor shall be as of the Effective Time (by virtue
of any action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever), in violation of any applicable local,
state or federal law, ordinance, regulation, order, injunction or decree, or
any other requirement of any governmental body, agency, authority or court
binding on it, or relating to its properties, assets or business or its
advertising, sales or pricing practices, except for violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a
true, accurate and complete list of all the lease agreements and license
agreements to which the Company or any Company Subsidiary is a party and
pursuant to which the Company or any Company Subsidiary leases (whether as
lessor or lessee) or licenses (whether as licensor or licensee) any real or
personal property related to the operation of its business and which requires
payments in excess of $12,000 per year (the "Lease Agreements"). The Company
has delivered to APP true and complete copies of all of the Lease Agreements.
Each Lease Agreement is valid, effective and in full force in accordance with
its terms, and there is not under any such lease (i) any existing or claimed
material default by the Company or any Company Subsidiary (as applicable) or
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by the Company or any Company Subsidiary
(as applicable) and, individually or in the aggregate, may reasonably result in
a Material Adverse Effect on the Company, or, (ii) to the knowledge of the
Company, any existing material default by any other party under any of the
Lease Agreements or any event of material default or event which with notice or
lapse of time, or both, would constitute a material default by any such party.
To the knowledge of the Company, there is no pending or threatened reassessment
of any property covered by the Lease Agreements. The
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Company or any Company Subsidiary will use reasonable good faith efforts to
obtain, prior to the Effective Time, the consent of each landlord or lessor
whose consent is required to the assignment of the Lease Agreements and will
use reasonable good faith efforts to deliver to APP in writing such consents as
are necessary to effect a valid and binding transfer or assignment of the
Company's or any Company Subsidiary's rights thereunder. The Company has a
good, clear, valid and enforceable leasehold interest under each of the Lease
Agreements. The Lease Agreements comply with the exceptions to ownership
interests and compensation arrangements set out in 42 U.S.C. Section 1395nn,
42 C.F.R. Section 1001.952, and any similar applicable state law safe harbor or
other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns
any interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein which it purports to own
including, without limitation, all the property and assets reflected in the
Company Current Financial Statements; and (ii) owns such rights, interests,
assets and property free and clear of all Encumbrances, title defects or
objections (except for taxes not yet due and payable). The personal property
presently used in connection with the operation of the business of the Company
and the Company Subsidiaries constitutes the necessary personal property assets
to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, the Company does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in
any manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies,
of each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate
(other than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000
in any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is
with unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated
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herein; there are no contracts, agreements or other instruments to which the
Company is a party or is bound (other than physician employment contracts and
insurance policies) which could either singularly or in the aggregate have a
Material Adverse Effect on the value to APP of the assets and properties to be
acquired by APP from the Company, or which could inhibit or prevent the Company
from transferring to or vesting in APP good and sufficient title to the assets
and properties to be acquired by APP and the Surviving Corporation except where
the failure to transfer would not have a Material Adverse Effect on APP. In
every instance where consent is necessary, the Company shall, on or before the
Closing Date, use reasonable good faith efforts to obtain and deliver to APP in
writing, effective as of the Closing Date, such consents as are necessary to
enable the Surviving Corporation to enjoy all of the rights now enjoyed by the
Company under such contracts. Any and all such consents shall be in a form
reasonably acceptable to APP and shall contain an acknowledgment by the
consenting party that the Company has fully complied with and is not in default
under any provision of the particular contract or agreement. Notwithstanding
the foregoing, the Company shall not transfer to APP any contracts or
agreements relating to the provision of professional medical services or other
such agreements and contracts that APP consents to in writing to be transferred
to NewCo in the Spin-off Transaction. No contract with a health care provider
or Payor has been materially amended or terminated within the last twelve (12)
months.
(b) The Company (i) has not received notice of any plan
or intention of any other party to exercise any right to cancel or terminate
any contract, agreement or instrument required to be disclosed pursuant to
Section 3.17(a), and to the knowledge of the Company there are no fact(s) that
would justify the exercise of such a right; and (ii) does not currently
contemplate, or have reason to believe any other Person currently contemplates,
any amendment or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a
party to any employment contract (except for oral employment agreements which
are terminable at will), consulting or collective bargaining contracts,
deferred compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit
sharing, bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected
to receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
Upon termination of employment of any employee or Physician Employee, no
severance or other payments will become due and the Company has no policy, past
practice or plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair
labor practice, charge or complaint or any other employment- related matter
against or involving the Company pending or threatened before the National
Labor Relations Board or any federal, state or local agency, authority or
court;
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(c) To the knowledge of the Company, there are no
charges, investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or
court against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the
Immigration Reform and Control Act of 1986, as amended, and all applicable
regulations promulgated thereunder; and
(e) To the knowledge of the Company, there are no
inquiries, investigations or monitoring activities of any licensed, registered,
or certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided to APP copies of all plan documents (as they may have been
amended to the date hereof), determination letters, pending determination
letter applications, trust instruments, insurance contracts or policies related
to an Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee
Benefit Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any
notice that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach
of any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or
other liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the
Company's knowledge, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
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(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or
501(c)(9) of the Code and/or tax-exempt within the meaning of Section 501(a) of
the Code and, to the best knowledge of the Company and each Stockholder, has
been continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation
of any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency
(within the meaning of Section 412 of the Code), whether waived or unwaived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Code) in which the Company is a member (a "Controlled Group"). With respect to
each Employee Benefit Plan subject to Title IV of ERISA, the assets of each
such plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. With respect to each
Employee Benefit Plan described in Section 501(c)(9) of the Code, the assets of
each such plan are at least equal in value to the present value of accrued
benefits, based upon the most recent actuarial valuation as of a date no more
than ninety (90) days prior to the date hereof. The Disclosure Schedules
contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of
a Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any
member of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section
412 of the Code.
(j) PBGC. No facts or circumstances are known to the
Company that would result in the imposition of liability against APP, or any of
its Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result
of any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any
Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or
commitment to provide medical, dental or life insurance benefits to or on
behalf of any of its employees who may retire or any of its former employees
who have retired except as may be required pursuant to the continuation of
coverage provisions of Section 4980B of the Code and the applicable provisions
of ERISA.
(l) Other Compensation Arrangements. Neither the Company
nor, to the Company's knowledge, any Stockholder or Physician Employee is a
party to any compensation or debt arrangement with any Person relating to the
provision of health care related services other than arrangements with the
Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has,
within the five (5) years preceding the date hereof, through the Effective
Time, received from any federal, state or local governmental body, agency,
authority or entity, or any other Person, any written notice, demand, citation,
summons, complaint or order or any notice of any penalty, lien or assessment,
and to the knowledge of the Company no investigation or review is pending by
any governmental entity, with respect to any (i) alleged violation by the
Company of any Environmental Law (as defined in subsection (e) below) (ii)
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alleged failure by the Company to have any environmental permit, certificate,
license, approval, registration or authorization required pursuant to any
Environmental Law in connection with the conduct of its business; or (iii)
alleged illegal Regulated Activity (as defined in subsection (e) below) by the
Company.
(b) Neither the Company nor any Company Subsidiary has
used, transported, disposed of or arranged for the disposal of (as those terms
are defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein)
that would be reasonably likely to give rise to any Environmental Liabilities
(as defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Schedule 3.21(b) discloses any known presence of asbestos in or on the
Company's or any Company Subsidiary's owned or leased premises. To the
knowledge of the Company, there is no friable asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises.
(c) To the knowledge of the Company, no soil or water in
or under any assets currently or formerly held for use or sale by the Company
or any Company Subsidiary is or has been contaminated by any Hazardous
Substance while such assets or premises were owned, leased, operated or
managed, directly or indirectly by the Company or any Company Subsidiary, where
such contamination had, or would be reasonably likely to have, a Material
Adverse Effect on the Company.
(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of the
Company, concerning the Company or any Company Subsidiary within the five (5)
years preceding the date hereof through the Effective Time with respect to any
real property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following
terms have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended
to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect
to, or list or define air, water, groundwater, solid waste, hazardous,
toxic, or radioactive substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public in each case as in
effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
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Section 3.22 Filing Reports. All returns, reports, plans and
filings of any kind or nature necessary to be filed by the Company with any
governmental agency or authority have been properly completed and timely filed
in compliance with all applicable requirements, except where failure to so file
would not have a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list
and briefly describe the Company's policies of insurance to which the Company
or any Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and
enforceable policies, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies and all premiums with respect thereto which
are due and payable are currently paid. All Insurance Policies currently
maintained by the Company or any Company Subsidiary ("Current Policies") taken
together, (i) provide adequate insurance coverage for the assets, properties
and operations of the Company and its Affiliates for all risks normally insured
against by a Person carrying on a substantially similar business or businesses
as the Company and its Affiliates, (ii) are sufficient for compliance with
legal and contractual requirements to which the Company or any of its
Affiliates is a party or by which any of them may be bound, and (iii) shall be
maintained in force (including the payment of all premiums and compliance with
their terms) without interruption up to and including the Closing Date. True,
complete and correct copies of all Insurance Policies have been provided to
APP. Neither the Company nor any Company Subsidiary nor any officer or
director thereof has received any notice or other written communication from
any issuer of any Current Policy cancelling such policy, materially increasing
any deductibles or retained amounts thereunder, or materially increasing the
annual or other premiums payable thereunder and, to the knowledge of the
Company, no such cancellation or increase of deductibles, retainages or
premiums is threatened. There are no outstanding claims, settlements or
premiums owed against any Insurance Policy, and all required notices have been
given and all known potential or actual claims under any Insurance Policy have
been presented in due and timely fashion. Within the five (5) years preceding
the Agreement, neither the Company nor any Company Subsidiary has filed a
written application for any professional liability insurance coverage which has
been denied by an insurance agency or carrier. The Disclosure Schedules also
set forth a list of all claims under any Insurance Policy in excess of $10,000
per occurrence filed by the Company or any Company Subsidiary during the
immediately preceding three-year period. Each Physician Employee has, at all
times while a Physician Employee, maintained or been covered by professional
malpractice insurance in such types and amounts as are customary for such a
physician practicing the same type of medicine in the same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging
of all accounts receivable of the Company as of March 31, 1997, which list is
complete, true and accurate in all material respects. All such accounts
receivable arose in the ordinary course of business and have not been
previously written off as bad debts and, are, to the extent still uncollected,
to the knowledge of the Company collectible in the ordinary course of business,
net of reserves for doubtful and uncollectible accounts shown in the Company
Financial Statements or on the accounting records of the Company (which
reserves are calculated consistent with generally accepted accounting
principles and past practice).
(b) The Disclosure Schedules set forth (i) a true,
correct and complete list of the names and addresses of each Payor of the
Company as of such date, which accounted for more than 5% of the revenues of
the Company in the fiscal year ended December 31, 1996, or which is reasonably
expected to account for more than 5% of the revenues of the Company for the
fiscal year to end December 31, 1997, and (ii) a single line item listing for
all private-pay patients in the aggregate of the Company. The Company has
satisfactory relations with such Payors set forth in (i) above and none of such
Payors has notified the Company that it intends to discontinue its relationship
with the Company or to deny any payments due from, or any claims for payment
submitted to any such party.
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Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and
complete (i) list of the accounts payable of the Company as of March 31, 1997,
and (ii) list of each individual indebtedness owed by the Company of $5,000 or
more, setting forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct
and complete list of the names and addresses of each of the providers/suppliers
of products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company
Current Balance Sheet contained in the Company Financial Statements consisted,
and all such items on hand on the date of this Agreement consist, and all such
items on hand at the Effective Time will consist, net of all applicable
reserves with respect thereto (calculated consistent with past practice), of
items of a quality and a quantity usable and saleable in the ordinary course of
the Company's business and conform to generally accepted standards in the
industry of which the Company is a part. The value of the inventories
reflected on the Company Current Balance Sheet contained in the Company
Financial Statements are net of adequate reserves for damaged, excess, and
unusable items. Purchase commitments of the Company for inventory are not
materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or practice his or her specialty and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which the Company is eligible and which are listed in the Disclosure Schedules
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any
private insurance program) under which the Company is presently receiving
payments directly or indirectly from any Payor for patient care provided by
such Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to
APP. No violation, default, order or deficiency exists with respect to any of
the items listed in the Disclosure Schedules except for such violations,
defaults, orders or deficiencies which would not be reasonably likely to have a
Material Adverse Effect on the Company, and there is no action pending or to
the Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program,
and no event has occurred which, with or without notice or lapse of time, or
both, would constitute grounds for a violation, order or deficiency with
respect to any of the items listed in the Disclosure Schedules to revoke,
withdraw or suspend any material license to operate its business as is
presently being conducted by it. To the knowledge of the Company, there has
been no decision not to renew any existing agreement with any provider or Payor
relating to the Company's business as presently being conducted by it. Neither
the Company nor any Physician Employee (i) has had his/her/its professional
license, Drug Enforcement
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Agency number, Medicare/Medicaid provider status or staff privileges at any
hospital or diagnostic imaging center suspended, relinquished, terminated or
revoked (including orders that have been entered by any such entities but
stayed), (ii) has been reprimanded in writing, sentenced, or disciplined by any
licensing board, state agency, regulatory body or authority, hospital, Payor or
specialty board (including orders that have been entered by any such entities
but stayed), or (iii) is the subject of an initial or final determination by
any federal or state authority that could result in any demand or reimbursement
under the Medicare, Medicaid or Government Programs or any exclusion or which
monetary penalty under federal or state law or (iv) has had a final judgment or
settlement entered against him/her/it in connection with a malpractice or
similar action.
(b) The Company is not required, or for the 72-month
period prior to the Effective Time was not required, to file any cost reports
or other reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of
the Company, or any Physician Employee, nor the right of any licensed
professional or other individual affiliated with the Company to receive
reimbursements pursuant to any Governmental Program or Private Program has been
terminated or otherwise materially and adversely affected as a result of any
investigation or action whether by any federal or state governmental regulatory
authority or other third party. No Physician Employee, licensed professional
or other individual affiliated with the business has, during the past three (3)
years prior to the Effective Time, had their professional license or staff
privileges limited, suspended or revoked by any governmental regulatory
authority or agency, hospital, integrated delivery system, trade association,
professional review organization, accrediting organization or certifying agency
(including orders that have been entered by any such entities but stayed).
True, correct and complete copies of all reports, correspondence, notices and
other documents relating to any matter described or referenced in this Section
3.28 have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete
and accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v)
other similar agreements relating to the foregoing to which the Company or any
Company Subsidiary is a party (including expiration date if applicable)
(collectively, the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and
accurate list and summary description of all agreements relating to technology,
trade secrets, know-how or processes that the Company is licensed or authorized
to use by others (other than technology, know-how or processes generally
available to other health care providers) or which it licenses or authorizes
others to use, true, correct and complete copies of which have been provided to
APP. There are no outstanding and, to the Company's knowledge, any threatened
disputes or disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and
the Proprietary Rights are freely transferable. To the knowledge of the
Company, no claim has been asserted by any person to the ownership of or for
infringement by the Company of any Proprietary Right of any other Person, and
neither the Company nor any Stockholder is aware of any valid basis for any
such claim.
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To the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the
performance and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and
timely filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All
such Tax Returns or reports are complete and accurate in all material respects
and properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the
Company may be disputing in good faith by proceedings in compliance with
applicable law, which are described in the Disclosure Schedules, (i) the
Company has paid all taxes, penalties, assessments and interest that have
become due with respect to any Tax Returns that it has filed and has properly
accrued on its books and records in accordance with generally accepted
accounting principles for all of the same that have not yet become due and
payable and (ii) the Company is not delinquent in the payment of any tax,
assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to
be asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated
any applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has
not granted an extension to any taxing authority of the statute of limitation
period during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for
all income, social security, unemployment insurance, sales, excise, use, and
other taxes have been collected or withheld and paid to the respective
governmental agencies.
(f) Foreign Person. Neither the Company nor any
Stockholder is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets
of the Company constitutes property that the Company, APP or any Affiliate of
APP, will be required to treat as being owned by another person pursuant to the
"Safe Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal
by the Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties
of the Company are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
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(i) Collapsible Corporation. The Company has not at any
time consented to have the provisions of Section 341(f)(2) of the Code apply to
it.
(j) Boycotts. The Company has not at any time
participated in or cooperated with any international boycott as defined in
Section 999 of the Code.
(k) Parachute Payments. No payment required or
contemplated to be made by the Company will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election
to be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or
has not been a personal holding company within the meaning of Section 542 of
the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to
the Company's business. There is no commitment to, and no income reflected in
the Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.) and
the Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the
Company nor any Company Subsidiary has engaged and, to the knowledge of the
Company, neither the Company's officers and directors nor the Physician
Employees or other Persons and entities providing professional services for or
on behalf of the Company have engaged, in any activities which are prohibited
under 42 U.S.C. Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject
to the exceptions or safe harbor provisions set forth in such legislation), or
the regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Sections 24, 287, 371, 664, 669, 1001, 1027,
1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no
material agreement, judgment, injunction, order or decree binding upon the
Company, any Company Subsidiary or officer, director or key employee of the
Company or Company Subsidiary, which has or reasonably could be expected to
have the effect of prohibiting or materially impairing the current medical
practice of the Company or any Company Subsidiary or the continuation of that
medical practice in the future by NewCo, any acquisition of property by the
Company, any Company Subsidiary or the conduct of business by the Company or
any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are
valid and binding, and are in full force and effect and are enforceable in
accordance with their terms, except to the extent that the validity or
enforceability thereof may be limited by bankruptcy or other laws affecting the
enforcement of creditors' rights generally, or by general equity principles, or
by public policy. There is no pending or, to the knowledge of the Company,
threatened bankruptcy, insolvency or similar proceeding with respect to any
other party to such agreements, and no
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event has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default
thereunder by the Company or any other party thereto. No contract with a
Physician Employee has been terminated in the last twelve (12) months.
Section 3.36 Statements True and Correct. No representation or
warranty made herein by the Company or any Stockholder, nor any statement,
certificate, information, exhibit or instrument to be furnished by the Company
or any Stockholder to APP or any of their respective representatives pursuant
to this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules
required by Article III hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
any of the Stockholders or the Company who is entitled to any fee or commission
upon consummation of the transactions contemplated by this Agreement or
referred to herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger and, except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
Section 4.1 Organization and Good Standing; Qualification. APP
is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. APP is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where such failure to be so
qualified or in good standing would not have a Material Adverse Effect on APP.
Copies of the certificate of incorporation and all amendments thereto of APP
and the bylaws of APP, as amended, and copies of the corporate minutes of APP
regarding the Merger and the transactions contemplated hereby, all of which
have been or will be made available to the Company for review, are true,
correct and complete as in effect on the date of this Agreement and accurately
reflect all material proceedings of the stockholders and directors of APP (and
all committees thereof) regarding the Merger and the transactions contemplated
hereby. The stock record books of APP, which have been or will be made
available to the Company for review, contain true, complete and accurate
records of the stock ownership of APP and the transfer of the shares of its
capital stock.
Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and the Other Agreements
and to consummate the Merger and the transactions contemplated hereby. The
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, including the Other Agreements and the consummation by APP
of the transactions contemplated hereby and thereby are within APP's corporate
powers and have been duly authorized by all necessary action on the part of
APP's Board of Directors. This Agreement has and the Other Agreements have
been duly executed by APP. This Agreement and all other agreements and
obligations entered into and undertaken in connection with the Merger and the
transactions contemplated hereby to which APP is a party constitute, or upon
execution will constitute, valid and binding agreements of APP, enforceable
against it in accordance with their respective terms, except as may be limited
by
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bankruptcy or other laws affecting creditors' rights generally, or by general
equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger and any
other required documents related to the Merger, and other than consents,
filings or notifications required to be made or obtained solely by the Company,
the execution, delivery and performance by APP of this Agreement and the
agreements provided for herein, and the consummation of the Merger and the
transactions contemplated hereby and thereby by APP requires no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares
are issued and outstanding and 10,000,000 shares of APP Preferred Stock, none
of which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights
of first refusal or similar rights of any stockholders of APP. APP has no
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or are convertible into or exercisable for securities having the
right to vote) with the stockholders of APP on any matter. There exist no
options, warrants, subscriptions, calls, commitments or other rights to
purchase, or securities convertible into or exchangeable for, any of the
authorized or outstanding securities of APP and no option, warrant,
subscription, call, or commitment or commission right of any kind exists which
obligates APP to issue any of its authorized but unissued capital stock. APP
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance of this Agreement by APP and
any other documents contemplated hereby (with or without the giving of notice,
the lapse of time, or both): (i) does not require the consent of any
governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on APP; (ii) will not conflict with any provision of
APP's certificate of incorporation or bylaws; (iii) will not conflict with,
result in a violation of, or constitute a default under any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or governmental
instrumentality to which APP is a party or by which APP or its properties are
subject or bound; (iv) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, require any
notice under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit, material
to this transaction, to which APP is a party or by which APP or any of its
properties are bound except for such conflict, termination, breach or default,
the occurrence of which would not result in a Material Adverse Effect on APP;
and (v) will not create any Encumbrance or restriction upon APP Common Stock or
any of the assets or properties of APP. The financial statements of APP
contained in the Registration Statements (a) have been prepared in accordance
with generally accepted accounting principles consistently applied (except as
may be indicated therein or in the notes thereto), (b) present fairly the
financial position of APP and APP Subsidiaries as of the dates indicated and
present fairly the results of APP's and APP Subsidiaries' operations for the
periods then ended, and (c) are in accordance with the books and records of APP
and APP Subsidiaries, which have been properly maintained and are complete and
correct in all material respects.
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Section 4.7 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, there has not been (i)
any change in the working capital, condition (financial or otherwise), assets,
liabilities, reserves, business or operations of APP that has had or is
reasonably likely to have a Material Adverse Effect on APP; or (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in
the Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.
Section 4.9 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of APP,
threatened against, or affecting APP. There are no unsatisfied judgments
against APP or any consent decrees to which APP is subject. Each of the
matters, if any, set forth in the Disclosure Schedules are fully covered by
policies of insurance of APP as in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be
as of the Effective Time (by virtue of any action, omission to act, contract to
which it is a party or any occurrence or state of facts whatsoever), in
violation of any applicable local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any governmental body,
agency or authority or court binding on it, or relating to its property or
business or its advertising, sales or pricing practices, except for violations
which are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form
S-4, APP does not have any material arrangements, agreements or plans with any
person with respect to the employment by APP of such person or whereby such
person is to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any
Tax Returns that it has filed and has properly accrued on its books and records
for all of the same that have not yet become due and (ii) APP is not delinquent
in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. APP has not received any notice that any tax deficiency or
delinquency has been asserted against APP. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of APP that could be asserted by any taxing authority. There is
no taxing authority audit of APP pending, or to the knowledge of APP,
threatened, and the results of any completed audits are properly reflected in
the financial statements of APP. APP has not violated any federal, state,
local or foreign tax law.
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(d) No Extension of Limitation Period. APP has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Code.
(j) Parachute Payments. No payment required or
contemplated to be made by APP will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. Schedule 4.13 or Form
S-4 sets forth a description of any interest held, directly or indirectly, by
any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to the Company or a Stockholder
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
Section 4.15 Schedules. All Schedules required by Article IV
hereof and attached hereto are true, correct and complete in all material
respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
APP who is entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy
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or other laws affecting the enforcement of creditors' rights generally, or by
general equity principles, or by public policy. There is no pending or, to the
knowledge of APP, threatened bankruptcy, insolvency or similar proceeding with
respect to any other party to such agreements, and no event has occurred which
(whether with or without notice, lapse of time or the happening or occurrence
of any other event) would constitute a default thereunder by APP or any other
party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true
and correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo
is a professional association duly organized, validly existing and in good
standing under the laws of its state of organization, with all requisite
corporate power and authority to carry on the business in which it intends to
engage, to own the properties it intends to own, and to execute and deliver the
Service Agreement, the Security Agreement and the Physician Employment
Agreements and consummate the transactions and perform the services
contemplated thereby. NewCo is duly qualified and licensed to do business and
is in good standing in all jurisdictions where the nature of its intended
business makes such qualification necessary, which jurisdictions are listed in
the Disclosure Schedules, except where the failure to be so qualified shall not
have a Material Adverse Effect on NewCo.
Section 5.2 Capitalization. The authorized capital stock of
NewCo consists of [_____] shares of NewCo Common Stock, of which [______]
shares are issued and outstanding, and no shares of capital stock of NewCo are
held in treasury. The Stockholders own all of the issued and outstanding
shares of NewCo Common Stock, free and clear of any Encumbrance. Each
outstanding share of NewCo Common Stock has been legally and validly issued and
is fully paid and nonassessable. There exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of NewCo. No
shares of capital stock of NewCo have been issued or disposed of in violation
of the preemptive rights, rights of first refusal or similar rights of any of
NewCo's stockholders.
Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and
complete copies thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery
and performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict
with any applicable local, state or federal law, ordinance, regulation, order,
injunction or
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decree, or any other requirement of any governmental body, agency or authority
or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities.
NewCo has not commenced business since its incorporation. Other than its
articles or certificate of incorporation and bylaws, and as of the Closing
Date, the Service Agreement, the Security Agreement, the Physician Employment
Agreements, and the other contracts and agreements assigned to NewCo as part of
the Spin-Off Transaction, NewCo is not a party to or subject to any agreement,
indenture or other instrument. NewCo does not own any assets (tangible or
intangible) other than the consideration received upon the issuance of shares
of its capital stock or pursuant to the Spin-Off Transaction, and NewCo does
not have any liabilities, accrued, contingent or otherwise (known or unknown
and asserted or unasserted) other than those assumed pursuant to the Spin-Off
Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure
to so comply or file would not, individually or in the aggregate, have a
Material Adverse Effect on NewCo.
ARTICLE VI
ARTICLE VI INTENTIONALLY OMITTED.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant
to the Spin-Off Transaction, from the date hereof until the Effective Time, the
Company shall, in all material respects, conduct its business in the ordinary
and usual course consistent with past practices and shall use reasonable
efforts to:
(a) preserve intact its business and its relationships
with Payors, referral sources, customers, suppliers, patients, employees and
others having business relations with it;
(b) maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the
conduct of the business of the Company;
(c) continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof. In addition, without the written consent of APP, the Company shall
not:
(1) amend its articles or certificate of
incorporation or bylaws, or other charter
documents;
(2) issue, sell or authorize for issuance or
sale, shares of any class of its securities (including, but
not limited to, by way of stock split, dividend,
recapitalization or other reclassification) or any
subscriptions, options, warrants, rights or convertible
securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such securities;
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(3) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such
shares;
(4) declare or pay any dividend or other
distribution (whether in cash, stock or other property) with
respect to its capital stock (except as expressly contemplated
herein);
(5) voluntarily sell, transfer, surrender,
abandon or dispose of any of its assets or property rights
(tangible or intangible) other than the sale of inventory, if
any, in the ordinary course of business consistent with past
practices;
(6) grant or make any mortgage or pledge or
subject itself or any of its properties or assets to any lien,
charge or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital
expenditures which are not reasonably necessary for the
conduct of its business;
(9) grant any increase in the compensation
payable or to become payable to directors, officers,
consultants or employees other than merit increases to
employees of the Company who are not directors or officers of
the Company, except in the ordinary course of business and
consistent with past practices;
(10) change in any manner any accounting
principles or methods other than changes which are consistent
with generally accepted accounting principles;
(11) enter into any material commitment or
transaction other than in the ordinary course of business;
(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;
(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;
(14) agree, whether in writing or otherwise, to do
any of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective
Time, the Company shall (i) except for sales of assets held as inventory, if
any, in the ordinary course of business prior to the Effective Time and except
as otherwise specifically described in the Schedules to this Agreement, have
good and valid title to all of its assets free and clear of all Encumbrances of
any nature whatsoever, except for current year ad valorem taxes and liens which
arise by operation of law, and (ii) have no direct or indirect
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indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations
in the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.
Section 7.3 Access. At all times prior to the Effective Time,
APP's employees, attorneys, accountants, agents and other authorized and
designated representatives will be allowed full access upon reasonable prior
notice and during regular business hours (and at such other times as the
parties may reasonably agree) to the properties, books and records of the
Company, including, without limitation, deeds, title documents, leases, patient
lists, insurance policies, minute books, share certificate books, share
registers, accounts, tax returns, financial statements and all other data that,
in the reasonable opinion of APP, are required for APP to make such
investigation as it may desire of the properties and business of the Company.
APP shall also be allowed full access upon reasonable prior notice and during
regular business hours (and at such other times as the parties may reasonably
agree) to consult with the officers, employees (after announcement by the
Company of the Merger to its employees which shall occur no later than three
(3) days subsequent to execution hereof by the Company), accountants, counsel
and agents of the Company in connection with such investigation of the
properties and business of the Company. No investigation by APP shall diminish
or otherwise affect any of the representations, warranties, covenants or
agreements of the Company under this Agreement. Any access or investigation
referred to in this Section 7.3 shall be conducted in such a manner as to
minimize the disruption to the Company's ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and
shall cause each of its directors, officers, employees or agents not to
directly or indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire
all or a substantial portion of the business, properties or capital stock of
the Company, whether by merger, consolidation, share exchange, business
combination, purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of the Company, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of the Company. If the Company receives any
offer or proposal after the date hereof, written or otherwise, of the type
referred to above, the Company shall promptly inform APP of such offer or
proposal, decline such offer and furnish APP with a copy thereof if such offer
or proposal is in writing.
Section 7.5 Compliance With Obligations. Prior to the Effective
Time, the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all
material agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly
notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
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(c) any termination of employment by, or threat to
terminate employment received from, any salaried or non-hourly, skilled
employee of the Company;
(d) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting the Company which, if pending on the date of this
Agreement, would have been required to have been disclosed to APP hereunder or
which relate to the consummation of the transactions contemplated by this
Agreement;
(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a
material deterioration in the relationship with any Payor or supplier or key
employee of the Company and, if requested by APP, will exert its reasonable
best efforts to restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its
best efforts to obtain the unanimous approval of its Stockholders to the
Merger. In seeking the approval of its Stockholders, the Company shall provide
each Stockholder with the Form S-4 which shall include information as may be
required by applicable law or as APP shall deem appropriate. The Board of
Directors of the Company shall recommend the approval of the Merger by the
Stockholders of the Company. If the Stockholders' approval is not unanimous,
the Company shall give notice to the nonconsenting Stockholders of the action
taken by the consenting Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to
Section 7.8 hereof, the Company will take all action reasonably necessary to
cause the Company to perform its obligations under this Agreement and all
related agreements and to consummate the Merger and other transactions
contemplated hereby and thereby on the terms and conditions set forth in this
Agreement and such agreements; provided, however, that this covenant shall not
require the Company to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein.
Section 7.10 Funding of Accrued Employee Benefits. The Company
hereby covenants and agrees that it will take whatever steps are necessary to
pay for or fund completely any accrued benefits, where applicable, or vested
accrued benefits for which the Company or any entity might have any liability
whatsoever arising from any tax-qualified plan as required under applicable
law. The Company acknowledges that the purpose and intent of this covenant is
to assure that APP shall have no liability whatsoever at any time after the
Closing Date with respect to any such tax-qualified plan, unless such plan is
merged with a plan sponsored by APP.
Section 7.11 Accounting and Tax Matters. The Company will not
change in any material respect the accounting methods or practices followed by
the Company (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. The Company will
not make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment or consent to any tax
claim or assessment or any waiver of the statute
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of limitations for any such claim or assessment. The Company will duly,
accurately and timely (without regard to any extensions of time) file all
returns, information statements and other documents relating to taxes of the
Company required to be filed by it, and pay all taxes required to be paid by
it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form,
organize and incorporate NewCo in the state of Texas, and the articles or
certificate of incorporation and bylaws of NewCo shall be in form and substance
reasonably satisfactory to APP. Except for consummating the Spin-Off
Transaction, NewCo shall not commence business until the Closing Date. On or
prior to the Closing, the Company shall take all actions and execute all
documents, agreements or instruments necessary pursuant to and in compliance
with applicable law to effect the Spin-Off Transaction, including without
limitation, the following: Prior to the Closing, the Company shall transfer to
NewCo good, valid and marketable title to all of the Company's right, title and
interest in and to the Employee Benefit Plans, all contracts and agreements and
other assets listed on the Disclosure Schedules (to be delivered by the Company
prior to Closing, which schedule will be subject to the approval of APP, which
approval shall not be unreasonably withheld) which by law either cannot be
acquired or cannot be used by APP because they relate to the practice of
medicine or radiology, and shall contribute to NewCo such other consideration
and assets of the Company as may be required under applicable law, in exchange
for the issuance by NewCo of shares of NewCo Common Stock, such shares being
all of the issued and outstanding shares of NewCo Common Stock. The Company
shall then distribute the shares of NewCo Common Stock to the Stockholders in
proportion to their respective ownership interest in the Company.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Merger; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
Section 8.2 Requirements to Effect the Merger and Acquisitions.
APP will use its best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and its authorized representatives to inspect
and, at the Company's sole expense, make copies of all documents, records and
information with respect to the affairs of APP as the Company and its
representatives may reasonably request, all for the sole purpose of permitting
the Company to become familiar with the business and assets and liabilities of
APP. No investigation by the Company or the Stockholders shall diminish or
otherwise affect any of the representations, warranties, covenants or
agreements of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly
inform the Company in writing of (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by APP subsequent to the date of this
Agreement and prior to the Effective Time under any contract, agreement or
investment material to APP's condition (financial or otherwise), operations,
assets, liabilities or business and to which it is subject; (b) any material
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adverse change in APP's condition (financial or otherwise), operations, assets,
liabilities or business or (c) defaults or disputes regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP shall use its best
efforts to establish a qualified plan and trust for NewCo, within the meaning
of Section 401(a) and 501(a), respectively, of the Code ("New Qualified Plan")
that will provide benefits comparable (as determined under Section 401(a)(4) of
the Code) to the benefits provided under the qualified plans referenced in the
Disclosure Schedules, if any, sponsored by the Company as of March 31, 1997.
APP will file for a favorable determination letter from the IRS on the New
Qualified Plan and request a favorable determination from the IRS that NewCo is
not a member of an affiliated service group (as defined in Section 414(m) of
the Code) or a recipient organization of leased employee services (as defined
in Section 414(n) of the Code). Any benefits provided under the New Qualified
Plan shall be conditioned on a favorable determination letter from the IRS.
Costs associated with the establishment and design of the New Qualified Plan
shall be paid by APP. NewCo shall be responsible for funding any contributions
to, or any ongoing administrative costs of, the New Qualified Plan.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and
file with the SEC the Registration Statements on Form S-1 and Form S-4 (or
other appropriate Forms) to be filed by APP in connection with its Initial
Public Offering and offering of the shares of APP Common Stock to the Target
Interest Holders pursuant to the transactions contemplated by this Agreement
and the Other Agreements (including the prospectus constituting parts thereof,
the "Registration Statements"). APP shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. The Company shall cooperate with
APP in the preparation of the Registration Statements and shall furnish all
information concerning the Company and NewCo as may be reasonably requested in
connection with any such action in a timely manner.
(b) The Company and APP each separately represent and warrant that
(i) in the case of the Company, none of the written information or documents
supplied or to be supplied by it specifically for inclusion in the Registration
Statements, by exhibit or otherwise and (ii) in the case of APP will, at the
time the Registration Statements and each amendment and supplement thereto, if
any, becomes effective under the Securities Act, none of them contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The Company
shall be entitled to review the Registration Statements and each of the
amendments thereto, if any, prior to the time each becomes effective under the
Securities Act. The Company shall have no responsibility for information
contained in the Registration Statements except for information provided by the
Company specifically for inclusion therein. The Company's review of the
Registration Statements shall not diminish or otherwise affect the
representations, covenants and warranties of APP contained in this Agreement.
(c) The Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners,
Stockholders and NewCo, and such other matters as may be reasonably requested
by APP in connection with the preparation of the Registration Statements and
each of the amendments or supplements thereto, or any other statement, filing,
notice or application made by or on behalf of each such party or any of its
subsidiaries to any governmental entity in connection with the Merger and the
other transactions contemplated by this Agreement.
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Section 9.2 Amendments of Disclosure Schedules. Each party
hereto agrees that, with respect to the representations and warranties of such
party contained in this Agreement, such party shall have the continuing
obligation until the Closing to supplement or amend promptly the Disclosure
Schedules with respect to any matter that would have been or would be required
to be set forth or described in the Disclosure Schedules in order to not
materially breach any representation, warranty or covenant of such party
contained herein; provided that no amendment or supplement to a Disclosure
Schedule that constitutes or reflects a Material Adverse Effect on the Company
may be made unless APP consents to such amendment or supplement, and no
amendment or supplement to a Schedule that constitutes or reflects a Material
Adverse Effect on APP may be made unless the Company consents to such amendment
or supplement. For purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections 10.1
and 11.1 have been fulfilled, the Disclosure Schedules hereto shall be deemed
to be the Disclosure Schedules as amended or supplemented pursuant to this
Section 9.2. In the event that the Company seeks to amend or supplement a
Disclosure Schedule pursuant to this Section 9.2 and APP does not consent to
such amendment or supplement, or APP seeks to amend or supplement a Disclosure
Schedule pursuant to this Section 9.2, and the Company does not consent, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto
will knowingly, either before or after the Merger, take any action that would
prevent the Merger from qualifying as a tax-free exchange within the meaning of
Section 351 of the Code.
Section 9.4 Public Announcements. The parties hereto will
consult with each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable law, will not issue any
such press release or make any such public statement prior to such
consultation, although the foregoing shall not apply to any disclosure by APP
in any filing with the DOJ, FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be
solely responsible for their own fees and expenses with respect to the
transactions contemplated herein including, without limitation, the fees
charged by attorneys, accountants and financial advisors retained by such
parties. The fees and expenses incurred by the Company and NewCo in connection
with the Merger shall be paid by the Company in full immediately prior to the
Closing and such expenses shall be the sole responsibility of the Stockholders
following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all
records and information regarding the patients of the Company and NewCo
confidential in accordance with all applicable laws.
Section 9.7 Registration Statements. APP shall prepare and file
the Registration Statements with the SEC, and shall use its reasonable good
faith efforts to cause the Registration Statements to become effective under
the Securities Act and take any action required to be taken under the
applicable state Blue Sky or other securities laws in connection with the
issuance of the shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations
and warranties of the Company contained herein and each Stockholder contained
in the Stockholders Representation Letter (as delivered pursuant to Section
10.12 hereof) shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects as of the
Effective Date.
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Section 10.2 Covenants. The Company shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have
delivered to APP their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse
Effect on the Company shall have occurred since March 31, 1997, whether or not
such change shall have been caused by the deliberate act or omission of the
Company or any Stockholder.
Section 10.6 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, statements, rule, regulation or ordinance to
consummate the transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statements shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate
the transactions contemplated hereby. The APP Common Stock shall have been
approved for listing on the Nasdaq National Market, subject only to official
notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 10.11 Dissenter's Rights. The Company shall have satisfied
each of its obligations to its Stockholders regarding dissenters or related
rights under the Texas Business Corporation Act, and the sum of the amount
which may become due to the Stockholders who have dissented to the Merger and
have indicated their intent to seek appraisal rights plus the cash portion of
the Merger Consideration shall not exceed 25% of the total Merger Consideration
due hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder receiving Merger Consideration shall have executed
and delivered to APP the Stockholder Representation Letter in substantially the
form of Exhibit C. Each Principal Stockholder shall have executed and
delivered to APP the Indemnification Agreement in substantially the form of
Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties
of the Company and its related entities to be transferred to NewCo pursuant to
the Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician
Employee and such other radiologists whose names are set forth on the
Disclosure Schedules shall have entered into a Physician
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Employment Agreement between NewCo and each such Physician Employee in a form
reasonably consistent to the form attached as Exhibit E and satisfactory to APP
in its sole discretion (the "Physician Employment Agreements").
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations
and warranties of APP contained herein shall be true and correct in all
material respects when initially made and shall be true and correct in all
material respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in
all material respects with all covenants and conditions required by this
Agreement to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered
to the Company their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, contracts or any statute, rule, regulation or
ordinances to consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The
Registration Statements shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the Registration Statements
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC. At or prior to the Effective Date, APP
shall have received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. At or prior to the Effective
Date, the APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 11.7 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received
all Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to the Company referred to in Section
12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse
Effect on APP shall have occurred since __________, 1997, whether or not such
change shall have been caused by the deliberate act or omission of APP.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its opinion and analysis, in form
satisfactory to the Company, that the terms of the Service Agreement are fair
and commercially reasonable.
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Section 11.11 Tax Opinion. The Company shall have received from
Haynes and Boone, L.L.P., a tax opinion, substantially in the form set forth in
Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the
Effective Date, the Company shall deliver to APP the following, all of which
shall be in a form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of
the Company authorizing the execution, delivery and performance of this
Agreement and the Service Agreement and all related documents and agreements
and consummation of the Merger, each certified by the Secretary of the Company
as being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of
NewCo authorizing the execution, delivery and performance of the Service
Agreement, the Security Agreement and the Physician Employment Agreements each
certified by the Secretary of NewCo as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(c) a certificate of the President of the Company dated
the Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated
the Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by
the Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and
officers of such corporation and as to the signatures of such directors and
officers who have executed documents delivered at the Closing on behalf of that
corporation;
(f) certificates, dated within ten (10) days prior to
the Effective Date, of the Secretary of State of Texas for the Company and
NewCo establishing that each such corporation is in existence, has paid all
franchise or similar taxes, if any, and, if applicable, otherwise is in good
standing to transact business in the state of Texas;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the
form attached hereto as Exhibit F, as revised in accordance with changes
reasonably deemed necessary or advisable by legal counsel retained by APP, the
Company and NewCo in the State of Texas to address regulatory and compliance
issues (the "Service Agreement");
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(k) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Code, of each Stockholder, signed under a
penalty of perjury and dated as of the Closing Date, to the effect that such
Stockholder is a United States citizen or a resident alien (and thus not a
foreign person) and providing such Stockholder's United States taxpayer
identification number;
(m) an executed Stockholder Release by the Stockholders
in substantially the form attached hereto as Exhibit G (the "Stockholder
Release");
(n) intentionally omitted; and
(o) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of
this Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective
Date, APP shall deliver to the Company the following, all of which shall be in
a form reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of
APP authorizing the execution, delivery and performance of this Agreement, and
all related documents and agreements, certified by APP's Secretary as being
true and correct copies of the originals thereof subject to no modifications or
amendments;
(b) intentionally omitted;
(c) a certificate of the President of APP dated the
Closing Date as to the truth and correctness of the representations and
warranties of APP contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the
Closing Date, (i) as to the performance and compliance by APP with all
covenants contained herein on and as of the Effective Date and (ii) certifying
that all conditions precedent required to be satisfied by APP shall have been
satisfied;
(e) a certificate of the Secretary of APP certifying as
to the incumbency and to the signatures of the officers of APP who have
executed documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to
the Effective Date, of the secretary of state of incorporation establishing
that APP is in existence, has paid all franchise or similar taxes, if any, and
otherwise is in good standing to transact business in the state of Delaware and
the State of Texas;
(g) certificates (or photocopies thereof), dated within
ten (10) days prior to the Effective Date, of the Secretaries of State of the
states in which APP is qualified to do business, to the effect that APP is
qualified to do business and is in good standing as a foreign corporation in
such state;
(h) the executed Service Agreement as revised in
accordance with the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article
II and Exhibit B hereof; and
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(k) such other instrument or instruments of transfer
prepared by the Company as shall be necessary or appropriate, as the Company or
its counsel shall reasonably request, to carry out and effect the purpose and
intent of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the
Closing, at the request of APP or the Surviving Corporation and at APP's sole
cost and expense, the Stockholders and the Company shall deliver any further
instruments of transfer and take all reasonable action as may be necessary or
appropriate to carry out the purpose and intent of this Agreement. Following
the Closing, at the request of NewCo and at NewCo's sole cost and expense, APP
or the Surviving Corporation shall deliver any further instruments of transfer
and take all reasonable action as may be necessary and appropriate to carry out
the purpose and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Code, to
report the Merger as a Reorganization and such opinion either is furnished
prior to the Effective Time or is based on facts or events not known at the
Effective Time. Each party shall provide to each other party such tax
information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Merger as a
Reorganization.
(c) The parties agree that no Stockholder shall be liable for any
taxes incurred by the Company and for which APP has successor liability
therefor which arise solely as a result of the Merger or the consummation of
the transactions contemplated hereby; provided that the foregoing shall not
limit or otherwise be deemed a waiver of any right of indemnification under
Section 14.1 for a breach of any representation, warranty or covenant of the
Company or any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms
and conditions of this Article XIV, the Company agrees to indemnify, defend and
hold APP and the Surviving Corporation and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and
Affiliates harmless from and against all losses, claims, obligations, demands,
assessments, penalties, liabilities, costs, damages, reasonable attorneys' fees
and expenses (including, without limitation, all costs of experts and
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all costs incidental to or in connection with any appellate process)
(collectively, "Damages") asserted against or incurred by such individuals
and/or entities arising out of or resulting from:
(a) a breach by the Company of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of the
Company contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company
and/or any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons
in which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any (i) untrue
statement of material fact in any Registration Statement or any prospectus
forming or part thereof, or any amendment thereof or supplement thereto
relating to the Company (including any Company Subsidiary) or NewCo required to
be stated therein or (ii) failure to state information necessary to make the
statements therein not misleading, which untrue statement or failure to state
information arises or results solely from information provided in writing to
APP or its counsel by the Company or any Stockholder or their agents
specifically for inclusion in any such Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP. Subject to the terms and
conditions of this Article XIV, APP hereby agrees to indemnify, defend and hold
the Stockholders, the Company and NewCo and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and
Affiliates harmless from and against all Damages asserted against or incurred
by such individuals and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of APP contained in
this Agreement or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any untrue statements
of material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or required to be
stated therein or failure to state information necessary to make the statements
therein not misleading (except for any liability based upon any actual or
alleged untrue statement of material fact or an omission to state a material
fact relating to NewCo, the Company or any Stockholder which was derived from
any information provided in writing by the Company or a Company Subsidiary or
any of their agents contained in the representations and warranties set forth
in this Agreement or any certificate, exhibit, schedule or instrument required
to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
any of the parties hereto of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
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Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the
Agreement (an "Indemnified Party") shall promptly (and, in the event, at least
ten (10) days prior to the due date for any responsive pleadings, filings or
other documents) (i) notify the party for whom indemnification is sought (the
"Indemnifying Party) of any third-party claim or claims asserted against the
Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying
Party a written notice ("Claim Notice") describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), an estimate of the amount of Damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. The failure to promptly deliver a Claim
Notice shall not relieve any Indemnifying Party of its obligations to any
Indemnified Party with respect to the related Third Party Claim except to the
extent that the resulting delay is materially prejudicial to the defense of
such claim. Within thirty (30) days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(x) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article XIV with respect to such Third Party Claim
and (y) whether the Indemnifying Party desires, at the sole cost and expense of
such Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim.
(b) If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall have
the right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set
forth in Section 14.3(f) below, the Indemnifying Party shall have full control
of such defense and proceedings, including any compromise or settlement
thereof. The Indemnified Party is hereby authorized, at the sole cost and
expense of the Indemnifying Party (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period,
any motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party and not prejudicial to the Indemnifying Party. If requested by the
Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Party, to cooperate with the Indemnifying Party and their
counsel in contesting any Third Party Claim that the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 14.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and upon written
notification thereof, the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of the Indemnified Party; provided further
that the Indemnifying Party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 14.3(b), or
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if the Indemnifying Party elects to defend the Indemnified Party pursuant to
Section 14.3(b) but fails diligently and promptly to prosecute or settle the
Third Party Claim, then the Indemnified Party shall have the right to defend,
at the sole cost and expense of the Indemnifying Party (if the Indemnified
Party is entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense and proceedings,
provided, however, that the Indemnified Party may not enter into, without the
Indemnifying Party's consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes their
potential liability to the Indemnified Party under this Article XIV and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all costs and expenses of such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
Section 14.3(c), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation; provided, however, that if the
named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnifying Party
has been advised by counsel that there may be one or more legal defenses
available to it that are different from or additional to those available to the
Indemnified Party, then the Indemnifying Party may employ separate counsel and
upon written notification thereof, the Indemnified Party shall not have the
right to assume the defense of such action on behalf of the Indemnifying Party.
(d) In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder that does not involve a Third
Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the
Indemnified Party within sixty (60) days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes such claim, the claim specified by
the Indemnified Party in the Indemnity Notice shall be deemed a liability of
the Indemnifying Party hereunder. If the Indemnifying Party has timely
disputed such claim, as provided above, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction if the parties do
not reach a settlement of such dispute within thirty (30) days after notice of
a dispute is given.
(e) Payments of all amounts owing by any Indemnifying
Party pursuant to this Article XIV relating to a Third Party Claim shall be
made within thirty (30) days after the latest of (i) the settlement of such
Third Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice
period or (ii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under this
Agreement.
(f) The Indemnifying Party shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or
compromise a Third Party Claim against an Indemnified Party. If a firm offer
is made to settle such a claim solely by the payment of money damages and the
Indemnifying Party notifies the Indemnified Party in writing that the
Indemnifying Party agrees to such settlement, but the Indemnified Party elects
not to accept and agree to it, the Indemnified Party may continue to contest or
defend such Third Party Claim and, in such event, the total maximum liability
of the Indemnifying Party to indemnify or otherwise reimburse the Indemnified
Party hereunder with respect to such a claim shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable out-of-pocket costs
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and reasonable expenses (including reasonable attorneys' fees and
disbursements) to the date of notice that the Indemnifying Party desired to
accept such settlement.
(g) Notwithstanding any provision herein to the contrary,
the obligation of an Indemnifying Party to provide indemnification to an
Indemnified Party for breach of any representation or warranty as provided in
Sections 14.1(a) or 14.2(a) hereof shall not take effect unless and until the
Damages asserted against or incurred in the aggregate and on a collective basis
by the Indemnified Parties pursuant to either Section 14.1 or 14.2 (as
applicable) as a result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount
of any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and
the Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and
delivered by the Company or any Stockholder pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or any
Stockholder fails to comply in any material respect with any material covenant
or agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within thirty (30) days after receipt
of written notice thereof;
(c) at any time prior to the Effective Date by the
Company if any representation or warranty of APP contained in this Agreement or
in any certificate or other document executed and delivered by APP pursuant to
this Agreement is or becomes untrue in any material respect of if APP fails to
comply in any material respect with any covenant or agreement contained herein,
and any such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
(d) at any time prior to the Effective Date by APP if, as
a result of the conduct of due diligence and regulatory compliance procedures,
APP deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have
been consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in
Section 16.3, in the event this Agreement is terminated pursuant to this
Article XV, this Agreement shall forthwith become void.
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ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo
recognize and acknowledge that each has in the past, currently has, and in the
future may possibly have, access to certain Confidential Information of APP and
the Surviving Corporation that is valuable, special and a unique asset of such
entity's business. APP acknowledges that it had in the past, currently has,
and in the future may possibly have, access to certain Confidential Information
of the Company and NewCo that is valuable, special and a unique asset of each
such business. The Company, NewCo and APP, severally, agree that they will not
disclose such Confidential Information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of APP, NewCo and the Company and (b) to counsel and
other advisers to APP, NewCo and the Company provided that such advisers (other
than counsel) agree to the confidentiality provisions of this Section 16.1,
unless (i) such information becomes available to or known by the public
generally through no fault of the Company, NewCo or APP, as the case may be,
(ii) disclosure is required by law or the order of any governmental authority
under color of law, provided, that prior to disclosing any information pursuant
to this clause (ii) the Company, NewCo or APP, as the case may be, shall, if
possible, give prior written notice thereof to the Company, NewCo or APP and
provide the Company or APP with the opportunity to contest such disclosure,
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, or
(iv) the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Merger or otherwise. In the event of a breach
or threatened breach by the Company, on the one hand, and APP, on the other
hand, of the provisions of this Section, APP, NewCo and the Company shall be
entitled to an injunction restraining the other party, as the case may be, from
disclosing, in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting any of such parties from pursuing any other
available remedy for such breach or threatened breach, including the recovery
of damages.
Section 16.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, NewCo and the Company agree
that, in the event of a breach by either of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
Section 17.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by APP to a wholly owned subsidiary of APP; provided that any such
assignment shall not relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the
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respective heirs, legal representatives, successors and assigns of the parties
hereto. APP acknowledges and agrees that the rights and remedies of the
Company under this Agreement will be directly available to the Stockholders as
third party beneficiaries of the rights and remedies of the Company under this
Agreement, including, without limitation, the rights and remedies under Article
14 hereof to indemnification from APP against Damages incurred by the
Stockholders resulting from a breach by APP of any representation, warranty or
covenant of APP contained herein. Except as provided in the preceding sentence
or as otherwise provided herein, neither this Agreement nor any other agreement
contemplated hereby shall be deemed to confer upon any person not a party
hereto or thereto any rights or remedies hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and
Covenants. The representations, warranties and covenants contained herein
shall survive the Closing and all statements contained in any certificate,
exhibit or other instrument delivered by or on behalf of the Company, any
Stockholder or APP pursuant to this Agreement shall be deemed to have been
representations and warranties by the Company, such Stockholder and APP.
Notwithstanding any provision in this Agreement to the contrary, the
representations and warranties contained herein shall survive the Closing until
the second anniversary of the Closing Date except that (a) the representations
and warranties set forth in Section 3.21 with respect to environmental matters
shall survive for a period of ten (10) years, (b) the representations and
warranties set forth in Section 3.30 with respect to tax matters shall survive
until such time as the limitations period has run for all tax periods ended
prior to the Closing Date, (c) the representations and warranties contained in
Section 3.27 and Section 3.33 with respect to healthcare matters shall survive
for a period of six (6) years and (d) solely for purposes of Section 14.1(c)
and Section 14.2(c), and solely to the extent that any party to be indemnified
pursuant to such provisions actually incurs liability under the Securities Act,
the Exchange Act or any other federal or state securities law, the
representations and warranties set forth therein shall survive until the
expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF TEXAS.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
Section 17.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
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Section 17.11 Confidentiality; Publicity and Disclosures. Each
party shall keep this Agreement and its terms confidential, and shall make no
press release or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge and
consent of the other parties hereto; provided that the foregoing shall not
prohibit any disclosure (a) by press release, filing or otherwise that APP has
determined in its good faith judgment and after advice of legal counsel to be
required by federal securities laws or the rules of the National Association of
Securities Dealers, (b) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request
or demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by telex,
telegram or courier service, when delivered to the party to whom notice is
sent, (ii) if delivered by facsimile transmission, when so sent and receipt
acknowledged by receipt or (iii) if delivered by mail (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may
designate by written notice to all other parties in accordance herewith):
If to APP and APP Sub: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: M & S X-Ray Associates, P.A.
P.O. Box 120310 (mailing only)
730 N. Main, Suite B-109 (fed-ex)
San Antonio, TX 78299
Fax No.: (210) 304-2988
Attn: Jeremy Wiersig, M.D.
with a copy to : Bill Creasey, Esq.
Looper, Reed, Mark & McGraw
1601 Elm Street, Suite 4100
Dallas, TX 75201
Fax No.: (214) 953-1332
Attn: Bill Creasey, Esq.
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Section 17.13 No Waiver; Remedies. No party hereto shall by any
act (except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in
this Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
---
AMERICAN PHYSICIAN PARTNERS, INC.
By:
------------------------------------------
Gregory L. Solomon, President
THE COMPANY:
-----------
M & S X-RAY ASSOCIATES, P.A.
By:
------------------------------------------
Its:
------------------------------------------
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EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
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EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
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EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
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EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
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EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
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EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
A-185
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EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
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DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth
therein are delivered in connection with that certain Agreement and Plan of
Reorganization and Merger dated ____________, 1997, by and between American
Physician Partners, Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made
pursuant to one section number can reasonably be interpreted by other parties
to be a disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain
exceptions to the representations and warranties set forth in Article III of
the Agreement, the inclusion of an item on these Disclosure Schedules shall not
be deemed an admission by American Physician Partners, Inc. that such item is
material to American Physician Partners, Inc., the Company, NewCo or any
Company Subsidiary or that it will have a material adverse effect on American
Physician Partners, Inc., the Company, NewCo or any Company Subsidiary.
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AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and M & S
X-RAY ASSOCIATES, P.A., a Texas professional association (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not have
been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
M & S X-RAY ASSOCIATES, P.A.
By:_________________________________
Its:________________________________
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================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation);
SOUTH TEXAS MR, INC.
(a Texas corporation)
and
THE STOCKHOLDERS OF SOUTH TEXAS MR, INC.
================================================================================
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TABLE OF CONTENTS
Page
ARTICLE I Definitions..................................................... 2
Section 1.1 Definitions......................................... 2
Section 1.2 Rules Of Interpretation............................. 5
ARTICLE II The Merger..................................................... 6
Section 2.1 The Merger.......................................... 6
Section 2.2 The Closing......................................... 6
Section 2.3 Effective Time...................................... 6
Section 2.4 Certificate of Incorporation of Surviving
Corporation......................................... 6
Section 2.5 Bylaws of Surviving Corporation..................... 6
Section 2.6 Conversion of Company Common Stock.................. 6
Section 2.7 Exchange of Certificates Representing Shares
of the Company Common Stock......................... 7
Section 2.8 Fractional Shares................................... 7
ARTICLE III Representations and Warranties of the Company................. 7
Section 3.1 Organization and Good Standing; Qualification....... 7
Section 3.2 Authorization and Validity.......................... 8
Section 3.3 Governmental Authorization.......................... 8
Section 3.4 Capitalization...................................... 8
Section 3.5 Transactions in Capital Stock....................... 8
Section 3.6 Continuity of Business Enterprise................... 8
Section 3.7 Subsidiaries and Investments........................ 9
Section 3.8 Absence of Conflicting Agreements or Required
Consents............................................ 9
Section 3.9 Intentionally Omitted............................... 9
Section 3.10 Absence of Changes.................................. 9
Section 3.11 No Undisclosed Liabilities.......................... 10
Section 3.12 Litigation and Claims............................... 10
Section 3.13 No Violation of Law................................. 10
Section 3.14 Lease Agreements.................................... 10
Section 3.15 Real and Personal Property.......................... 11
Section 3.16 Indebtedness for Borrowed Money..................... 11
Section 3.17 Contracts and Commitments........................... 11
Section 3.18 Employee Matters.................................... 12
Section 3.19 Intentionally Omitted............................... 12
Section 3.20 Intentionally Omitted............................... 12
Section 3.21 Environmental Matters............................... 12
Section 3.22 Filing Reports...................................... 13
Section 3.23 Insurance Policies.................................. 13
Section 3.24 Accounts Receivable; Payors......................... 14
Section 3.25 Accounts Payable; Suppliers......................... 14
Section 3.26 Inventory........................................... 15
Section 3.27 Licenses, Authorization and Provider Programs....... 15
Section 3.28 Inspections and Investigations...................... 15
Section 3.29 Proprietary Rights and Information.................. 16
Section 3.30 Taxes............................................... 16
Section 3.31 Related Party Arrangements.......................... 17
Section 3.32 Banking Relations................................... 18
Section 3.33 Fraud and Abuse and Self Referral................... 18
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Section 3.34 Restrictions on Business Activities................. 18
Section 3.35 Agreements in Full Force and Effect................. 18
Section 3.36 Statements True and Correct......................... 18
Section 3.37 Disclosure Schedules................................ 18
Section 3.38 Finders' Fees....................................... 18
ARTICLE IV Representations and Warranties of APP.......................... 19
Section 4.1 Organization and Good Standing; Qualification....... 19
Section 4.2 Authorization and Validity.......................... 19
Section 4.3 Governmental Authorization.......................... 19
Section 4.4 Capitalization...................................... 19
Section 4.5 Subsidiaries and Investments........................ 20
Section 4.6 Absence of Conflicting Agreements or Required
Consents............................................ 20
Section 4.7 Absence of Changes.................................. 20
Section 4.8 No Undisclosed Liabilities.......................... 20
Section 4.9 Litigation and Claims............................... 20
Section 4.10 No Violation of Law................................. 20
Section 4.11 Employee Matters.................................... 21
Section 4.12 Taxes............................................... 21
Section 4.13 Related Party Arrangements.......................... 22
Section 4.14 Statements True and Correct......................... 22
Section 4.15 Disclosure Schedules................................ 22
Section 4.16 Finder's Fees....................................... 22
ARTICLE V INTENTIONALLY OMITTED ...........................................22
ARTICLE VI INTENTIONALLY OMITTED.......................................... 22
ARTICLE VII Covenants of the Company...................................... 22
Section 7.1 Conduct of The Company.............................. 22
Section 7.2 Title to Assets; Indebtedness....................... 24
Section 7.3 Access.............................................. 24
Section 7.4 Acquisition Proposals............................... 24
Section 7.5 Compliance With Obligations......................... 24
Section 7.6 Notice of Certain Events............................ 25
Section 7.7 Intentionally Omitted............................... 25
Section 7.8 Stockholders' Consent............................... 25
Section 7.9 Obligations of Company and Stockholders............. 25
Section 7.10 Intentionally Omitted............................... 25
Section 7.11 Accounting and Tax Matters.......................... 25
ARTICLE VIII Covenants of APP............................................. 26
Section 8.1 Consummation of Agreement........................... 26
Section 8.2 Requirements to Effect the Merger and
Acquisitions........................................ 26
Section 8.3 Access.............................................. 26
Section 8.4 Notification of Certain Matters..................... 26
ARTICLE IX Covenants of APP and the Company............................... 27
Section 9.1 Filings; Other Action............................... 27
Section 9.2 Amendments of Disclosure Schedules.................. 27
Section 9.3 Actions Contrary to Stated Intent................... 28
Section 9.4 Public Announcements................................ 28
Section 9.5 Expenses............................................ 28
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Section 9.6 Patient Confidentiality............................. 28
Section 9.7 Registration Statements............................. 28
ARTICLE X Conditions Precedent of ........................................ 28
Section 10.1 Representations and Warranties...................... 28
Section 10.2 Covenants........................................... 28
Section 10.3 Legal Opinion....................................... 28
Section 10.4 Proceedings......................................... 28
Section 10.5 No Material Adverse Effect.......................... 28
Section 10.6 Government Approvals and Required Consents.......... 29
Section 10.7 Securities Approvals................................ 29
Section 10.8 Closing Deliveries.................................. 29
Section 10.9 Closing of Initial Public Offering.................. 29
Section 10.10 Closing of Related Acquisitions..................... 29
Section 10.11 Dissenter's Rights.................................. 29
Section 10.12 Stockholder Representation Letter;
Indemnification Agreement........................... 29
ARTICLE XI Conditions Precedent of the Company............................ 29
Section 11.1 Representations and Warranties...................... 29
Section 11.2 Covenants........................................... 29
Section 11.3 Legal Opinions...................................... 29
Section 11.4 Proceedings......................................... 29
Section 11.5 Government Approvals and Required Consents.......... 30
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing................ 30
Section 11.7 Closing of Initial Public Offering.................. 30
Section 11.8 Closing Deliveries.................................. 30
Section 11.9 No Material Adverse Effect.......................... 30
ARTICLE XII Closing Deliveries............................................ 30
Section 12.1 Deliveries of the Company........................... 30
Section 12.2 Deliveries of APP................................... 31
ARTICLE XIII Post Closing Matters......................................... 32
Section 13.1 Further Instruments of Transfer..................... 32
Section 13.2 Merger Tax Covenant................................. 32
Section 13.3 Current Public Information.......................... 32
ARTICLE XIV Remedies...................................................... 33
Section 14.1 Indemnification by the Company and the
Stockholders........................................ 33
Section 14.2 Indemnification by APP.............................. 33
Section 14.3 Conditions of Indemnification....................... 34
Section 14.4 Costs, Expenses and Legal Fees...................... 36
Section 14.5 Tax Benefits; Insurance Proceeds.................... 36
Section 14.6 Dispute Resolution.................................. 36
ARTICLE XV Termination.................................................... 38
Section 15.1 Termination......................................... 38
Section 15.2 Effect of Termination............................... 38
ARTICLE XVI Nondisclosure of Confidential Information..................... 38
Section 16.1 Non-Disclosure Covenant............................. 38
Section 16.2 Damages............................................. 39
Section 16.3 Survival............................................ 39
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ARTICLE XVII Miscellaneous................................................ 39
Section 17.1 Amendment; Waivers.................................. 39
Section 17.2 Assignment.......................................... 39
Section 17.3 Parties in Interest; No Third Party
Beneficiaries....................................... 39
Section 17.4 Entire Agreement.................................... 39
Section 17.5 Severability........................................ 39
Section 17.6 Survival of Representations, Warranties
and Covenants....................................... 40
Section 17.7 Governing Law....................................... 40
Section 17.8 Captions............................................ 40
Section 17.9 Gender and Number................................... 40
Section 17.10 Intentionally omitted............................... 40
Section 17.11 Confidentiality; Publicity and Disclosures.......... 40
Section 17.12 Notice.............................................. 40
Section 17.13 No Waiver; Remedies................................. 41
Section 17.14 Counterparts........................................ 41
Section 17.15 Defined Terms....................................... 41
EXHIBITS
Exhibit A - List of Target Companies......................................A-1
Exhibit B - Merger Consideration..........................................B-1
Exhibit C - Stockholder Representation Letter.............................C-1
Exhibit D - Indemnification Agreement.....................................D-1
Exhibit E - Stockholder Release...........................................G-1
Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this "Agreement"),
dated as of June __, 1997, is by and among AMERICAN PHYSICIAN PARTNERS, INC., a
Delaware corporation ("APP"), SOUTH TEXAS MR, INC., a Texas corporation (the
"Company") and THE STOCKHOLDERS OF SOUTH TEXAS MR, INC. (the "Stockholders").
RECITALS
A. The Company is the general partner of South Texas No. 1 MRI Limited
Partnership. All of the shares of the common stock of the Company (the "Company
Common Stock") are owned beneficially and of record by the Stockholders.
B. APP is engaged in the business of owning, operating and acquiring the
assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that the Company
be merged with and into APP, and that APP be the sole surviving corporation
(sometimes referred to hereinafter as the "Surviving Corporation"), and the
Company be the disappearing corporation (sometimes referred to hereinafter as
the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the transactions
contemplated hereby, pursuant to which (i) the Company will merge with and into
APP upon the terms and conditions set forth herein and in accordance with the
laws of the State of Texas, (ii) the outstanding shares of the Company Common
Stock shall be converted at such time into cash and shares of common stock, par
value $.0001 per share, of APP (the "APP Common Stock") as set forth herein.
E. APP and APP Subsidiaries have entered into, or intend to enter into, an
Agreement and Plan of Reorganization and Merger or other acquisition agreements
(collectively, the "Other Agreements") similar to this Agreement with interest
holders (together with the Stockholders, the "Target Interest Holders") of each
of the entities listed on Exhibit A (together with the Company, the "Target
Companies").
F. The parties intend for the transaction contemplated by this Agreement
along with the transactions contemplated by the Other Agreements to qualify as a
tax-free exchange within the meaning of Section 351 of the Internal Revenue Code
of 1986, as amended (the "Code") and the regulations promulgated thereunder.
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AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that, directly
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall mean
(i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed on Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by this
Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited consolidated
balance sheet of the Company as of December 31, 1996 and the related statements
of income, stockholders' equity and statements of cash flows of the Company and
its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
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"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company Audited
Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section 3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of the
date hereof or otherwise delivered by any party hereto pursuant to the terms
hereof, as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement is
declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Encumbrance" shall mean any charge, claim, community property interest,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
"Environmental Laws" shall have the meaning set forth in Section 3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
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"Form S-1" shall mean the Form S-1 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with its Initial Public
Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with the offering of APP
Common Stock as consideration under the Merger and other mergers contemplated by
the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party to
this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section 14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section 14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section 14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or other
fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651 et seq.,
(v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
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"Merger" shall have the meaning set forth in Section 2.1.
"Merger Consideration" shall have the meaning set forth in Section 2.6(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons, obligated
by contract or by law to render payment to the Company in consideration of the
performance of professional medical or technical services including, but not
limited to, Medicare and Medicaid Programs (as defined in Section 3.27(a)),
insurance companies, health maintenance organizations, preferred provider
organizations, independent practice associations, hospitals, hospital systems,
integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section 3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section 12.1(m).
"Surviving Corporation" shall have the meaning set forth in the recitals
to this Agreement.
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the recitals
to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign income,
excise, corporate, franchise, property, sales, use, payroll, withholding,
provider, environmental, duties, value added and other tax returns (including
information returns).
"Third Party Claim" shall have the meaning set forth in Section 14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in Section
1.1 shall be equally applicable to both the singular and the plural forms of the
terms therein defined and shall cover both genders.
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Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number (e.g.,
Article IV) or a Section number (e.g., Section 6.2) shall be construed to be a
reference to the designated Article number or Section number of this Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into APP
in accordance with this Agreement and the separate corporate existence of the
Disappearing Corporation shall thereupon cease (the "Merger"). APP shall be the
Surviving Corporation in the Merger and shall continue to be governed by the
laws of the State of Delaware, and the separate corporate existence of APP with
all its rights, privileges, powers, immunities, purposes and franchises shall
continue unaffected by the Merger, except as set forth herein. The Surviving
Corporation may, at any time concurrent with and/or after the Effective Time,
take any action in the name of or on behalf of the Disappearing Corporation in
order to effectuate the transactions contemplated by this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take place at
10:00 a.m., local time, at the offices of APP located at 2301 NationsBank Plaza,
901 Main Street, Dallas, Texas on the day on which the transactions contemplated
by the Initial Public Offering are consummated. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
Section 2.3 Effective Time. If all the conditions to the Merger set forth
in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section
5.04 of the Texas Business Corporation Act. The Merger shall become effective at
the time of the filing of such documents with the Secretary of State of the
State of Texas, in accordance with such law or at such later time which the
parties hereto have theretofore agreed upon and designated in such filings as
the effective time of the Merger (the "Effective Time").
Section 2.4 Certificate of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Certificate of Incorporation of the Company
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation without any amendment or modification
as a result of the Merger.
Section 2.5 Bylaws of Surviving Corporation. The Bylaws of the Company in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger, until duly amended in accordance with applicable laws.
Section 2.6 Conversion of Company Common Stock. The manner of converting
shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the part
of the holder thereof, all shares of Company Common Stock issued and outstanding
at the Effective Time (excluding shares held by APP pursuant to Section 2.6(d)
hereof) shall cease to be outstanding and shall be cancelled and retired and
shall cease to exist, and each holder of a certificate or certificates
representing any such shares of Company Common Stock shall thereafter cease to
have any rights with respect to such shares of Company
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Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time shall be
terminated and cancelled, without payment of any consideration therefor, and
shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock issued
and outstanding as of the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, continue unchanged and
remain outstanding as a validly issued, fully paid and nonassessable share of
APP Common Stock.
Section 2.7 Exchange of Certificates Representing Shares of the Company
Common Stock.
(a) At or after the Effective Time and at the Closing (i) the
Stockholders, as holders of a certificate or certificates representing shares of
the Company's Common Stock, shall upon surrender of each certificate or
certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until each
certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.8 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at the
Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Company
Common Stock or with respect to the stock powers accompanying any Company Common
Stock. Upon such delivery (or completion of appropriate affidavit of lost
certificate and indemnity), each Stockholder shall receive in exchange therefor
the Merger Consideration pursuant to Exhibit B and Section 2.8 hereof, if
applicable.
Section 2.8 Fractional Shares. Notwithstanding any other provision herein,
no fractional shares of APP Common Stock will be issued and any Stockholder
otherwise entitled to receive a fractional share of APP Common Stock as part of
the Merger Consideration hereunder shall receive a cash payment in lieu thereof
reflecting such Stockholder's proportionate interest in a share of APP Common
Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to consummate the
Merger and except as set forth in the Disclosure Schedules attached hereto and
incorporated herein by this reference, the
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Company represents and warrants to APP both as of the date hereof and as of the
Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification . The Company is
a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. The Company and each Company Subsidiary is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all requisite
corporate power to enter into this Agreement and all other agreements entered
into in connection with the transactions contemplated hereby and to consummate
the transactions contemplated hereby. The execution, delivery and, subject to
approval of this Agreement and the Merger by the Stockholders, performance by
the Company of this Agreement and the agreements contemplated herein, and the
consummation by the Company of the transactions contemplated hereby and thereby
are within the Company's respective corporate powers and have been duly
authorized by all necessary action on the part of the Company's Board of
Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby to which the Company is
a party constitute, or upon execution will constitute, valid and binding
agreements of the Company, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting the enforcement of creditors' rights generally, or by general
equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger (as contemplated by Section
2.3) and any other required documents related to the Merger, and other than
consents, filings or notifications required to be made or obtained solely by APP
(including, without limitation, in connection with the Initial Public Offering,
Form S-4 or any Hart-Scott-Rodino filing to be made by APP, if any), the
execution, delivery and performance by the Company of this Agreement and the
agreements provided for herein, and the consummation of the transactions
contemplated hereby and thereby by the Company require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 3.4 Capitalization. The authorized capital stock of the Company
consists of 100,000 shares of the Company Common Stock, of which 120 shares are
issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in Schedule 3.4. Each
outstanding share of Company Common Stock has been legally and validly issued
and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the
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Company has no securities, bonds, debentures, notes or other obligations the
holders of which have the right to vote (or are convertible into or exercisable
for securities having the right to vote) with the Stockholders on any matter.
Section 3.5 Transactions in Capital Stock. There exist no Company Rights.
The Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof. Neither the equity
structure of the Company nor the relative ownership of shares among any of its
Stockholders has been altered or changed in contemplation of the Merger within
the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the (2) two
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, require any notice under, or accelerate or modify, or permit any
person to accelerate or modify, any performance required by the terms of any
agreement, instrument, license or permit, to which the Company is a party or by
which the Company or any of its properties are subject or bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on the Company; and (v) except as
contemplated by this Agreement, will not create any Encumbrance or restriction
upon the Company Common Stock or any of the assets or properties of the Company.
Section 3.9 Intentionally omitted.
Section 3.10 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on the Company;
(b) paid, discharged or satisfied any material liability, other
than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
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(d) except in the ordinary course of business and consistent with
past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or accounting
practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with
past practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable for mechanics,
landlords, materialsmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any equity
or other interest in itself;
(j) increased any salaries, wages or any employee benefits for
any employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee except
in the ordinary course of business;
(l) declared, set aside or made any payments, dividends or other
distributions to any Stockholder or any other holder of capital stock of the
Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any action
described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its knowledge, the
Company does not have any liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted except for
liabilities or obligations reflected or reserved against in the Company's
Current Balance Sheet.
Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder or any other licensed professional or other individual affiliated
with the Company affecting or that would reasonably be likely to affect the
Company Common Stock or the operations, business condition, (financial or
otherwise), or results of operations of the Company which (i) if successful,
may, individually or in the aggregate, have a Material Adverse Effect on the
Company or (ii) could adversely affect the ability of the Company or any Company
Subsidiary to effect the transactions contemplated hereby, and to the knowledge
of the Company there is no basis for any such action or any state of facts or
occurrence of any event which would reasonably be likely to give rise to the
foregoing. There are no unsatisfied judgments against the Company or any Company
Subsidiary or any licensed professional or other individual affiliated with the
Company or any Company Subsidiary relating to services provided on behalf of the
Company or any Company Subsidiary or any consent decrees to which any of the
foregoing is subject. Each of the matters,
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if any, set forth in this Section 3.12 is fully covered by policies of insurance
of the Company or any Company Subsidiary as in effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any Company
Subsidiary has been, nor shall be as of the Effective Time (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which the Company or any Company Subsidiary is a party and pursuant to which the
Company or any Company Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the operation of its business and which requires payments in excess of
$12,000 per year (the "Lease Agreements"). The Company has delivered to APP true
and complete copies of all of the Lease Agreements. Each Lease Agreement is
valid, effective and in full force in accordance with its terms, and there is
not under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver to
APP in writing such consents as are necessary to effect a valid and binding
transfer or assignment of the Company's or any Company Subsidiary's rights
thereunder. The Company has a good, clear, valid and enforceable leasehold
interest under each of the Lease Agreements. The Lease Agreements comply with
the exceptions to ownership interests and compensation arrangements set out in
42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar applicable
state law safe harbor or other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good title to
all of its properties and assets (real, personal and mixed, tangible and
intangible) and any rights or interests therein which it purports to own
including, without limitation, all the property and assets reflected in the
Company Current Financial Statements; and (ii) owns such rights, interests,
assets and property free and clear of all Encumbrances, title defects or
objections (except for taxes not yet due and payable). The personal property
presently used in connection with the operation of the business of the Company
and the Company Subsidiaries constitutes the necessary personal property assets
to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, the Company does not have any
direct or indirect indebtedness for borrowed money, including indebtedness by
way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
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Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i) all
agreements between the Company, on the one hand, and any Payor, government
entity, provider, hospital, health maintenance organization, other managed care
organization or other third-party provider, on the other hand, then in effect
relating to the provision of medical, diagnostic imaging or consulting services,
treatments, patient referrals or other similar activities, (ii) all indentures,
mortgages, notes, loan or credit agreements and other agreements and obligations
relating to the borrowing of money or to the direct or indirect guarantee or
assumption of obligations of third parties requiring the Company to make, or
setting forth conditions under which the Company would be required to make,
aggregate future payments in excess of $10,000 in any fiscal year or $25,000 in
the aggregate, (iii) all agreements for capital improvements or acquisitions
involving an amount of $75,000 in any fiscal year or $75,000 in the aggregate,
(iv) all agreements containing a covenant limiting the freedom of the Company
(or any provider employee of the Company) to compete in any line of business
with any person or entity or in any geographic area or (v) all written contracts
and commitments providing for future payments by the Company in excess of
$10,000 in any fiscal year or $25,000 in the aggregate and that are not
cancelable by providing notice of sixty (60) days or less. All such contracts,
agreements or other instruments are in full force and effect, there has been no
threatened cancellation thereof, there are no outstanding disputes thereunder,
each is with unrelated third parties and was entered into on an arms-length
basis and, assuming the receipt of the appropriate consents, all will continue
to be binding in accordance with their terms after consummation of the
transaction contemplated herein; there are no contracts, agreements or other
instruments to which the Company is a party or is bound (other than physician
employment contracts and insurance policies) which could either singularly or in
the aggregate have a Material Adverse Effect on the value to APP of the assets
and properties to be acquired by APP from the Company, or which could inhibit or
prevent the Company from transferring to or vesting in APP good and sufficient
title to the assets and properties to be acquired by APP and the Surviving
Corporation except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, the Company
shall, on or before the Closing Date, use reasonable good faith efforts to
obtain and deliver to APP in writing, effective as of the Closing Date, such
consents as are necessary to enable the Surviving Corporation to enjoy all of
the rights now enjoyed by the Company under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. No contract with a health care provider or Payor has been materially
amended or terminated within the last twelve (12) months.
(b) The Company (i) has not received notice of any plan or
intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument required to be disclosed pursuant to Section
3.17(a), and to the knowledge of the Company there are no fact(s) that would
justify the exercise of such a right; and (ii) does not currently contemplate,
or have reason to believe any other Person currently contemplates, any amendment
or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company does not have employees and is
not currently a party to any employment contract (except for oral employment
agreements which are terminable at will), consulting or collective bargaining
contracts, deferred compensation, pension plan (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended, and all rules
and regulations from time to time promulgated thereunder ("ERISA")), profit
sharing, bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest.
Section 3.19 Intentionally omitted.
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Section 3.20 Intentionally omitted.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has, within
the five (5) years preceding the date hereof, through the Effective Time,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of the Company no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by the Company of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by the Company to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Schedule 3.21(b) discloses any known presence of asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises. To the knowledge of the
Company, there is no friable asbestos in or on the Company's or any Company
Subsidiary's owned or leased premises.
(c) To the knowledge of the Company, no soil or water in or under
any assets currently or formerly held for use or sale by the Company or any
Company Subsidiary is or has been contaminated by any Hazardous Substance while
such assets or premises were owned, leased, operated or managed, directly or
indirectly by the Company or any Company Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on the
Company.
(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of the Company,
concerning the Company or any Company Subsidiary within the five (5) years
preceding the date hereof through the Effective Time with respect to any real
property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following terms
have the following meanings:
"Environmental Laws" shall mean any federal, state or local laws,
ordinances, codes, regulations, rules, policies and orders (including
without limitation, Medical Waste Laws) that are intended to assure the
protection of the environment, or that classify, regulate, call for the
remediation of, require reporting with respect to, or list or define
air, water, groundwater, solid waste, hazardous, toxic, or radioactive
substances, materials, wastes, pollutants or contaminants, [or which are
intended to assure the safety of employees, workers or other persons,
including the public in each case as in effect on the date hereof.]
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to
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arise, under Environmental Laws and (ii) relate to actions occurring or
conditions existing on or prior to the date hereof or the Effective
Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any pollutant
or contaminant, or infectious or radioactive substance or material,
including without limitation, those substances, materials and wastes
defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any Hazardous
Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and briefly
describe the Company's policies of insurance to which the Company or any Company
Subsidiary is a party or under which the Company or any Company Subsidiary,
officer or director thereof is or has been covered at any time during the last
five (5) years preceding the date of this Agreement relating to the business of
the Company or any Company Subsidiary (the "Insurance Policies"). All of the
Insurance Policies are valid, outstanding and enforceable policies, except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies and all
premiums with respect thereto which are due and payable are currently paid. All
Insurance Policies currently maintained by the Company or any Company Subsidiary
("Current Policies") taken together, (i) provide adequate insurance coverage for
the assets, properties and operations of the Company and its Affiliates for all
risks normally insured against by a Person carrying on a substantially similar
business or businesses as the Company and its Affiliates, (ii) are sufficient
for compliance with legal and contractual requirements to which the Company or
any of its Affiliates is a party or by which any of them may be bound, and (iii)
shall be maintained in force (including the payment of all premiums and
compliance with their terms) without interruption up to and including the
Closing Date. True, complete and correct copies of all Insurance Policies have
been provided to APP. Neither the Company nor any Company Subsidiary nor any
officer or director thereof has received any notice or other written
communication from any issuer of any Current Policy cancelling such policy,
materially increasing any deductibles or retained amounts thereunder, or
materially increasing the annual or other premiums payable thereunder and, to
the knowledge of the Company, no such cancellation or increase of deductibles,
retainages or premiums is threatened. There are no outstanding claims,
settlements or premiums owed against any Insurance Policy, and all required
notices have been given and all known potential or actual claims under any
Insurance Policy have been presented in due and timely fashion. Within the five
(5) years preceding the Agreement, neither the Company nor any Company
Subsidiary has filed a written application for any professional liability
insurance coverage which has been denied by an insurance agency or carrier. The
Disclosure Schedules also set forth a list of all claims under any Insurance
Policy in excess of $10,000 per occurrence filed by the Company or any Company
Subsidiary during the immediately preceding three-year period.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of all
accounts receivable of the Company as of March 31, 1997, which list is complete,
true and accurate in all material respects. All such accounts receivable arose
in the ordinary course of business and have not been previously written off as
bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements or
on the accounting records of the Company (which reserves are adequate and
calculated consistent with generally accepted accounting principles and past
practice).
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(b) The Disclosure Schedules set forth (i) a true, correct and
complete list of the names and addresses of each Payor of the Company as of such
date, which accounted for more than 5% of the revenues of the Company in the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for more than 5% of the revenues of the Company for the fiscal year to end
December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i)
list of the accounts payable of the Company as of March 31, 1997, and (ii) list
of each individual indebtedness owed by the Company of $5,000 or more, setting
forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company Current
Balance Sheet contained in the Company Financial Statements consisted, and all
such items on hand on the date of this Agreement consist, and all such items on
hand at the Effective Time will consist, net of all applicable reserves with
respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory are not materially in excess of normal
requirements, and none of such purchase commitments are at prices in excess of
prevailing market prices at the time of such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company and other licensed employee or independent
contractor of the Company (i) is the holder of all valid licenses, approvals,
orders, consents, permits, registrations, qualifications and other rights and
authorizations required by law, ordinance, regulation or ruling of any
governmental regulatory authority necessary to operate its/his/her business and
(ii) is eligible to participate in and to receive reimbursement under Titles
XVIII and XIX of the Social Security Act (the "Medicare and Medicaid Programs")
and any other programs funded in whole or in part by federal, state or local
entities for which the Company is eligible ("Governmental Programs"). The
Company, the Stockholders, and each employee has a current provider number for
such Governmental Programs and with such private non-governmental programs
(including without limitation any private insurance program) under which the
Company is presently receiving payments directly or indirectly from any Payor
for patient care provided by such licensed employee or independent contractor
(such non-governmental programs herein referred to as "Private Programs"). A
true, correct and complete list of such licenses, permits and other
authorizations (including, but not limited to verification of Medicare and
Medicaid provider numbers and participating physician contracts under 1842(h) of
the Social Security Act), and provider agreements, is set forth in the
Disclosure Schedules, true, complete and correct copies of which have been
provided to APP. No violation, default, order or deficiency exists with respect
to any of the items listed in the Disclosure Schedules except for such
violations, defaults, orders or deficiencies which would not be reasonably
likely to have a Material Adverse Effect on the Company, and there is no action
pending or to the Company's knowledge recommended by any state or federal
agencies having jurisdiction over the items
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listed in the Disclosure Schedules, either to revoke, withdraw or suspend any
material license or to terminate the participation of the Company in any
Governmental Program or Private Program, and no event has occurred which, with
or without notice or lapse of time, or both, would constitute grounds for a
violation, order or deficiency with respect to any of the items listed in the
Disclosure Schedules to revoke, withdraw or suspend any material license to
operate its business as is presently being conducted by it. To the knowledge of
the Company, there has been no decision not to renew any existing agreement with
any provider or Payor relating to the Company's business as presently being
conducted by it. Neither the Company nor any licensed employee (i) has had
his/her/its license, Drug Enforcement Agency number, or Medicare/Medicaid
provider status suspended, relinquished, terminated or revoked (including orders
that have been entered by any such entities but stayed), (ii) has been
reprimanded in writing, sentenced, or disciplined by any licensing board, state
agency, regulatory body or authority, or Payor (including orders that have been
entered by any such entities but stayed), or (iii) is the subject of an initial
or final determination by any federal or state authority that could result in
any demand or reimbursement under the Medicare, Medicaid or Government Programs
or any exclusion or which monetary penalty under federal or state law or (iv)
has had a final judgment or settlement entered against him/her/it in connection
with a malpractice or similar action.
(b) The Company is not required, or for the 72-month period prior
to the Effective Time was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of the
Company nor the right of any licensed professional or other individual
affiliated with the Company to receive reimbursements pursuant to any
Governmental Program or Private Program has been terminated or otherwise
materially and adversely affected as a result of any investigation or action
whether by any federal or state governmental regulatory authority or other third
party. No licensed professional or other individual affiliated with the business
has, during the past three (3) years prior to the Effective Time, had their
license limited, suspended or revoked by any governmental regulatory authority
or agency, integrated delivery system, trade association, review organization,
accrediting organization or certifying agency (including orders that have been
entered by any such entities but stayed). True, correct and complete copies of
all reports, correspondence, notices and other documents relating to any matter
described or referenced in this Section 3.28 have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v) other
similar agreements relating to the foregoing to which the Company or any Company
Subsidiary is a party (including expiration date if applicable) (collectively,
the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate list
and summary description of all agreements relating to technology, trade secrets,
know-how or processes that the Company is licensed or authorized to use by
others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
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(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of the Company, no
claim has been asserted by any person to the ownership of or for infringement by
the Company of any Proprietary Right of any other Person, and neither the
Company nor any Stockholder is aware of any valid basis for any such claim. To
the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in Schedule 3.30(b), (i) the Company has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records in
accordance with generally accepted accounting principles for all of the same
that have not yet become due and payable and (ii) the Company is not delinquent
in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated any
applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not
granted an extension to any taxing authority of the statute of limitation period
during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required
to be withheld by the Company and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder is
a foreign person, as such term is referred to in Section 1445(f)(3) of the Code
and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of the
Company constitutes property that the Company, APP or any Affiliate of APP, will
be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
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(h) Tax Exempt Entity. None of the assets or properties of the
Company are subject to a lease to a "tax exempt entity" as such term is defined
in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(k) Parachute Payments. No payment required or contemplated to
be made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to the
Company's business. There is no commitment to, and no income reflected in the
Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure Schedules is a
complete and accurate list of all borrowing and investing arrangements that the
Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the Person
or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the Company nor
any Company Subsidiary has engaged and, to the knowledge of the Company, neither
the Company's officers and directors nor the Physician Employees or other
Persons and entities providing professional services for or on behalf of the
Company have engaged, in any activities which are prohibited under 42 U.S.C.
Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Sections 24, 287, 371, 664, 669, 1001,
1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company, any
Company Subsidiary or officer, director or key employee of the Company or
Company Subsidiary, which has or reasonably could be expected to have the effect
of prohibiting or materially impairing the current business of the Company or
any Company Subsidiary or the continuation of that business in the future, any
acquisition of property by the Company, any Company Subsidiary or the conduct of
business by the Company or any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity
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principles, or by public policy. There is no pending or, to the knowledge of the
Company, threatened bankruptcy, insolvency or similar proceeding with respect to
any other party to such agreements, and no event has occurred which (whether
with or without notice, lapse of time or the happening or occurrence of any
other event) would constitute a default thereunder by the Company or any other
party thereto.
Section 3.36 Statements True and Correct. No representation or warranty
made herein by the Company or any Stockholder, nor any statement, certificate,
information, exhibit or instrument to be furnished by the Company or any
Stockholder to APP or any of their respective representatives pursuant to this
Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required by
Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or other
intermediary has been retained by or is authorized to act on behalf of any of
the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, APP represents and warrants to the
Company and the Stockholders both as of the date hereof and as of the Effective
Time as follows:
Section 4.1 Organization and Good Standing; Qualification . APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the Merger
and the transactions contemplated hereby, all of which have been or will be made
available to the Company for review, are true, correct and complete as in effect
on the date of this Agreement and accurately reflect all material proceedings of
the stockholders and directors of APP (and all committees thereof) regarding the
Merger and the transactions contemplated hereby. The stock record books of APP,
which have been or will be made available to the Company for review, contain
true, complete and accurate records of the stock ownership of APP and the
transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and the Other Agreements and to
consummate the Merger and the transactions contemplated hereby. The execution,
delivery and performance by APP of this Agreement and the agreements provided
for herein, including the Other Agreements and the consummation by APP of the
transactions contemplated hereby and thereby are within APP's corporate powers
and have been duly authorized by all necessary action on the part of APP's Board
of Directors. This Agreement has and the Other Agreements have been duly
executed by APP. This Agreement and all other agreements and obligations entered
into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements
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of APP, enforceable against it in accordance with their respective terms, except
as may be limited by bankruptcy or other laws affecting creditors' rights
generally, or by general equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the Merger and the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP consists
of [20,000,000] shares of APP Common Stock, of which [2,000,000] shares are
issued and outstanding and [10,000,000] shares of APP Preferred Stock, none of
which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
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Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or obligation accrued, contingent or
otherwise, that is reasonably likely to have a Material Adverse Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits, actions,
arbitrations, administrative or other proceedings, governmental investigations
or inquiries pending or, to the knowledge of APP, threatened against, or
affecting APP. There are no unsatisfied judgments against APP or any consent
decrees to which APP is subject. Each of the matters, if any, set forth in the
Disclosure Schedules are fully covered by policies of insurance of APP as in
effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of the
Effective Time (by virtue of any action, omission to act, contract to which it
is a party or any occurrence or state of facts whatsoever), in violation of any
applicable local, state or federal law, ordinance, regulation, order, injunction
or decree, or any other requirement of any governmental body, agency or
authority or court binding on it, or relating to its property or business or its
advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in Schedule 4.12(b), (i) APP has paid all taxes, penalties,
assessments and interest that have become due with respect to any Tax Returns
that it has filed and has properly accrued on its books and records for all of
the same that have not yet become due and (ii) APP is not delinquent in the
payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted an
extension to any taxing authority of the limitation period during which any tax
liability may be assessed or collected.
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(e) All Withholding Requirements Satisfied. All monies required
to be withheld by APP and paid to governmental agencies for all income, social
security, unemployment insurance, sales, excise, use, and other taxes have been
collected or withheld and paid to the respective governmental agencies.
(f) Foreign Person. Neither APP nor any holders of APP Common Stock
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Code.
(g) Tax Exempt Entity. None of the assets of APP are subject to a
lease to a "tax exempt entity" as such term is defined in Section 168(h)(2) of
the Code.
(h) Collapsible Corporation. APP has not at any time consented, and
the holders of APP Common Stock will not permit APP to elect, to have the
provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or cooperated
with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated to be
made by APP will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed as an "S"
corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a personal
holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. Schedule 4.13 or Form S-4 sets
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of APP in any property, real or personal or
mixed, tangible or intangible, used in or pertaining to APP's business and any
arrangement or agreement with any such person concerning the provision of goods
or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to the Company or a Stockholder pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules required by
Article IV hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or other
intermediary has been retained by or is authorized to act on behalf of APP who
is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
ARTICLE V
INTENTIONALLY OMITTED.
ARTICLE VI
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INTENTIONALLY OMITTED.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. From the date hereof until the
Effective Time, the Company shall, in all material respects, conduct its
business in the ordinary and usual course consistent with past practices and
shall use reasonable efforts to:
(a) preserve intact its business and its relationships with
Payors, referral sources, customers, suppliers, patients, employees and others
having business relations with it;
(b) maintain and keep its properties and assets in good repair
and condition consistent with past practice as is material to the conduct of the
business of the Company;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of incorporation or
bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale, shares of
any class of its securities (including, but not limited to, by way
of stock split, dividend, recapitalization or other
reclassification) or any subscriptions, options, warrants, rights or
convertible securities, or enter into any agreements or commitments
of any character obligating it to issue or sell any such securities;
(3) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or any option, warrant
or other right to purchase or acquire any such shares;
(4) declare or pay any dividend or other distribution (whether
in cash, stock or other property) with respect to its capital stock
(except as expressly contemplated herein);
(5) voluntarily sell, transfer, surrender, abandon or dispose
of any of its assets or property rights (tangible or intangible)
other than the sale of inventory, if any, in the ordinary course of
business consistent with past practices;
(6) grant or make any mortgage or pledge or subject itself or
any of its properties or assets to any lien, charge or encumbrance
of any kind, except liens for taxes not currently due and except for
liens which arise by operation of law;
(7) voluntarily incur or assume any liability or indebtedness
(contingent or otherwise), except in the ordinary course of business
or which is reasonably necessary for the conduct of its business;
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(8) make or commit to make any capital expenditures which are
not reasonably necessary for the conduct of its business;
(9) grant any increase in the compensation payable or to
become payable to directors, officers, consultants or employees
other than merit increases to employees of the Company who are not
directors or officers of the Company, except in the ordinary course
of business and consistent with past practices;
(10) change in any manner any accounting principles or methods
other than changes which are consistent with generally accepted
accounting principles;
(11) enter into any material commitment or transaction other
than in the ordinary course of business;
(12) take any action which could reasonably be expected to
have a Material Adverse Effect on the Company;
(13) apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount payable
directly or indirectly to or for the benefit of any Affiliate of the
Company, other than in the ordinary course and consistent with past
practices;
(14) agree, whether in writing or otherwise, to do any of the
foregoing; and
(15) take any action at the Board of Director or Stockholder
level to (in any way) amend, revise or otherwise affect the prior
corporate approval and effectiveness of this Agreement or any of the
agreements attached as exhibits hereto, other than as required to
discharge its or their fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time, the
Company shall (i) except for sales of assets held as inventory, if any, in the
ordinary course of business prior to the Effective Time and except as otherwise
specifically described in the Disclosure Schedules to this Agreement, have good
and valid title to all of its assets free and clear of all Encumbrances of any
nature whatsoever, except for current year ad valorem taxes and liens which
arise by operation of law, and (ii) have no direct or indirect indebtedness
except for indebtedness disclosed in the Company Financial Statements, the
Disclosure Schedules hereto or for normal and recurring accrued obligations of
the Company arising in connection with its business operations in the ordinary
course of business and which arise from the purchase of merchandise, supplies,
inventory and services used in connection with the provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, share certificate books, share registers,
accounts, tax returns, financial statements and all other data that, in the
reasonable opinion of APP, are required for APP to make such investigation as it
may desire of the properties and business of the Company. APP shall also be
allowed full access upon reasonable prior notice and during regular business
hours (and at such other times as the parties may reasonably agree) to consult
with the officers, employees (after announcement by the Company of the Merger to
its employees which shall occur no later than three (3) days subsequent to
execution hereof by the Company), accountants, counsel and agents of the Company
in connection with such investigation of the properties and business of the
Company. No investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this
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Section 7.3 shall be conducted in such a manner as to minimize the disruption to
the Company's ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall
cause each of its directors, officers, employees or agents not to directly or
indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or capital stock of the
Company, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of the Company, or, without APP's prior written approval, afford
to any Person other than APP and its agents access to the properties, books or
records of the Company. If the Company receives any offer or proposal after the
date hereof, written or otherwise, of the type referred to above, the Company
shall promptly inform APP of such offer or proposal, decline such offer and
furnish APP with a copy thereof if such offer or proposal is in writing.
Section 7.5 Compliance With Obligations. Prior to the Effective Time, the
Company shall comply in all material respects with (i) all applicable federal,
state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly notify
APP of:
(a) any notice or other communication from any Person or entity
alleging that the consent of such Person or entity is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the Company
who is expected to receive annualized compensation of at least $50,000 in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
the Company which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of the Company,
including but not limited to any licensure or certification deficiencies, or
violations; limitations on a license or a provider agreement; freeze or
reduction in MediCare or Medicaid rates, notice of overpayment; being the
subject of any investigation relating to patient abuse, fraud, kickbacks, false
claims or other alleged illegal payment practices under the Fraud and Abuse
Statutes; and
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(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best efforts
to obtain the unanimous approval of its Stockholders to the Merger. In seeking
the approval of its Stockholders, the Company shall provide each Stockholder
with the Form S-4 which shall include information as may be required by
applicable law or as APP shall deem appropriate. The Board of Directors of the
Company shall recommend the approval of the Merger by the Stockholders of the
Company. If the Stockholders' approval is not unanimous, the Company shall give
notice to the nonconsenting Stockholders of the action taken by the consenting
Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to Section
7.8 hereof, the Company will take all action reasonably necessary to cause the
Company to perform its obligations under this Agreement and all related
agreements and to consummate the Merger and other transactions contemplated
hereby and thereby on the terms and conditions set forth in this Agreement and
such agreements; provided, however, that this covenant shall not require the
Company to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
Section 7.10 Intentionally omitted.
Section 7.11 Accounting and Tax Matters. The Company will not change in
any material respect the accounting methods or practices followed by the Company
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. The Company will not make
any material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (without regard to any extensions of
time) file all returns, information statements and other documents relating to
taxes of the Company required to be filed by it, and pay all taxes required to
be paid by it, on or before the Closing Date.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action reasonably
necessary to cause the consummation of the transactions contemplated hereby in
accordance with their terms and conditions and take all corporate and other
action necessary to approve the Merger; provided, however, that this covenant
shall not require APP to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein.
Section 8.2 Requirements to Effect the Merger and Acquisitions. APP will
use its best efforts to take, or cause to be taken, all actions necessary to
effect the Merger under applicable law, including without limitation the filing
with the appropriate government officials of all necessary documents in form
approved by counsel for the parties to this Agreement.
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Section 8.3 Access. APP shall, at reasonable times during normal business
hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and its authorized representatives to inspect
and, at the Company's sole expense, make copies of all documents, records and
information with respect to the affairs of APP as the Company and its
representatives may reasonably request, all for the sole purpose of permitting
the Company to become familiar with the business and assets and liabilities of
APP. No investigation by the Company or the Stockholders shall diminish or
otherwise affect any of the representations, warranties, covenants or agreements
of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly inform the
Company in writing of (a) any notice of, or other communication relating to, a
default or event that, with notice or lapse of time or both, would become a
default, received by APP subsequent to the date of this Agreement and prior to
the Effective Time under any contract, agreement or investment material to APP's
condition (financial or otherwise), operations, assets, liabilities or business
and to which it is subject; (b) any material adverse change in APP's condition
(financial or otherwise), operations, assets, liabilities or business or (c)
defaults or disputes regarding Other Agreements.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and
file with the SEC the Registration Statements on Form S-1 and Form S-4 (or other
appropriate Forms) to be filed by APP in connection with its Initial Public
Offering and offering of the shares of APP Common Stock to the Target Interest
Holders pursuant to the transactions contemplated by this Agreement and the
Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. The Company shall cooperate with APP in the
preparation of the Registration Statements and shall furnish all information
concerning the Company as may be reasonably requested in connection with any
such action in a timely manner.
(b) The Company and APP each separately represent and warrant
that (i) in the case of the Company, none of the written information or
documents supplied or to be supplied by it specifically for inclusion in the
Registration Statements, by exhibit or otherwise and (ii) in the case of APP
will, at the time the Registration Statements and each amendment and supplement
thereto, if any, becomes effective under the Securities Act, none of them
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The Company shall be entitled to review the Registration Statements and each of
the amendments thereto, if any, prior to the time each becomes effective under
the Securities Act. The Company shall have no responsibility for information
contained in the Registration Statements except for information provided by the
Company specifically for inclusion therein. The Company's review of the
Registration Statements shall not diminish or otherwise affect the
representations, covenants and warranties of APP contained in this Agreement.
(c) The Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners
and Stockholders, and such other matters as may be reasonably requested by APP
in connection with the preparation of the Registration Statements and each of
the amendments or supplements thereto, or any other statement, filing, notice or
application made by
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or on behalf of each such party or any of its subsidiaries to any governmental
entity in connection with the Merger and the other transactions contemplated by
this Agreement.
Section 9.2 Amendments of Disclosure Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party contained
in this Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly the Disclosure Schedules with respect to
any matter that would have been or would be required to be set forth or
described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on the Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Disclosure Schedule that constitutes or reflects a Material Adverse Effect on
APP may be made unless the Company consents to such amendment or supplement. For
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have been
fulfilled, the Disclosure Schedules hereto shall be deemed to be the Disclosure
Schedules as amended or supplemented pursuant to this Section 9.2. In the event
that the Company seeks to amend or supplement a Disclosure Schedule pursuant to
this Section 9.2 and APP does not consent to such amendment or supplement, or
APP seeks to amend or supplement a Disclosure Schedule pursuant to this Section
9.2, and the Company does not consent, this Agreement shall be deemed terminated
by mutual consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Section
351 of the Code.
Section 9.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company shall be paid by the Company in full
immediately prior to the Closing and such expenses shall be the sole
responsibility of the Stockholders following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all records
and information regarding the patients of the Company confidential in accordance
with all applicable laws.
Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
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Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as delivered pursuant to Section 10.12
hereof) shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Effective
Date.
Section 10.2 Covenants. The Company shall have performed and complied in
all material respects with all covenants required by this Agreement to be
performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have delivered to
APP their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse Effect on the
Company shall have occurred since March 31, 1997, whether or not such change
shall have been caused by the deliberate act or omission of the Company or any
Stockholder.
Section 10.6 Government Approvals and Required Consents. The Company, the
Stockholders and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents required under any law,
statements, rule, regulation or ordinance to consummate the transactions
contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all Disclosure
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 10.11 Dissenter's Rights. The Company shall have satisfied each of
its obligations to its Stockholders regarding dissenters or related rights under
the Texas Business Corporation Act, and the sum of the amount which may become
due to the Stockholders who have dissented to the Merger and have indicated
their intent to seek appraisal rights plus the cash portion of the Merger
Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
ARTICLE XI
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Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of the
Company hereunder are subject to fulfillment at or prior to the Effective Date
of each of the following conditions:
Section 11.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered to the
Company their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The Company, the
Stockholders and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents (including consent of
the Stockholders required by applicable state law or the Company's charter
documents in effect as of the date of this Agreement) required under any law,
contracts or any statute, rule, regulation or ordinances to consummate the
transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statements shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. At or prior to the Effective Date, the APP
Common Stock shall have been approved for listing on the Nasdaq National Market,
subject only to official notification of issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to the Company referred to in Section
12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect on APP
shall have occurred since __________, 1997, whether or not such change shall
have been caused by the deliberate act or omission of APP.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Effective Date,
the Company shall deliver to APP the following, all of which shall be in a form
reasonably satisfactory to APP:
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(a) a copy of resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
and all related documents and agreements and consummation of the Merger, each
certified by the Secretary of the Company as being true and correct copies of
the originals thereof subject to no modifications or amendments;
(b) Intentionally omitted;
(c) a certificate of the President of the Company dated the
Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the
Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by the
Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company certifying as
to the incumbency of the directors and officers of such corporation and as to
the signatures of such directors and officers who have executed documents
delivered at the Closing on behalf of that corporation;
(f) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretary of State of Texas for the Company establishing
that each such corporation is in existence, has paid all franchise or similar
taxes, if any, and, if applicable, otherwise is in good standing to transact
business in the state of Texas;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company is qualified to do business, to the effect that each such corporation is
qualified to do business and, if applicable, is in good standing as a foreign
corporation in each of such states;
(h) all authorizations, consents, approvals, permits and licenses
referenced in Section 3.27;
(i) the resignations of the directors and officers of the Company
as requested by APP;
(j) Intentionally omitted;
(k) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty of
perjury and dated as of the Closing Date, to the effect that such Stockholder is
a United States citizen or a resident alien (and thus not a foreign person) and
providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit G (the "Stockholder Release");
(n) Intentionally omitted; and
(o) such other instrument or instruments of transfer prepared by
APP as shall be necessary or appropriate, as APP or its counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
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Section 12.2 Deliveries of APP. At or prior to the Effective Date, APP
shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) Intentionally omitted;
(c) a certificate of the President of APP dated the Closing Date
as to the truth and correctness of the representations and warranties of APP
contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the Closing Date,
(i) as to the performance and compliance by APP with all covenants contained
herein on and as of the Effective Date and (ii) certifying that all conditions
precedent required to be satisfied by APP shall have been satisfied;
(e) a certificate of the Secretary of APP certifying as to the
incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the
Effective Date, of the secretary of state of incorporation establishing that APP
is in existence, has paid all franchise or similar taxes, if any, and otherwise
is in good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten (10)
days prior to the Effective Date, of the Secretaries of State of the states in
which APP is qualified to do business, to the effect that APP is qualified to do
business and is in good standing as a foreign corporation in such state;
(h) the executed Service Agreement as revised in accordance with
the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II and
Exhibit B hereof; and
(k) such other instrument or instruments of transfer prepared by
the Company as shall be necessary or appropriate, as the Company or its counsel
shall reasonably request, to carry out and effect the purpose and intent of this
Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing, at
the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing, APP
or the Surviving Corporation shall deliver any further instruments of transfer
and take all reasonable action as may be necessary and appropriate to carry out
the purpose and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
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(a) The parties intend that the Merger will qualify as a tax-free
reorganization within the meaning of Section 351 of the Code in which the
Company will not recognize gain or loss, and pursuant to which any gain
recognized by a Stockholder as a result of the Merger will not exceed the amount
of any cash received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report
the Merger as a Reorganization and such opinion either is furnished prior to the
Effective Time or is based on facts or events not known at the Effective Time.
Each party shall provide to each other party such tax information, reports,
returns, or schedules as may be reasonably required to assist such party in
accounting for and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any
taxes incurred by the Company and for which APP has successor liability therefor
which arise solely as a result of the Merger or the consummation of the
transactions contemplated hereby; provided that the foregoing shall not limit or
otherwise be deemed a waiver of any right of indemnification under Section 14.1
for a breach of any representation, warranty or covenant of the Company or any
Stockholder.
Section 13.3 Current Public Information. APP shall cause the requirements
of Rule 144(c) under the Securities Act to be met with respect to APP for so
long as those requirements must be met to enable sales by the Stockholders who
are affiliates of the Company to meet the requirements of Rule 145(d) under the
Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company and the Stockholders. Subject
to the terms and conditions of this Article XIV, the Company and the
Stockholders agree to indemnify, defend and hold APP and the Surviving
Corporation and their respective directors, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates harmless from and against all
losses, claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, reasonable attorneys' fees and expenses (including, without
limitation, all costs of experts and all costs incidental to or in connection
with any appellate process) (collectively, "Damages") asserted against or
incurred by such individuals and/or entities arising out of or resulting from:
(a) a breach by the Company or any Stockholder of any
representation or warranty (without giving effect to any Material Adverse Effect
qualifier contained as part of any such representation or warranty) or covenant
of the Company or any Stockholder contained in this Agreement or in any
Disclosure Schedule or certificate delivered thereunder;
(b) any violation (or alleged violation) by the Company and/or
any of its past or present directors, officers, partners, Stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
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(c) any liability under the Securities Act, the Exchange Act or
any other federal or state "blue sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement of material
fact in any Registration Statement or any prospectus forming or part thereof, or
any amendment thereof or supplement thereto relating to the Company (including
any Company Subsidiary) or failure to state information necessary to make the
statements required to be stated therein not misleading arising solely from
information provided in writing to APP or its counsel by the Company or any
Stockholder or their agents specifically for inclusion in any such Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto.
Notwithstanding anything herein to the contrary, nothing
contained in this Agreement shall relieve the Company of any liability or limit
any liability that it may have in the case of fraud in connection with the
transactions contemplated by this Agreement.
Section 14.2 Indemnification by APP. Subject to the terms and conditions
of this Article XIV, APP hereby agrees to indemnify, defend and hold the
Stockholders, the Company and its directors, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates harmless from and against all
Damages asserted against or incurred by such individuals and/or entities arising
out of or resulting from:
(a) a breach by APP of any representation or warranty (without
giving effect to any Material Adverse Effect qualifier contained as part of any
such representation or warranty) or covenant of APP contained in this Agreement
or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act or
any other federal or state "blue sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any untrue statements of material
fact in any Registration Statement or any prospectus forming a part thereof, or
any amendment thereof or supplement thereto, or required to be stated therein or
failure to state information necessary to make the statements therein not
misleading (except for any liability based upon any actual or alleged untrue
statement of material fact or an omission to state a material fact relating the
Company or any Stockholder which was derived from any information provided in
writing by the Company or a Company Subsidiary or any of their agents contained
in the representations and warranties set forth in this Agreement or any
certificate, exhibit, schedule or instrument required to be delivered under this
Agreement).
Notwithstanding anything herein to the contrary, nothing
contained in this Agreement shall relieve APP of any liability or limit any
liability that it may have in the case of fraud in connection with the
transactions contemplated by this Agreement.
Section 14.3 Conditions of Indemnification. All claims for indemnification
under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement (an
"Indemnified Party") shall promptly (and, in the event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party for whom indemnification is sought (the "Indemnifying
Party) of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of Damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve any
Indemnifying Party of its obligations to any Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within thirty (30) days
after receipt of any Claim Notice (the "Election Period"), the Indemnifying
Party shall notify the Indemnified Party (x) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XIV
with respect to such Third Party Claim and (y) whether the Indemnifying Party
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desires, at the sole cost and expense of such Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set forth
in Section 14.3(f) below, the Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. The
Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 14.3(b) and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are
different from or additional to those available to the Indemnifying Party, then
the Indemnified Party may employ separate counsel at the expense of the
Indemnifying Party, and upon written notification thereof, the Indemnifying
Party shall not have the right to assume the defense of such action on behalf of
the Indemnified Party; provided further that the Indemnifying Party shall not,
in connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for the Indemnified Party,
which firm shall be designated in writing by the Indemnified Party.
Notwithstanding the foregoing, the Indemnifying Party shall be prohibited from
confessing or settling any criminal allegations brought against the Indemnified
Party without the express written consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 14.3(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 14.3(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes their potential liability to the Indemnified
Party under this Article XIV and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 14.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any
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such action (including any impleaded parties) include both the Indemnifying
Party and the Indemnified Party, and the Indemnifying Party has been advised by
counsel that there may be one or more legal defenses available to it that are
different from or additional to those available to the Indemnified Party, then
the Indemnifying Party may employ separate counsel and upon written notification
thereof, the Indemnified Party shall not have the right to assume the defense of
such action on behalf of the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Article XIV relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice period
or (ii) the expiration of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under this Agreement.
During the two-year period following the Effective Date, each Stockholder shall
be entitled to satisfy payments owed to APP by transfer of APP Common Stock from
such Stockholder to APP. For all purposes of this Agreement, the value of each
share of APP Common Stock transferred to APP pursuant to this Agreement shall be
calculated by averaging the daily closing prices for a share of APP Common Stock
for the twenty (20) consecutive trading days on which such shares are actually
traded on the Nasdaq National Market preceding the date of the Claim Notice or
Indemnity Notice, as the case may be. The number of shares of APP Common Stock
permitted to be transferred under this Paragraph 2(e) shall be diminished
proportionately in accordance with the percentage of APP Common Stock released
under the Lock-Up Provisions set forth in Paragraph 1 of the Stockholder
Representation Letter. The rights of any Stockholder to transfer shares of APP
Common Stock in satisfaction of payments owed to APP pursuant to this Agreement
shall terminate upon the earlier of (x) the termination of the Lock-Up
Provisions set forth in the Stockholder Representation Letter or (y) at the end
of the two-year period following the Effective Date.
(f) The Indemnifying Party shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
agrees to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding anything contained in this Agreement or the
Merger Agreement to the contrary, the Indemnifying Parties in the aggregate (i)
shall have no obligation hereunder to provide indemnification for the first
$100,000 of Damages (without counting Immaterial Claims as defined below),
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and (ii) in no event shall the Indemnifying Parties have any liability hereunder
with respect to any singular incident or a fact involving a breach or inaccuracy
of the Company if the Damages from such claim are equal to or less than $7,500
("Immaterial Claims"). Notwithstanding anything to the contrary contained herein
or in the Merger Agreement, the obligations of each Stockholder hereunder shall
not exceed fifty percent (50%) of the aggregate value of the Merger
Consideration or Exchange Consideration, as the case may be, paid to such
Stockholder pursuant to any Related Acquisition on the Closing Date.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
Section 14.6 Dispute Resolution.
(a) Arbitration. The parties hereto agree that any claim,
controversy, dispute or disagreement between or among any of the parties arising
out of or relating to this Agreement shall be governed exclusively by the terms
and provisions of this Section 14.6; provided, however, that within ten (10)
days from the date which any claim, controversy, dispute or disagreement cannot
be resolved and prior to commencing an arbitration procedure pursuant to this
Section 14.6, the parties shall meet to discuss and consider other alternative
dispute resolution procedures other than arbitration including, but not limited
to, Judicial Arbitration & Mediation Services, Inc., if applicable. If at any
time prior to the rendering of the decision by the arbitrator (or pursuant to
such other alternative dispute resolution procedure) as contemplated in this
Section 14.6 to the extent a party makes a written offer to the other party
proposing a settlement of the matter(s) at issue and such offer is rejected,
then the party rejecting such offer shall be obligated to pay the costs and
expenses (excluding the amount of the award granted under the decision) of the
party that offered the settlement from the date such offer was received by such
other party if the decision is for a dollar amount that is less than the amount
of such offer to settle. Notwithstanding the foregoing, the terms and provisions
of this Section 14.6 shall not preclude any party hereto from seeking, or a
court of competent jurisdiction from granting, a temporary restraining order,
temporary injunction or other equitable relief for any breach of (i) any
noncompetition or confidentiality covenant or (ii) any duty, obligation,
covenant, representation or warranty, the breach of which may cause irreparable
harm or damage.
(b) Arbitrators. In the event there is a claim, controversy,
dispute or disagreement among the parties hereto arising out of or relating to
this Agreement (including any claim based on or arising from an alleged tort)
and the parties hereto have not reached agreement regarding an alternative to
arbitration, the parties agree to select within thirty (30) days of notice by a
party to the other of its desire to seek arbitration under this Section 14.6 one
(1) arbitrator mutually acceptable to APP and the Sellers to hear and decide all
such claims under this Section 14.6. Each of the arbitrators proposed shall be
impartial and independent of all parties. If the parties cannot agree on the
selection of an arbitrator within said 30-day period, then any party may in
writing request the judge of the United States District Court for the
[_____________] District of [__________] senior in term of service to appoint
the arbitrator and, subject to this Section 14.6, such arbitrator shall hear all
arbitration matters arising under this Section 14.6.
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(c) Applicable Rules.
(1) Each arbitration hearing shall be held at a place in
[_____________] acceptable to the arbitrator. The arbitration shall be conducted
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association to the extent such rules do not conflict with the terms hereof;
provided, however, that if the parties hereto agree to an alternative to
arbitration they may agree to an alternative set of rules, including as to rules
of evidence and procedure. The decision of the arbitrator shall be reduced to
writing and shall be binding on the parties and such decision shall contain a
concise statement of the reasons in support of such decision. Judgment upon the
award(s) rendered by the arbitrator may be entered and execution had in any
court of competent jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement. The charges and
expenses of the arbitrator shall be shared equally by the parties to the
hearing.
(2) The arbitration shall commence within ten (10) days
after the arbitrator is selected in accordance with the provisions of this
Section 14.6. In fulfilling his duties with respect to determining the amount of
any loss, the arbitrator may consider such matters as, in the opinion of the
arbitrator, are necessary or helpful to make a proper valuation. The arbitrator
may consult with and engage disinterested third parties to advise the
arbitrator. The arbitrator shall not add any interest factor reflecting the time
value of money to the amount of any loss and shall not award any punitive
damages.
(3) If the arbitrator selected hereunder should die, resign
or be unable to perform his or her duties hereunder, the parties, or such senior
judge (or such judge's successor) in the event the parties cannot agree, shall
select a replacement arbitrator. The procedure set forth in this Section 14.6
for selecting the arbitrator shall be followed from time to time as necessary.
(4) As to any determination of the amount of any loss, or
as to the resolution of any other claim, controversy, dispute or disagreement,
that under the terms hereof is made subject to arbitration, no lawsuit based on
such claimed loss or such resolution shall be instituted by the parties hereto,
other than to compel arbitration proceedings or enforce the award of the
arbitrator, except as otherwise provided in Section 12.7(b).
(5) All privileges under [STATE] and federal law, including
attorney-client and work-product privileges, shall be preserved and protected to
the same extent that such privileges would be protected in a federal court
proceeding applying [STATE] law.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the Merger
and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual agreement
of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or any Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any Stockholder
fails to comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
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(c) at any time prior to the Effective Date by the Company if any
representation or warranty of APP contained in this Agreement or in any
certificate or other document executed and delivered by APP pursuant to this
Agreement is or becomes untrue in any material respect of if APP fails to comply
in any material respect with any covenant or agreement contained herein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
(d) at any time prior to the Effective Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in Section 16.3,
in the event this Agreement is terminated pursuant to this Article XV, this
Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company recognizes and
acknowledges that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP and the
Surviving Corporation that is valuable, special and a unique asset of such
entity's business. APP acknowledges that it had in the past, currently has, and
in the future may possibly have, access to certain Confidential Information of
the Company that is valuable, special and a unique asset of each such business.
The Company and APP, severally, agree that they will not disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to authorized
representatives of APP, Surviving Corporation and the Company and (b) to counsel
and other advisers to APP, Surviving Corporation and the Company provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 16.1, unless (i) such information becomes available to or known by
the public generally through no fault of the Company or APP, as the case may be,
(ii) disclosure is required by law or the order of any governmental authority
under color of law, provided, that prior to disclosing any information pursuant
to this clause (ii) the Company or APP, as the case may be, shall, if possible,
give prior written notice thereof to the Company or APP and provide the Company
or APP with the opportunity to contest such disclosure, (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, or (iv) the disclosing
party is the sole and exclusive owner of such Confidential Information as a
result of the Merger or otherwise. In the event of a breach or threatened breach
by the Company, on the one hand, and APP, on the other hand, of the provisions
of this Section, APP, the Surviving Corporation and the Company shall be
entitled to an injunction restraining the other party, as the case may be, from
disclosing, in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting any of such parties from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages.
Section 16.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, the Surviving Corporation and the Company agree
that, in the event of a breach by either of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this Article
XVI shall survive the termination of this Agreement.
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ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
Section 17.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP acknowledges
and agrees that the rights and remedies of the Company under this Agreement will
be directly available to the Stockholders as third party beneficiaries of the
rights and remedies of the Company under this Agreement, including, without
limitation, the rights and remedies under Article 14 hereof to indemnification
from APP against Damages incurred by the Stockholders resulting from a breach by
APP of any representation, warranty or covenant of APP contained herein. Except
as provided in the preceding sentence or as otherwise provided herein, neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder or APP
pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder and APP. Notwithstanding any
provision in this Agreement to the contrary, the representations and warranties
contained herein shall survive the Closing until the second anniversary of the
Closing Date except that (a) the representations and warranties set forth in
Section 3.21 with respect to environmental matters shall survive for a period of
ten (10) years, (b) the representations and warranties set forth in Section 3.30
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.27 and Section 3.33 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 14.1(c) and Section 14.2(c), and solely to
the extent that any
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party to be indemnified pursuant to such provisions actually incurs liability
under the Securities Act, the Exchange Act or any other federal or state
securities law, the representations and warranties set forth therein shall
survive until the expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF
LAWS) OF THE STATE OF TEXAS.
Section 17.8 Captions. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
Section 17.9 Gender and Number. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each party shall
keep this Agreement and its terms confidential, and shall make no press release
or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
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Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: M & S X-Ray Associates, P.A.
P.O. Box 120310 (mailing only)
730 N. Main, Suite B-109 (fed-ex)
San Antonio, TX 78299
Fax No.: (210) 304-2988
Attn: Randall Preissig, M.D.
with a copy to: Oppenheimer, Blend, Harrison & Tate, Inc.
Sixth Floor
711 Navarro
San Antonio, TX 78205-1796
Fax No.: (210) 299-2305
Attn: Jerome B. Cohen, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B, Exhibit
C, Exhibit D and Exhibit F and the Disclosure Schedules attached hereto with
their initial letter capitalized and not otherwise defined therein shall have
the meanings as assigned to such terms in this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
-------------------------------
Gregory L. Solomon, President
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THE COMPANY:
SOUTH TEXAS MR, INC.
By:
-------------------------------------------
Its:
-----------------------------------------
THE STOCKHOLDERS:
----------------------------------------------
Neil Bowie
----------------------------------------------
F. Joseph Carabin
----------------------------------------------
Gregory C. Godwin
----------------------------------------------
Michael D. Howard
----------------------------------------------
Philip S. Kline
----------------------------------------------
Julio C. Otazo
----------------------------------------------
R.K. Daniel Peterson
----------------------------------------------
Randall S. Preissig
----------------------------------------------
Rise P. Ross
----------------------------------------------
Jose A. Saldana
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----------------------------------------------
Robert L. Thompson
----------------------------------------------
Gregory W. Wojcik
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<PAGE> 599
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-238
<PAGE> 600
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-239
<PAGE> 601
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-240
<PAGE> 602
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-241
<PAGE> 603
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
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DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth therein
are delivered in connection with that certain Agreement and Plan of
Reorganization and Merger dated ____________, 1997, by and between American
Physician Partners, Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made pursuant
to one section number can reasonably be interpreted by other parties to be a
disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain exceptions
to the representations and warranties set forth in Article III of the Agreement,
the inclusion of an item on these Disclosure Schedules shall not be deemed an
admission by American Physician Partners, Inc. that such item is material to
American Physician Partners, Inc., the Company or any Company Subsidiary or that
it will have a material adverse effect on American Physician Partners, Inc., the
Company or any Company Subsidiary.
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<PAGE> 605
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and SOUTH
TEXAS MR, INC., a Texas corporation (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
SOUTH TEXAS MR, INC.
By:_________________________________
Its:________________________________
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<PAGE> 606
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation);
SAN ANTONIO MR, INC.
(a Texas corporation)
and
THE STOCKHOLDERS OF SAN ANTONIO MR, INC.
================================================================================
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I Definitions...................................................... 2
Section 1.1 Definitions.............................................. 2
Section 1.2 Rules Of Interpretation.................................. 5
ARTICLE II The Merger...................................................... 6
Section 2.1 The Merger............................................... 6
Section 2.2 The Closing.............................................. 6
Section 2.3 Effective Time........................................... 6
Section 2.4 Certificate of Incorporation of Surviving Corporation.... 6
Section 2.5 Bylaws of Surviving Corporation.......................... 6
Section 2.6 Conversion of Company Common Stock....................... 6
Section 2.7 Exchange of Certificates Representing Shares of the
Company Common Stock..................................... 7
Section 2.8 Fractional Shares........................................ 7
ARTICLE III Representations and Warranties of the Company.................. 7
Section 3.1 Organization and Good Standing; Qualification............ 7
Section 3.2 Authorization and Validity............................... 8
Section 3.3 Governmental Authorization............................... 8
Section 3.4 Capitalization........................................... 8
Section 3.5 Transactions in Capital Stock............................ 8
Section 3.6 Continuity of Business Enterprise........................ 8
Section 3.7 Subsidiaries and Investments............................. 9
Section 3.8 Absence of Conflicting Agreements or Required Consents... 9
Section 3.9 Intentionally Omitted.................................... 9
Section 3.10 Absence of Changes...................................... 9
Section 3.11 No Undisclosed Liabilities.............................. 10
Section 3.12 Litigation and Claims................................... 10
Section 3.13 No Violation of Law..................................... 10
Section 3.14 Lease Agreements........................................ 10
Section 3.15 Real and Personal Property.............................. 11
Section 3.16 Indebtedness for Borrowed Money......................... 11
Section 3.17 Contracts and Commitments............................... 11
Section 3.18 Employee Matters........................................ 12
Section 3.19 Intentionally Omitted................................... 12
Section 3.20 Intentionally Omitted................................... 12
Section 3.21 Environmental Matters................................... 12
Section 3.22 Filing Reports.......................................... 13
Section 3.23 Insurance Policies...................................... 13
Section 3.24 Accounts Receivable; Payors............................. 14
Section 3.25 Accounts Payable; Suppliers............................. 14
Section 3.26 Inventory............................................... 15
Section 3.27 Licenses, Authorization and Provider Programs........... 15
Section 3.28 Inspections and Investigations.......................... 15
Section 3.29 Proprietary Rights and Information...................... 16
Section 3.30 Taxes................................................... 16
Section 3.31 Related Party Arrangements.............................. 17
Section 3.32 Banking Relations....................................... 18
Section 3.33 Fraud and Abuse and Self Referral....................... 18
Section 3.34 Restrictions on Business Activities..................... 18
</TABLE>
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<TABLE>
<S> <C>
Section 3.35 Agreements in Full Force and Effect..................... 18
Section 3.36 Statements True and Correct............................. 18
Section 3.37 Disclosure Schedules.................................... 18
Section 3.38 Finders' Fees........................................... 18
ARTICLE IV Representations and Warranties of APP........................... 19
Section 4.1 Organization and Good Standing; Qualification............ 19
Section 4.2 Authorization and Validity............................... 19
Section 4.3 Governmental Authorization............................... 19
Section 4.4 Capitalization........................................... 19
Section 4.5 Subsidiaries and Investments............................. 20
Section 4.6 Absence of Conflicting Agreements or Required Consents... 20
Section 4.7 Absence of Changes....................................... 20
Section 4.8 No Undisclosed Liabilities............................... 20
Section 4.9 Litigation and Claims.................................... 20
Section 4.10 No Violation of Law..................................... 20
Section 4.11 Employee Matters........................................ 21
Section 4.12 Taxes................................................... 21
Section 4.13 Related Party Arrangements.............................. 22
Section 4.14 Statements True and Correct............................. 22
Section 4.15 Disclosure Schedules.................................... 22
Section 4.16 Finder's Fees........................................... 22
ARTICLE V INTENTIONALLY OMITTED ............................................22
ARTICLE VI INTENTIONALLY OMITTED........................................... 22
ARTICLE VII Covenants of the Company....................................... 22
Section 7.1 Conduct of The Company................................... 22
Section 7.2 Title to Assets; Indebtedness............................ 24
Section 7.3 Access................................................... 24
Section 7.4 Acquisition Proposals.................................... 24
Section 7.5 Compliance With Obligations.............................. 24
Section 7.6 Notice of Certain Events................................. 25
Section 7.7 Intentionally Omitted.................................... 25
Section 7.8 Stockholders' Consent.................................... 25
Section 7.9 Obligations of Company and Stockholders.................. 25
Section 7.10 Intentionally Omitted................................... 25
Section 7.11 Accounting and Tax Matters.............................. 25
ARTICLE VIII Covenants of APP.............................................. 26
Section 8.1 Consummation of Agreement................................ 26
Section 8.2 Requirements to Effect the Merger and Acquisitions....... 26
Section 8.3 Access................................................... 26
Section 8.4 Notification of Certain Matters.......................... 26
ARTICLE IX Covenants of APP and the Company................................ 27
Section 9.1 Filings; Other Action.................................... 27
Section 9.2 Amendments of Disclosure Schedules....................... 27
Section 9.3 Actions Contrary to Stated Intent........................ 28
Section 9.4 Public Announcements..................................... 28
Section 9.5 Expenses................................................. 28
Section 9.6 Patient Confidentiality.................................. 28
Section 9.7 Registration Statements.................................. 28
</TABLE>
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<TABLE>
<S> <C>
ARTICLE X Conditions Precedent of ......................................... 28
Section 10.1 Representations and Warranties.......................... 28
Section 10.2 Covenants............................................... 28
Section 10.3 Legal Opinion........................................... 28
Section 10.4 Proceedings............................................. 28
Section 10.5 No Material Adverse Effect.............................. 28
Section 10.6 Government Approvals and Required Consents.............. 29
Section 10.7 Securities Approvals.................................... 29
Section 10.8 Closing Deliveries...................................... 29
Section 10.9 Closing of Initial Public Offering...................... 29
Section 10.10 Closing of Related Acquisitions........................ 29
Section 10.11 Dissenter's Rights..................................... 29
Section 10.12 Stockholder Representation Letter;
Indemnification Agreement.............................. 29
ARTICLE XI Conditions Precedent of the Company............................. 29
Section 11.1 Representations and Warranties.......................... 29
Section 11.2 Covenants............................................... 29
Section 11.3 Legal Opinions.......................................... 29
Section 11.4 Proceedings............................................. 29
Section 11.5 Government Approvals and Required Consents.............. 30
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing.................... 30
Section 11.7 Closing of Initial Public Offering...................... 30
Section 11.8 Closing Deliveries...................................... 30
Section 11.9 No Material Adverse Effect.............................. 30
ARTICLE XII Closing Deliveries............................................. 30
Section 12.1 Deliveries of the Company............................... 30
Section 12.2 Deliveries of APP. ..................................... 31
ARTICLE XIII Post Closing Matters.......................................... 32
Section 13.1 Further Instruments of Transfer......................... 32
Section 13.2 Merger Tax Covenant..................................... 32
Section 13.3 Current Public Information.............................. 32
ARTICLE XIV Remedies....................................................... 33
Section 14.1 Indemnification by the Company and the Stockholders..... 33
Section 14.2 Indemnification by APP.................................. 33
Section 14.3 Conditions of Indemnification........................... 34
Section 14.4 Costs, Expenses and Legal Fees.......................... 36
Section 14.5 Tax Benefits; Insurance Proceeds........................ 36
Section 14.6 Dispute Resolution...................................... 36
ARTICLE XV Termination..................................................... 38
Section 15.1 Termination............................................. 38
Section 15.2 Effect of Termination................................... 38
ARTICLE XVI Nondisclosure of Confidential Information...................... 38
Section 16.1 Non-Disclosure Covenant................................. 38
Section 16.2 Damages................................................. 39
Section 16.3 Survival................................................ 39
ARTICLE XVII Miscellaneous................................................. 39
Section 17.1 Amendment; Waivers...................................... 39
Section 17.2 Assignment.............................................. 39
</TABLE>
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<TABLE>
<S> <C>
Section 17.3 Parties in Interest; No Third Party Beneficiaries....... 39
Section 17.4 Entire Agreement........................................ 39
Section 17.5 Severability............................................ 39
Section 17.6 Survival of Representations, Warranties and Covenants... 40
Section 17.7 Governing Law........................................... 40
Section 17.8 Captions................................................ 40
Section 17.9 Gender and Number....................................... 40
Section 17.10 Intentionally omitted.................................. 40
Section 17.11 Confidentiality; Publicity and Disclosures............. 40
Section 17.12 Notice................................................. 40
Section 17.13 No Waiver; Remedies.................................... 41
Section 17.14 Counterparts........................................... 41
Section 17.15 Defined Terms.......................................... 41
EXHIBITS
Exhibit A - List of Target Companies.......................................A-1
Exhibit B - Merger Consideration...........................................B-1
Exhibit C - Stockholder Representation Letter..............................C-1
Exhibit D - Indemnification Agreement......................................D-1
Exhibit E - Stockholder Release............................................G-1
Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
</TABLE>
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<PAGE> 611
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this "Agreement"),
dated as of June __, 1997, is by and among AMERICAN PHYSICIAN PARTNERS, INC., a
Delaware corporation ("APP"), SAN ANTONIO MR, INC., a Texas corporation (the
"Company") and THE STOCKHOLDERS OF SAN ANTONIO MR, INC. (the "Stockholders").
RECITALS
A. The Company is the general partner of South Texas No. 1 MRI Limited
Partnership. All of the shares of the common stock of the Company (the "Company
Common Stock") are owned beneficially and of record by the Stockholders.
B. APP is engaged in the business of owning, operating and acquiring the
assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that the Company
be merged with and into APP, and that APP be the sole surviving corporation
(sometimes referred to hereinafter as the "Surviving Corporation"), and the
Company be the disappearing corporation (sometimes referred to hereinafter as
the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the transactions
contemplated hereby, pursuant to which (i) the Company will merge with and into
APP upon the terms and conditions set forth herein and in accordance with the
laws of the State of Texas, (ii) the outstanding shares of the Company Common
Stock shall be converted at such time into cash and shares of common stock, par
value $.0001 per share, of APP (the "APP Common Stock") as set forth herein.
E. APP and APP Subsidiaries have entered into, or intend to enter into, an
Agreement and Plan of Reorganization and Merger or other acquisition agreements
(collectively, the "Other Agreements") similar to this Agreement with interest
holders (together with the Stockholders, the "Target Interest Holders") of each
of the entities listed on Exhibit A (together with the Company, the "Target
Companies").
F. The parties intend for the transaction contemplated by this Agreement
along with the transactions contemplated by the Other Agreements to qualify as a
tax-free exchange within the meaning of Section 351 of the Internal Revenue Code
of 1986, as amended (the "Code") and the regulations promulgated thereunder.
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<PAGE> 612
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that, directly
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall mean
(i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed on Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by this
Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited consolidated
balance sheet of the Company as of December 31, 1996 and the related statements
of income, stockholders' equity and statements of cash flows of the Company and
its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
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<PAGE> 613
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company Audited
Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section 3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of the
date hereof or otherwise delivered by any party hereto pursuant to the terms
hereof, as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement is
declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Encumbrance" shall mean any charge, claim, community property interest,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
"Environmental Laws" shall have the meaning set forth in Section 3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
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<PAGE> 614
"Form S-1" shall mean the Form S-1 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with its Initial Public
Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with the offering of APP
Common Stock as consideration under the Merger and other mergers contemplated by
the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party to
this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section 14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section 14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section 14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or other
fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401
et seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651
et seq., (v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
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<PAGE> 615
"Merger" shall have the meaning set forth in Section 2.1.
"Merger Consideration" shall have the meaning set forth in Section 2.6(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
SectionSection 6992, et seq.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons, obligated
by contract or by law to render payment to the Company in consideration of the
performance of professional medical or technical services including, but not
limited to, Medicare and Medicaid Programs (as defined in Section 3.27(a)),
insurance companies, health maintenance organizations, preferred provider
organizations, independent practice associations, hospitals, hospital systems,
integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section 3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section 12.1(m).
"Surviving Corporation" shall have the meaning set forth in the recitals
to this Agreement.
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the recitals
to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign income,
excise, corporate, franchise, property, sales, use, payroll, withholding,
provider, environmental, duties, value added and other tax returns (including
information returns).
"Third Party Claim" shall have the meaning set forth in Section 14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in Section
1.1 shall be equally applicable to both the singular and the plural forms of the
terms therein defined and shall cover both genders.
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<PAGE> 616
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number (e.g.,
Article IV) or a Section number (e.g., Section 6.2) shall be construed to be a
reference to the designated Article number or Section number of this Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into APP
in accordance with this Agreement and the separate corporate existence of the
Disappearing Corporation shall thereupon cease (the "Merger"). APP shall be the
Surviving Corporation in the Merger and shall continue to be governed by the
laws of the State of Delaware, and the separate corporate existence of APP with
all its rights, privileges, powers, immunities, purposes and franchises shall
continue unaffected by the Merger, except as set forth herein. The Surviving
Corporation may, at any time concurrent with and/or after the Effective Time,
take any action in the name of or on behalf of the Disappearing Corporation in
order to effectuate the transactions contemplated by this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take place at
10:00 a.m., local time, at the offices of APP located at 2301 NationsBank Plaza,
901 Main Street, Dallas, Texas on the day on which the transactions contemplated
by the Initial Public Offering are consummated. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
Section 2.3 Effective Time. If all the conditions to the Merger set forth
in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section
5.04 of the Texas Business Corporation Act. The Merger shall become effective at
the time of the filing of such documents with the Secretary of State of the
State of Texas, in accordance with such law or at such later time which the
parties hereto have theretofore agreed upon and designated in such filings as
the effective time of the Merger (the "Effective Time").
Section 2.4 Certificate of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Certificate of Incorporation of the Company
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation without any amendment or modification
as a result of the Merger.
Section 2.5 Bylaws of Surviving Corporation. The Bylaws of the Company in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger, until duly amended in accordance with applicable laws.
Section 2.6 Conversion of Company Common Stock. The manner of converting
shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the part of
the holder thereof, all shares of Company Common Stock issued and outstanding at
the Effective Time (excluding shares held by APP pursuant to Section 2.6(d)
hereof) shall cease to be outstanding and shall be cancelled and retired and
shall cease to exist, and each holder of a certificate or certificates
representing any such shares of Company Common Stock shall thereafter cease to
have any rights with respect to such shares of Company Common Stock, except the
right to receive, without interest, (i) cash and (ii) validly issued, fully paid
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and nonassessable shares of APP Common Stock, all as determined in accordance
with the provisions of Exhibit B attached hereto (the "Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time shall be
terminated and cancelled, without payment of any consideration therefor, and
shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock issued and
outstanding as of the Effective Time shall, by virtue of the Merger and without
any action on the part of the holder thereof, continue unchanged and remain
outstanding as a validly issued, fully paid and nonassessable share of APP
Common Stock.
Section 2.7 Exchange of Certificates Representing Shares of the Company
Common Stock.
(a) At or after the Effective Time and at the Closing (i) the
Stockholders, as holders of a certificate or certificates representing shares of
the Company's Common Stock, shall upon surrender of each certificate or
certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until each
certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.8 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at the
Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Company
Common Stock or with respect to the stock powers accompanying any Company Common
Stock. Upon such delivery (or completion of appropriate affidavit of lost
certificate and indemnity), each Stockholder shall receive in exchange therefor
the Merger Consideration pursuant to Exhibit B and Section 2.8 hereof, if
applicable.
Section 2.8 Fractional Shares. Notwithstanding any other provision herein,
no fractional shares of APP Common Stock will be issued and any Stockholder
otherwise entitled to receive a fractional share of APP Common Stock as part of
the Merger Consideration hereunder shall receive a cash payment in lieu thereof
reflecting such Stockholder's proportionate interest in a share of APP Common
Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to consummate the
Merger and except as set forth in the Disclosure Schedules attached hereto and
incorporated herein by this reference, the Company represents and warrants to
APP both as of the date hereof and as of the Effective Time as follows:
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Section 3.1 Organization and Good Standing; Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. The Company and each Company Subsidiary is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all requisite
corporate power to enter into this Agreement and all other agreements entered
into in connection with the transactions contemplated hereby and to consummate
the transactions contemplated hereby. The execution, delivery and, subject to
approval of this Agreement and the Merger by the Stockholders, performance by
the Company of this Agreement and the agreements contemplated herein, and the
consummation by the Company of the transactions contemplated hereby and thereby
are within the Company's respective corporate powers and have been duly
authorized by all necessary action on the part of the Company's Board of
Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby to which the Company is
a party constitute, or upon execution will constitute, valid and binding
agreements of the Company, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting the enforcement of creditors' rights generally, or by general
equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger (as contemplated by Section
2.3) and any other required documents related to the Merger, and other than
consents, filings or notifications required to be made or obtained solely by APP
(including, without limitation, in connection with the Initial Public Offering,
Form S-4 or any Hart-Scott-Rodino filing to be made by APP, if any), the
execution, delivery and performance by the Company of this Agreement and the
agreements provided for herein, and the consummation of the transactions
contemplated hereby and thereby by the Company require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 3.4 Capitalization. The authorized capital stock of the Company
consists of 100,000 shares of the Company Common Stock, of which 120 shares are
issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in Schedule 3.4. Each
outstanding share of Company Common Stock has been legally and validly issued
and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the Company has no securities, bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
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Section 3.5 Transactions in Capital Stock. There exist no Company Rights.
The Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof. Neither the equity
structure of the Company nor the relative ownership of shares among any of its
Stockholders has been altered or changed in contemplation of the Merger within
the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the (2) two
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, require any notice under, or accelerate or modify, or permit any
person to accelerate or modify, any performance required by the terms of any
agreement, instrument, license or permit, to which the Company is a party or by
which the Company or any of its properties are subject or bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on the Company; and (v) except as
contemplated by this Agreement, will not create any Encumbrance or restriction
upon the Company Common Stock or any of the assets or properties of the Company.
Section 3.9 Intentionally omitted.
Section 3.10 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital, condition
(financial or otherwise), assets, liabilities, reserves, business or operations
(whether or not covered by insurance) that individually or in the aggregate has
had or could reasonably be expected to have a Material Adverse Effect on the
Company;
(b) paid, discharged or satisfied any material liability, other than
the payment, discharge or satisfaction of liabilities in the ordinary course of
business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent with
past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
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(e) entered into any commitment or transaction not in the ordinary
course of business that is material to the Company, taken as a whole, or made
any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or accounting
practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with past
practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of its
assets, tangible or intangible, to any claim or Encumbrance, except for liens
for current personal property taxes not yet due and payable for mechanics,
landlords, materialsmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any equity or
other interest in itself;
(j) increased any salaries, wages or any employee benefits for any
employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee except in
the ordinary course of business;
(l) declared, set aside or made any payments, dividends or other
distributions to any Stockholder or any other holder of capital stock of the
Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any action
described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its knowledge, the
Company does not have any liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted except for
liabilities or obligations reflected or reserved against in the Company's
Current Balance Sheet.
Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder or any other licensed professional or other individual affiliated
with the Company affecting or that would reasonably be likely to affect the
Company Common Stock or the operations, business condition, (financial or
otherwise), or results of operations of the Company which (i) if successful,
may, individually or in the aggregate, have a Material Adverse Effect on the
Company or (ii) could adversely affect the ability of the Company or any Company
Subsidiary to effect the transactions contemplated hereby, and to the knowledge
of the Company there is no basis for any such action or any state of facts or
occurrence of any event which would reasonably be likely to give rise to the
foregoing. There are no unsatisfied judgments against the Company or any Company
Subsidiary or any licensed professional or other individual affiliated with the
Company or any Company Subsidiary relating to services provided on behalf of the
Company or any Company Subsidiary or any consent decrees to which any of the
foregoing is subject. Each of the matters, if any, set forth in this Section
3.12 is fully covered by policies of insurance of the Company or any Company
Subsidiary as in effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any Company
Subsidiary has been, nor shall be as of the Effective Time (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever), in violation of any applicable local, state or
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federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which the Company or any Company Subsidiary is a party and pursuant to which the
Company or any Company Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the operation of its business and which requires payments in excess of
$12,000 per year (the "Lease Agreements"). The Company has delivered to APP true
and complete copies of all of the Lease Agreements. Each Lease Agreement is
valid, effective and in full force in accordance with its terms, and there is
not under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver to
APP in writing such consents as are necessary to effect a valid and binding
transfer or assignment of the Company's or any Company Subsidiary's rights
thereunder. The Company has a good, clear, valid and enforceable leasehold
interest under each of the Lease Agreements. The Lease Agreements comply with
the exceptions to ownership interests and compensation arrangements set out in
42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar applicable
state law safe harbor or other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any interest
(other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good title to all
of its properties and assets (real, personal and mixed, tangible and intangible)
and any rights or interests therein which it purports to own including, without
limitation, all the property and assets reflected in the Company Current
Financial Statements; and (ii) owns such rights, interests, assets and property
free and clear of all Encumbrances, title defects or objections (except for
taxes not yet due and payable). The personal property presently used in
connection with the operation of the business of the Company and the Company
Subsidiaries constitutes the necessary personal property assets to continue
operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, the Company does not have any
direct or indirect indebtedness for borrowed money, including indebtedness by
way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and complete
list, and the Company has delivered to APP true and complete copies, of each
contract, agreement and other instrument requiring the Company to make future
payments of $10,000 in any fiscal year or $25,000 in the aggregate (other than
insurance contracts identified in Section 3.23 or Lease Agreements identified in
Section 3.14) to which the Company is a party or by which it or any of its
properties or assets are
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bound including, without limitation, (i) all agreements between the Company, on
the one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000 in
any fiscal year or $25,000 in the gregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP of the assets and
properties to be acquired by APP from the Company, or which could inhibit or
prevent the Company from transferring to or vesting in APP good and sufficient
title to the assets and properties to be acquired by APP and the Surviving
Corporation except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, the Company
shall, on or before the Closing Date, use reasonable good faith efforts to
obtain and deliver to APP in writing, effective as of the Closing Date, such
consents as are necessary to enable the Surviving Corporation to enjoy all of
the rights now enjoyed by the Company under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. No contract with a health care provider or Payor has been materially
amended or terminated within the last twelve (12) months.
(b) The Company (i) has not received notice of any plan or intention
of any other party to exercise any right to cancel or terminate any contract,
agreement or instrument required to be disclosed pursuant to Section 3.17(a),
and to the knowledge of the Company there are no fact(s) that would justify the
exercise of such a right; and (ii) does not currently contemplate, or have
reason to believe any other Person currently contemplates, any amendment or
change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company does not have employees and is
not currently a party to any employment contract (except for oral employment
agreements which are terminable at will), consulting or collective bargaining
contracts, deferred compensation, pension plan (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended, and all rules
and regulations from time to time promulgated thereunder ("ERISA")), profit
sharing, bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest.
Section 3.19 Intentionally omitted.
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Section 3.20 Intentionally omitted.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has, within the
five (5) years preceding the date hereof, through the Effective Time, received
from any federal, state or local governmental body, agency, authority or entity,
or any other Person, any written notice, demand, citation, summons, complaint or
order or any notice of any penalty, lien or assessment, and to the knowledge of
the Company no investigation or review is pending by any governmental entity,
with respect to any (i) alleged violation by the Company of any Environmental
Law (as defined in subsection (e) below) (ii) alleged failure by the Company to
have any environmental permit, certificate, license, approval, registration or
authorization required pursuant to any Environmental Law in connection with the
conduct of its business; or (iii) alleged illegal Regulated Activity (as defined
in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Schedule 3.21(b) discloses any known presence of asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises. To the knowledge of the
Company, there is no friable asbestos in or on the Company's or any Company
Subsidiary's owned or leased premises.
(c) To the knowledge of the Company, no soil or water in or under
any assets currently or formerly held for use or sale by the Company or any
Company Subsidiary is or has been contaminated by any Hazardous Substance while
such assets or premises were owned, leased, operated or managed, directly or
indirectly by the Company or any Company Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on the
Company.
(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of the Company,
concerning the Company or any Company Subsidiary within the five (5) years
preceding the date hereof through the Effective Time with respect to any real
property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following terms have
the following meanings:
"Environmental Laws" shall mean any federal, state or local laws,
ordinances, codes, regulations, rules, policies and orders (including
without limitation, Medical Waste Laws) that are intended to assure the
protection of the environment, or that classify, regulate, call for the
remediation of, require reporting with respect to, or list or define air,
water, groundwater, solid waste, hazardous, toxic, or radioactive
substances, materials, wastes, pollutants or contaminants, [or which are
intended to assure the safety of employees, workers or other persons,
including the public in each case as in effect on the date hereof.]
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which (i)
have arisen, or would reasonably be likely to arise, under Environmental
Laws and (ii) relate to actions occurring or conditions existing on or
prior to the date hereof or the Effective Time.
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"Hazardous Substances" shall mean any toxic or hazardous substances,
material or waste, including Medical Waste, or any pollutant or
contaminant, or infectious or radioactive substance or material, including
without limitation, those substances, materials and wastes defined in or
regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous
Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and briefly
describe the Company's policies of insurance to which the Company or any Company
Subsidiary is a party or under which the Company or any Company Subsidiary,
officer or director thereof is or has been covered at any time during the last
five (5) years preceding the date of this Agreement relating to the business of
the Company or any Company Subsidiary (the "Insurance Policies"). All of the
Insurance Policies are valid, outstanding and enforceable policies, except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies and all
premiums with respect thereto which are due and payable are currently paid. All
Insurance Policies currently maintained by the Company or any Company Subsidiary
("Current Policies") taken together, (i) provide adequate insurance coverage for
the assets, properties and operations of the Company and its Affiliates for all
risks normally insured against by a Person carrying on a substantially similar
business or businesses as the Company and its Affiliates, (ii) are sufficient
for compliance with legal and contractual requirements to which the Company or
any of its Affiliates is a party or by which any of them may be bound, and (iii)
shall be maintained in force (including the payment of all premiums and
compliance with their terms) without interruption up to and including the
Closing Date. True, complete and correct copies of all Insurance Policies have
been provided to APP. Neither the Company nor any Company Subsidiary nor any
officer or director thereof has received any notice or other written
communication from any issuer of any Current Policy cancelling such policy,
materially increasing any deductibles or retained amounts thereunder, or
materially increasing the annual or other premiums payable thereunder and, to
the knowledge of the Company, no such cancellation or increase of deductibles,
retainages or premiums is threatened. There are no outstanding claims,
settlements or premiums owed against any Insurance Policy, and all required
notices have been given and all known potential or actual claims under any
Insurance Policy have been presented in due and timely fashion. Within the five
(5) years preceding the Agreement, neither the Company nor any Company
Subsidiary has filed a written application for any professional liability
insurance coverage which has been denied by an insurance agency or carrier. The
Disclosure Schedules also set forth a list of all claims under any Insurance
Policy in excess of $10,000 per occurrence filed by the Company or any Company
Subsidiary during the immediately preceding three-year period.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of all
accounts receivable of the Company as of March 31, 1997, which list is complete,
true and accurate in all material respects. All such accounts receivable arose
in the ordinary course of business and have not been previously written off as
bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements or
on the accounting records of the Company (which reserves are adequate and
calculated consistent with generally accepted accounting principles and past
practice).
(b) The Disclosure Schedules set forth (i) a true, correct and
complete list of the names and addresses of each Payor of the Company as of such
date, which accounted for more than 5% of the revenues of the Company in the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for more than 5% of the revenues of the Company for the fiscal year to end
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December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i) list
of the accounts payable of the Company as of March 31, 1997, and (ii) list of
each individual indebtedness owed by the Company of $5,000 or more, setting
forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and complete
list of the names and addresses of each of the providers/suppliers of products
or services to the Company (including, without limitation all non-Physician
Employee providers of care to patients) which accounted for a dollar volume of
purchases paid for by the Company in excess of $25,000 for the fiscal year ended
December 31, 1996, or which is reasonably expected to account for a dollar
volume of purchases paid for by the Company in excess of $25,000 for the fiscal
year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company Current
Balance Sheet contained in the Company Financial Statements consisted, and all
such items on hand on the date of this Agreement consist, and all such items on
hand at the Effective Time will consist, net of all applicable reserves with
respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory are not materially in excess of normal
requirements, and none of such purchase commitments are at prices in excess of
prevailing market prices at the time of such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs .
(a) The Company and other licensed employee or independent
contractor of the Company (i) is the holder of all valid licenses, approvals,
orders, consents, permits, registrations, qualifications and other rights and
authorizations required by law, ordinance, regulation or ruling of any
governmental regulatory authority necessary to operate its/his/her business and
(ii) is eligible to participate in and to receive reimbursement under Titles
XVIII and XIX of the Social Security Act (the "Medicare and Medicaid Programs")
and any other programs funded in whole or in part by federal, state or local
entities for which the Company is eligible ("Governmental Programs"). The
Company, the Stockholders, and each employee has a current provider number for
such Governmental Programs and with such private non-governmental programs
(including without limitation any private insurance program) under which the
Company is presently receiving payments directly or indirectly from any Payor
for patient care provided by such licensed employee or independent contractor
(such non-governmental programs herein referred to as "Private Programs"). A
true, correct and complete list of such licenses, permits and other
authorizations (including, but not limited to verification of Medicare and
Medicaid provider numbers and participating physician contracts under 1842(h) of
the Social Security Act), and provider agreements, is set forth in the
Disclosure Schedules, true, complete and correct copies of which have been
provided to APP. No violation, default, order or deficiency exists with respect
to any of the items listed in the Disclosure Schedules except for such
violations, defaults, orders or deficiencies which would not be reasonably
likely to have a Material Adverse Effect on the Company, and there is no action
pending or to the Company's knowledge recommended by any state or federal
agencies having jurisdiction over the items listed in the Disclosure Schedules,
either to revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program, and
no event has occurred which, with or without notice or lapse of time, or both,
would constitute grounds for a violation, order or deficiency with respect to
any of the items listed in the Disclosure Schedules to revoke, withdraw or
suspend any material license to operate its business as is presently being
conducted by it. To the knowledge of the Company, there has been no decision not
to
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renew any existing agreement with any provider or Payor relating to the
Company's business as presently being conducted by it. Neither the Company nor
any licensed employee (i) has had his/her/its license, Drug Enforcement Agency
number, or Medicare/Medicaid provider status suspended, relinquished, terminated
or revoked (including orders that have been entered by any such entities but
stayed), (ii) has been reprimanded in writing, sentenced, or disciplined by any
licensing board, state agency, regulatory body or authority, or Payor (including
orders that have been entered by any such entities but stayed), or (iii) is the
subject of an initial or final determination by any federal or state authority
that could result in any demand or reimbursement under the Medicare, Medicaid or
Government Programs or any exclusion or which monetary penalty under federal or
state law or (iv) has had a final judgment or settlement entered against
him/her/it in connection with a malpractice or similar action.
(b) The Company is not required, or for the 72-month period prior to
the Effective Time was not required, to file any cost reports or other reports
with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of the
Company nor the right of any licensed professional or other individual
affiliated with the Company to receive reimbursements pursuant to any
Governmental Program or Private Program has been terminated or otherwise
materially and adversely affected as a result of any investigation or action
whether by any federal or state governmental regulatory authority or other third
party. No licensed professional or other individual affiliated with the business
has, during the past three (3) years prior to the Effective Time, had their
license limited, suspended or revoked by any governmental regulatory authority
or agency, integrated delivery system, trade association, review organization,
accrediting organization or certifying agency (including orders that have been
entered by any such entities but stayed). True, correct and complete copies of
all reports, correspondence, notices and other documents relating to any matter
described or referenced in this Section 3.28 have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and accurate
list and summary description of the following: (i) all trademarks (registered
and unregistered), trade-names, service marks and other trade designations,
including common law rights, registrations and applications therefor, currently
owned in whole or part, or used by the Company or any Company Subsidiary, (ii)
all patents and applications therefor and inventions and discoveries that may be
patentable currently owned, in whole or in part, or used by the Company or any
Company Subsidiary, (iii) all licenses, royalties, and assignments thereof to
which the Company or any Company Subsidiary are a party (iv) all copyrights (for
published and unpublished works) currently owned in whole or part, or used by
the Company or any Company Subsidiary and (v) other similar agreements relating
to the foregoing to which the Company or any Company Subsidiary is a party
(including expiration date if applicable) (collectively, the "Proprietary
Rights").
(b) The Disclosure Schedules contain a complete and accurate list
and summary description of all agreements relating to technology, trade secrets,
know-how or processes that the Company is licensed or authorized to use by
others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the Proprietary
Rights without conflicting with, infringing or violating the rights of any other
Person. No consent of any person will be required for the use thereof by APP
upon consummation of the transactions contemplated hereby and the Proprietary
Rights are freely transferable. To the knowledge of the Company, no claim has
been asserted by any person to the ownership of or for infringement by the
Company of any Proprietary Right of any other Person, and neither the Company
nor any Stockholder is aware of any valid basis for any such claim. To the best
knowledge of the Company, no proceedings have been threatened which challenge
the Proprietary Rights of the Company. The Company has the right to use, free
and clear of
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any adverse claims or rights of others, all trade secrets, customer
lists and proprietary information required for the performance and marketing of
all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in Schedule 3.30(b), (i) the Company has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records in
accordance with generally accepted accounting principles for all of the same
that have not yet become due and payable and (ii) the Company is not delinquent
in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or Audits.
The Company has not received any notice that any tax deficiency or delinquency
has been asserted against the Company and to the best knowledge of the Company,
there is no threat of such assertion. There is no unpaid assessment, proposal
for additional taxes, deficiency or delinquency in the payment of any of the
taxes of the Company that could reasonably be likely to be asserted by any
taxing authority. There is no taxing authority audit of the Company pending, or
to the actual knowledge of the Company, threatened within the last five (5)
years, and the results of any completed audits are properly reflected in the
Company Financial Statements. The Company has not violated any applicable
federal, state, local or foreign tax law. There are no security interests or
liens on any assets of the Company or any Company Subsidiary which have resulted
from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not granted
an extension to any taxing authority of the statute of limitation period during
which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required to
be withheld by the Company and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder is a
foreign person, as such term is referred to in Section 1445(f)(3) of the Code
and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of the
Company constitutes property that the Company, APP or any Affiliate of APP, will
be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties of the
Company are subject to a lease to a "tax exempt entity" as such term is defined
in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
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(k) Parachute Payments. No payment required or contemplated to be
made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election to be taxed
as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to the
Company's business. There is no commitment to, and no income reflected in the
Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure Schedules is a
complete and accurate list of all borrowing and investing arrangements that the
Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the Person
or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the Company nor
any Company Subsidiary has engaged and, to the knowledge of the Company, neither
the Company's officers and directors nor the Physician Employees or other
Persons and entities providing professional services for or on behalf of the
Company have engaged, in any activities which are prohibited under 42 U.S.C.
Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Sections 24, 287, 371, 664, 669, 1001,
1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company, any
Company Subsidiary or officer, director or key employee of the Company or
Company Subsidiary, which has or reasonably could be expected to have the effect
of prohibiting or materially impairing the current business of the Company or
any Company Subsidiary or the continuation of that business in the future, any
acquisition of property by the Company, any Company Subsidiary or the conduct of
business by the Company or any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of the Company, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by the Company or any other party thereto.
Section 3.36 Statements True and Correct. No representation or warranty
made herein by the Company or any Stockholder, nor any statement, certificate,
information, exhibit or instrument to be furnished by the Company or any
Stockholder to APP or any of their respective representatives pursuant to this
Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact
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or omits or will omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required by
Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or other
intermediary has been retained by or is authorized to act on behalf of any of
the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, APP represents and warrants to the
Company and the Stockholders both as of the date hereof and as of the Effective
Time as follows:
Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the Merger
and the transactions contemplated hereby, all of which have been or will be made
available to the Company for review, are true, correct and complete as in effect
on the date of this Agreement and accurately reflect all material proceedings of
the stockholders and directors of APP (and all committees thereof) regarding the
Merger and the transactions contemplated hereby. The stock record books of APP,
which have been or will be made available to the Company for review, contain
true, complete and accurate records of the stock ownership of APP and the
transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and the Other Agreements and to
consummate the Merger and the transactions contemplated hereby. The execution,
delivery and performance by APP of this Agreement and the agreements provided
for herein, including the Other Agreements and the consummation by APP of the
transactions contemplated hereby and thereby are within APP's corporate powers
and have been duly authorized by all necessary action on the part of APP's Board
of Directors. This Agreement has and the Other Agreements have been duly
executed by APP. This Agreement and all other agreements and obligations entered
into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements of APP, enforceable against it in
accordance with their respective terms, except as may be limited by bankruptcy
or other laws affecting creditors' rights generally, or by general equity
principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation
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of the Merger and the transactions contemplated hereby and thereby by APP
requires no action by or in respect of, or filing with, any governmental body,
agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP consists
of [20,000,000] shares of APP Common Stock, of which [2,000,000] shares are
issued and outstanding and [10,000,000] shares of APP Preferred Stock, none of
which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or
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obligation accrued, contingent or otherwise, that is reasonably likely to have a
Material Adverse Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits, actions,
arbitrations, administrative or other proceedings, governmental investigations
or inquiries pending or, to the knowledge of APP, threatened against, or
affecting APP. There are no unsatisfied judgments against APP or any consent
decrees to which APP is subject. Each of the matters, if any, set forth in the
Disclosure Schedules are fully covered by policies of insurance of APP as in
effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of the
Effective Time (by virtue of any action, omission to act, contract to which it
is a party or any occurrence or state of facts whatsoever), in violation of any
applicable local, state or federal law, ordinance, regulation, order, injunction
or decree, or any other requirement of any governmental body, agency or
authority or court binding on it, or relating to its property or business or its
advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be disputing
in good faith by proceedings in compliance with applicable law, which are
described in Schedule 4.12(b), (i) APP has paid all taxes, penalties,
assessments and interest that have become due with respect to any Tax Returns
that it has filed and has properly accrued on its books and records for all of
the same that have not yet become due and (ii) APP is not delinquent in the
payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or Audits.
APP has not received any notice that any tax deficiency or delinquency has been
asserted against APP. There is no unpaid assessment, proposal for additional
taxes, deficiency or delinquency in the payment of any of the taxes of APP that
could be asserted by any taxing authority. There is no taxing authority audit of
APP pending, or to the knowledge of APP, threatened, and the results of any
completed audits are properly reflected in the financial statements of APP. APP
has not violated any federal, state, local or foreign tax law.
(d) No Extension of Limitation Period. APP has not granted an
extension to any taxing authority of the limitation period during which any tax
liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required to
be withheld by APP and paid to governmental agencies for all income, social
security, unemployment insurance, sales, excise, use, and other taxes have been
collected or withheld and paid to the respective governmental agencies.
(f) Foreign Person. Neither APP nor any holders of APP Common Stock
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Code.
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(g) Tax Exempt Entity. None of the assets of APP are subject to a
lease to a "tax exempt entity" as such term is defined in Section 168(h)(2) of
the Code.
(h) Collapsible Corporation. APP has not at any time consented, and
the holders of APP Common Stock will not permit APP to elect, to have the
provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or cooperated
with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated to be
made by APP will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed as an
"S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. Schedule 4.13 or Form S-4 sets
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of APP in any property, real or personal or
mixed, tangible or intangible, used in or pertaining to APP's business and any
arrangement or agreement with any such person concerning the provision of goods
or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to the Company or a Stockholder pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules required by
Article IV hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or other
intermediary has been retained by or is authorized to act on behalf of APP who
is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
ARTICLE V
INTENTIONALLY OMITTED.
ARTICLE VI
INTENTIONALLY OMITTED.
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ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. From the date hereof until the
Effective Time, the Company shall, in all material respects, conduct its
business in the ordinary and usual course consistent with past practices and
shall use reasonable efforts to:
(a) preserve intact its business and its relationships with Payors,
referral sources, customers, suppliers, patients, employees and others having
business relations with it;
(b) maintain and keep its properties and assets in good repair and
condition consistent with past practice as is material to the conduct of the
business of the Company;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of incorporation or
bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale, shares of
any class of its securities (including, but not limited to, by way
of stock split, dividend, recapitalization or other
reclassification) or any subscriptions, options, warrants, rights or
convertible securities, or enter into any agreements or commitments
of any character obligating it to issue or sell any such securities;
(3) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or any option, warrant
or other right to purchase or acquire any such shares;
(4) declare or pay any dividend or other distribution (whether
in cash, stock or other property) with respect to its capital stock
(except as expressly contemplated herein);
(5) voluntarily sell, transfer, surrender, abandon or dispose
of any of its assets or property rights (tangible or intangible)
other than the sale of inventory, if any, in the ordinary course of
business consistent with past practices;
(6) grant or make any mortgage or pledge or subject itself or
any of its properties or assets to any lien, charge or encumbrance
of any kind, except liens for taxes not currently due and except for
liens which arise by operation of law;
(7) voluntarily incur or assume any liability or indebtedness
(contingent or otherwise), except in the ordinary course of business
or which is reasonably necessary for the conduct of its business;
(8) make or commit to make any capital expenditures which are
not reasonably necessary for the conduct of its business;
(9) grant any increase in the compensation payable or to
become payable to directors, officers, consultants or employees
other than merit increases to employees of
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the Company who are not directors or officers of the Company, except
in the ordinary course of business and consistent with past
practices;
(10) change in any manner any accounting principles or methods
other than changes which are consistent with generally accepted
accounting principles;
(11) enter into any material commitment or transaction other
than in the ordinary course of business;
(12) take any action which could reasonably be expected to
have a Material Adverse Effect on the Company;
(13) apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount payable
directly or indirectly to or for the benefit of any Affiliate of the
Company, other than in the ordinary course and consistent with past
practices;
(14) agree, whether in writing or otherwise, to do any of the
foregoing; and
(15) take any action at the Board of Director or Stockholder
level to (in any way) amend, revise or otherwise affect the prior
corporate approval and effectiveness of this Agreement or any of the
agreements attached as exhibits hereto, other than as required to
discharge its or their fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time, the
Company shall (i) except for sales of assets held as inventory, if any, in the
ordinary course of business prior to the Effective Time and except as otherwise
specifically described in the Disclosure Schedules to this Agreement, have good
and valid title to all of its assets free and clear of all Encumbrances of any
nature whatsoever, except for current year ad valorem taxes and liens which
arise by operation of law, and (ii) have no direct or indirect indebtedness
except for indebtedness disclosed in the Company Financial Statements, the
Disclosure Schedules hereto or for normal and recurring accrued obligations of
the Company arising in connection with its business operations in the ordinary
course of business and which arise from the purchase of merchandise, supplies,
inventory and services used in connection with the provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, share certificate books, share registers,
accounts, tax returns, financial statements and all other data that, in the
reasonable opinion of APP, are required for APP to make such investigation as it
may desire of the properties and business of the Company. APP shall also be
allowed full access upon reasonable prior notice and during regular business
hours (and at such other times as the parties may reasonably agree) to consult
with the officers, employees (after announcement by the Company of the Merger to
its employees which shall occur no later than three (3) days subsequent to
execution hereof by the Company), accountants, counsel and agents of the Company
in connection with such investigation of the properties and business of the
Company. No investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall be
conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall cause
each of its directors, officers, employees or agents not to directly or
indirectly:
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(a) solicit, initiate, encourage or participate in any negotiations
or discussions with respect to any offer or proposal to acquire all or a
substantial portion of the business, properties or capital stock of the Company,
whether by merger, consolidation, share exchange, business combination, purchase
of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of the Company, or, without APP's prior written approval, afford
to any Person other than APP and its agents access to the properties, books or
records of the Company. If the Company receives any offer or proposal after the
date hereof, written or otherwise, of the type referred to above, the Company
shall promptly inform APP of such offer or proposal, decline such offer and
furnish APP with a copy thereof if such offer or proposal is in writing.
Section 7.5 Compliance With Obligations. Prior to the Effective Time, the
Company shall comply in all material respects with (i) all applicable federal,
state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly notify
APP of:
(a) any notice or other communication from any Person or entity
alleging that the consent of such Person or entity is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the Company who
is expected to receive annualized compensation of at least $50,000 in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
the Company which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of the Company,
including but not limited to any licensure or certification deficiencies, or
violations; limitations on a license or a provider agreement; freeze or
reduction in MediCare or Medicaid rates, notice of overpayment; being the
subject of any investigation relating to patient abuse, fraud, kickbacks, false
claims or other alleged illegal payment practices under the Fraud and Abuse
Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best efforts
to obtain the unanimous approval of its Stockholders to the Merger. In seeking
the approval of its Stockholders, the Company shall provide each Stockholder
with the Form S-4 which shall include information as may be required by
applicable law or as APP shall deem appropriate. The Board of Directors of the
Company
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shall recommend the approval of the Merger by the Stockholders of the Company.
If the Stockholders' approval is not unanimous, the Company shall give notice to
the nonconsenting Stockholders of the action taken by the consenting
Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to Section
7.8 hereof, the Company will take all action reasonably necessary to cause the
Company to perform its obligations under this Agreement and all related
agreements and to consummate the Merger and other transactions contemplated
hereby and thereby on the terms and conditions set forth in this Agreement and
such agreements; provided, however, that this covenant shall not require the
Company to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
Section 7.10 Intentionally omitted.
Section 7.11 Accounting and Tax Matters. The Company will not change in
any material respect the accounting methods or practices followed by the Company
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. The Company will not make
any material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (without regard to any extensions of
time) file all returns, information statements and other documents relating to
taxes of the Company required to be filed by it, and pay all taxes required to
be paid by it, on or before the Closing Date.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action reasonably
necessary to cause the consummation of the transactions contemplated hereby in
accordance with their terms and conditions and take all corporate and other
action necessary to approve the Merger; provided, however, that this covenant
shall not require APP to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein.
Section 8.2 Requirements to Effect the Merger and Acquisitions. APP will
use its best efforts to take, or cause to be taken, all actions necessary to
effect the Merger under applicable law, including without limitation the filing
with the appropriate government officials of all necessary documents in form
approved by counsel for the parties to this Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal business
hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and its authorized representatives to inspect
and, at the Company's sole expense, make copies of all documents, records and
information with respect to the affairs of APP as the Company and its
representatives may reasonably request, all for the sole purpose of permitting
the Company to become familiar with the business and assets and liabilities of
APP. No investigation by the Company or the Stockholders shall diminish or
otherwise affect any of the representations, warranties, covenants or agreements
of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly inform the
Company in writing of (a) any notice of, or other communication relating to, a
default or event that, with notice or
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lapse of time or both, would become a default, received by APP subsequent to the
date of this Agreement and prior to the Effective Time under any contract,
agreement or investment material to APP's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; (b) any
material adverse change in APP's condition (financial or otherwise), operations,
assets, liabilities or business or (c) defaults or disputes regarding Other
Agreements.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and
file with the SEC the Registration Statements on Form S-1 and Form S-4 (or other
appropriate Forms) to be filed by APP in connection with its Initial Public
Offering and offering of the shares of APP Common Stock to the Target Interest
Holders pursuant to the transactions contemplated by this Agreement and the
Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. The Company shall cooperate with APP in the
preparation of the Registration Statements and shall furnish all information
concerning the Company as may be reasonably requested in connection with any
such action in a timely manner.
(b) The Company and APP each separately represent and warrant that
(i) in the case of the Company, none of the written information or documents
supplied or to be supplied by it specifically for inclusion in the Registration
Statements, by exhibit or otherwise and (ii) in the case of APP will, at the
time the Registration Statements and each amendment and supplement thereto, if
any, becomes effective under the Securities Act, none of them contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Company shall be
entitled to review the Registration Statements and each of the amendments
thereto, if any, prior to the time each becomes effective under the Securities
Act. The Company shall have no responsibility for information contained in the
Registration Statements except for information provided by the Company
specifically for inclusion therein. The Company's review of the Registration
Statements shall not diminish or otherwise affect the representations, covenants
and warranties of APP contained in this Agreement.
(c) The Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners
and Stockholders, and such other matters as may be reasonably requested by APP
in connection with the preparation of the Registration Statements and each of
the amendments or supplements thereto, or any other statement, filing, notice or
application made by or on behalf of each such party or any of its subsidiaries
to any governmental entity in connection with the Merger and the other
transactions contemplated by this Agreement.
Section 9.2 Amendments of Disclosure Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party contained
in this Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly the Disclosure Schedules with respect to
any matter that would have been or would be required to be set forth or
described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on the Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Disclosure Schedule that constitutes or reflects a Material Adverse Effect on
APP may be made unless the Company consents to such amendment or supplement. For
purposes of this Agreement, including without limitation for
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purposes of determining whether the conditions set forth in Sections 10.1 and
11.1 have been fulfilled, the Disclosure Schedules hereto shall be deemed to be
the Disclosure Schedules as amended or supplemented pursuant to this Section
9.2. In the event that the Company seeks to amend or supplement a Disclosure
Schedule pursuant to this Section 9.2 and APP does not consent to such amendment
or supplement, or APP seeks to amend or supplement a Disclosure Schedule
pursuant to this Section 9.2, and the Company does not consent, this Agreement
shall be deemed terminated by mutual consent as set forth in Section 15.1(a)
hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Section
351 of the Code.
Section 9.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company shall be paid by the Company in full
immediately prior to the Closing and such expenses shall be the sole
responsibility of the Stockholders following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all records
and information regarding the patients of the Company confidential in accordance
with all applicable laws.
Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as delivered pursuant to Section 10.12
hereof) shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Effective
Date.
Section 10.2 Covenants. The Company shall have performed and complied in
all material respects with all covenants required by this Agreement to be
performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have delivered to
APP their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 10.3.
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Section 10.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse Effect on the
Company shall have occurred since March 31, 1997, whether or not such change
shall have been caused by the deliberate act or omission of the Company or any
Stockholder.
Section 10.6 Government Approvals and Required Consents. The Company, the
Stockholders and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents required under any law,
statements, rule, regulation or ordinance to consummate the transactions
contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all Disclosure
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 10.11 Dissenter's Rights. The Company shall have satisfied each of
its obligations to its Stockholders regarding dissenters or related rights under
the Texas Business Corporation Act, and the sum of the amount which may become
due to the Stockholders who have dissented to the Merger and have indicated
their intent to seek appraisal rights plus the cash portion of the Merger
Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of the
Company hereunder are subject to fulfillment at or prior to the Effective Date
of each of the following conditions:
Section 11.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Effective Date.
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Section 11.3 Legal Opinions. Counsel to APP shall have delivered to the
Company their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The Company, the
Stockholders and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents (including consent of
the Stockholders required by applicable state law or the Company's charter
documents in effect as of the date of this Agreement) required under any law,
contracts or any statute, rule, regulation or ordinances to consummate the
transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statements shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. At or prior to the Effective Date, the APP
Common Stock shall have been approved for listing on the Nasdaq National Market,
subject only to official notification of issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to the Company referred to in Section
12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect on APP
shall have occurred since __________, 1997, whether or not such change shall
have been caused by the deliberate act or omission of APP.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Effective Date,
the Company shall deliver to APP the following, all of which shall be in a form
reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement and all
related documents and agreements and consummation of the Merger, each certified
by the Secretary of the Company as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(b) Intentionally omitted;
(c) a certificate of the President of the Company dated the Closing
Date, as to the truth and correctness of the representations and warranties of
the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the Closing
Date, (i) as to the performance of and compliance in all material respects by
the Company with all covenants contained herein on and as of the Effective Date
and (ii) certifying that all conditions precedent required by the Company to be
satisfied shall have been satisfied;
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(e) a certificate of the Secretary of the Company certifying as to
the incumbency of the directors and officers of such corporation and as to the
signatures of such directors and officers who have executed documents delivered
at the Closing on behalf of that corporation;
(f) certificates, dated within ten (10) days prior to the Effective
Date, of the Secretary of State of Texas for the Company establishing that each
such corporation is in existence, has paid all franchise or similar taxes, if
any, and, if applicable, otherwise is in good standing to transact business in
the state of Texas;
(g) certificates, dated within ten (10) days prior to the Effective
Date, of the Secretaries of State of the states in which either the Company is
qualified to do business, to the effect that each such corporation is qualified
to do business and, if applicable, is in good standing as a foreign corporation
in each of such states;
(h) all authorizations, consents, approvals, permits and licenses
referenced in Section 3.27;
(i) the resignations of the directors and officers of the Company as
requested by APP;
(j) Intentionally omitted;
(k) executed Certificates of Merger necessary to effect the Merger
referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty of
perjury and dated as of the Closing Date, to the effect that such Stockholder is
a United States citizen or a resident alien (and thus not a foreign person) and
providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit G (the "Stockholder Release");
(n) Intentionally omitted; and
(o) such other instrument or instruments of transfer prepared by APP
as shall be necessary or appropriate, as APP or its counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective Date, APP
shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) Intentionally omitted;
(c) a certificate of the President of APP dated the Closing Date as
to the truth and correctness of the representations and warranties of APP
contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the Closing Date,
(i) as to the performance and compliance by APP with all covenants contained
herein on and as of the Effective Date and (ii) certifying that all conditions
precedent required to be satisfied by APP shall have been satisfied;
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(e) a certificate of the Secretary of APP certifying as to the
incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the Effective
Date, of the secretary of state of incorporation establishing that APP is in
existence, has paid all franchise or similar taxes, if any, and otherwise is in
good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten (10)
days prior to the Effective Date, of the Secretaries of State of the states in
which APP is qualified to do business, to the effect that APP is qualified to do
business and is in good standing as a foreign corporation in such state;
(h) the executed Service Agreement as revised in accordance with the
changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect the Merger
referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II and
Exhibit B hereof; and
(k) such other instrument or instruments of transfer prepared by the
Company as shall be necessary or appropriate, as the Company or its counsel
shall reasonably request, to carry out and effect the purpose and intent of this
Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing, at
the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing, APP
or the Surviving Corporation shall deliver any further instruments of transfer
and take all reasonable action as may be necessary and appropriate to carry out
the purpose and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
reorganization within the meaning of Section 351 of the Code in which the
Company will not recognize gain or loss, and pursuant to which any gain
recognized by a Stockholder as a result of the Merger will not exceed the amount
of any cash received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report
the Merger as a Reorganization and such opinion either is furnished prior to the
Effective Time or is based on facts or events not known at the Effective Time.
Each party shall provide to each other party such tax information, reports,
returns, or schedules as may be reasonably required to assist such party in
accounting for and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any
taxes incurred by the Company and for which APP has successor liability therefor
which arise solely as a result of the Merger
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or the consummation of the transactions contemplated hereby; provided that the
foregoing shall not limit or otherwise be deemed a waiver of any right of
indemnification under Section 14.1 for a breach of any representation, warranty
or covenant of the Company or any Stockholder.
Section 13.3 Current Public Information. APP shall cause the requirements
of Rule 144(c) under the Securities Act to be met with respect to APP for so
long as those requirements must be met to enable sales by the Stockholders who
are affiliates of the Company to meet the requirements of Rule 145(d) under the
Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company and the Stockholders. Subject
to the terms and conditions of this Article XIV, the Company and the
Stockholders agree to indemnify, defend and hold APP and the Surviving
Corporation and their respective directors, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates harmless from and against all
losses, claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, reasonable attorneys' fees and expenses (including, without
limitation, all costs of experts and all costs incidental to or in connection
with any appellate process) (collectively, "Damages") asserted against or
incurred by such individuals and/or entities arising out of or resulting from:
(a) a breach by the Company or any Stockholder of any representation
or warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of the
Company or any Stockholder contained in this Agreement or in any Disclosure
Schedule or certificate delivered thereunder;
(b) any violation (or alleged violation) by the Company and/or any
of its past or present directors, officers, partners, Stockholders, employees
(including, without limitation, any Physician Employee), agents, attorneys,
consultants and Affiliates of any state or federal law governing health care
fraud and abuse or prohibition on referral of patients to Persons in which a
licensed professional has a financial or other form of interest (including, but
not limited to, fraud and abuse in the Medicare and Medicaid Programs) occurring
on or before the Closing Date, or any overpayment or obligation (or alleged
overpayment or obligation) arising out of or resulting from claims submitted to
any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act or any
other federal or state "blue sky" or securities law or regulation, at common law
or otherwise, arising out of or based upon any untrue statement of material fact
in any Registration Statement or any prospectus forming or part thereof, or any
amendment thereof or supplement thereto relating to the Company (including any
Company Subsidiary) or failure to state information necessary to make the
statements required to be stated therein not misleading arising solely from
information provided in writing to APP or its counsel by the Company or any
Stockholder or their agents specifically for inclusion in any such Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto.
Notwithstanding anything herein to the contrary, nothing contained
in this Agreement shall relieve the Company of any liability or limit any
liability that it may have in the case of fraud in connection with the
transactions contemplated by this Agreement.
Section 14.2 Indemnification by APP. Subject to the terms and conditions
of this Article XIV, APP hereby agrees to indemnify, defend and hold the
Stockholders, the Company and its directors, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates harmless from and against all
Damages asserted against or incurred by such individuals and/or entities arising
out of or resulting from:
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(a) a breach by APP of any representation or warranty (without
giving effect to any Material Adverse Effect qualifier contained as part of any
such representation or warranty) or covenant of APP contained in this Agreement
or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act or any
other federal or state "blue sky" or securities law or regulation, at common law
or otherwise, arising out of or based upon any untrue statements of material
fact in any Registration Statement or any prospectus forming a part thereof, or
any amendment thereof or supplement thereto, or required to be stated therein or
failure to state information necessary to make the statements therein not
misleading (except for any liability based upon any actual or alleged untrue
statement of material fact or an omission to state a material fact relating the
Company or any Stockholder which was derived from any information provided in
writing by the Company or a Company Subsidiary or any of their agents contained
in the representations and warranties set forth in this Agreement or any
certificate, exhibit, schedule or instrument required to be delivered under this
Agreement).
Notwithstanding anything herein to the contrary, nothing contained
in this Agreement shall relieve APP of any liability or limit any liability that
it may have in the case of fraud in connection with the transactions
contemplated by this Agreement.
Section 14.3 Conditions of Indemnification. All claims for indemnification
under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement (an
"Indemnified Party") shall promptly (and, in the event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party for whom indemnification is sought (the "Indemnifying
Party) of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of Damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve any
Indemnifying Party of its obligations to any Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within thirty (30) days
after receipt of any Claim Notice (the "Election Period"), the Indemnifying
Party shall notify the Indemnified Party (x) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XIV
with respect to such Third Party Claim and (y) whether the Indemnifying Party
desires, at the sole cost and expense of such Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party within
the Election Period that the Indemnifying Party elects to assume the defense of
the Third Party Claim, then the Indemnifying Party shall have the right to
defend, at their sole cost and expense, with counsel reasonably acceptable to
such Indemnified Party, such Third Party Claim by all appropriate proceedings,
which proceedings shall be prosecuted diligently by the Indemnifying Party to a
final conclusion or settled at the discretion of the Indemnifying Party in
accordance with this Section 14.3(b). Except as set forth in Section 14.3(f)
below, the Indemnifying Party shall have full control of such defense and
proceedings, including any compromise or settlement thereof. The Indemnified
Party is hereby authorized, at the sole cost and expense of the Indemnifying
Party (but only if the Indemnified Party is entitled to indemnification
hereunder), to file, during the Election Period, any motion, answer or other
pleadings that the Indemnified Party shall deem necessary or appropriate to
protect its interests or those of the Indemnifying Party and not prejudicial to
the Indemnifying Party. If requested by the Indemnifying Party, the Indemnified
Party agrees, at the sole cost and expense of the Indemnifying Party, to
cooperate with the Indemnifying Party and their counsel in contesting any Third
Party Claim that the Indemnifying Party elects to contest, including, without
limitation, the making of any related counterclaim against the person asserting
the Third Party Claim or any cross-complaint against any person. The Indemnified
Party may participate in, but not control, any defense or settlement of any
Third Party Claim controlled by the
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Indemnifying Party pursuant to this Section 14.3(b) and shall bear its own costs
and expenses with respect to such participation; provided, however, that if the
named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnified Party has
been advised by counsel that there may be one or more legal defenses available
to it that are different from or additional to those available to the
Indemnifying Party, then the Indemnified Party may employ separate counsel at
the expense of the Indemnifying Party, and upon written notification thereof,
the Indemnifying Party shall not have the right to assume the defense of such
action on behalf of the Indemnified Party; provided further that the
Indemnifying Party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for the Indemnified Party, which firm shall be designated in writing by the
Indemnified Party. Notwithstanding the foregoing, the Indemnifying Party shall
be prohibited from confessing or settling any criminal allegations brought
against the Indemnified Party without the express written consent of the
Indemnified Party.
(c) If the Indemnifying Party fails to notify the Indemnified Party
within the Election Period that the Indemnifying Party elects to defend the
Indemnified Party pursuant to Section 14.3(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 14.3(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes their potential liability to the Indemnified
Party under this Article XIV and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 14.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim against
any Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of damages attributable to such claim and the basis of
the Indemnified Party's request for indemnification under this Agreement. If the
Indemnifying Party does not notify the Indemnified Party within sixty (60) days
from its receipt of the Indemnity Notice that the Indemnifying Party disputes
such claim, the claim specified by the Indemnified Party in the Indemnity Notice
shall be deemed a liability of the Indemnifying Party hereunder. If the
Indemnifying Party has timely disputed such claim, as provided above, such
dispute shall be resolved by litigation in an appropriate court of competent
jurisdiction if the parties do not reach a settlement of such dispute within
thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party pursuant
to this Article XIV relating to a Third Party Claim shall be made within thirty
(30) days after the latest of (i) the settlement of such Third Party Claim, (ii)
the expiration of the period for appeal of a final adjudication
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of such Third Party Claim, or (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement. Payments of all amounts owing by the Indemnifying
Party pursuant to Section 14.3(d) shall be made within thirty (30) days after
the later of (i) the expiration of the 60-day Indemnity Notice period or (ii)
the expiration of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under this Agreement.
During the two-year period following the Effective Date, each Stockholder shall
be entitled to satisfy payments owed to APP by transfer of APP Common Stock from
such Stockholder to APP. For all purposes of this Agreement, the value of each
share of APP Common Stock transferred to APP pursuant to this Agreement shall be
calculated by averaging the daily closing prices for a share of APP Common Stock
for the twenty (20) consecutive trading days on which such shares are actually
traded on the Nasdaq National Market preceding the date of the Claim Notice or
Indemnity Notice, as the case may be. The number of shares of APP Common Stock
permitted to be transferred under this Paragraph 2(e) shall be diminished
proportionately in accordance with the percentage of APP Common Stock released
under the Lock-Up Provisions set forth in Paragraph 1 of the Stockholder
Representation Letter. The rights of any Stockholder to transfer shares of APP
Common Stock in satisfaction of payments owed to APP pursuant to this Agreement
shall terminate upon the earlier of (x) the termination of the Lock-Up
Provisions set forth in the Stockholder Representation Letter or (y) at the end
of the two-year period following the Effective Date.
(f) The Indemnifying Party shall provide the Indemnified Party with
written notice of any firm offer that is made to settle or compromise a Third
Party Claim against an Indemnified Party. If a firm offer is made to settle such
a claim solely by the payment of money damages and the Indemnifying Party
notifies the Indemnified Party in writing that the Indemnifying Party agrees to
such settlement, but the Indemnified Party elects not to accept and agree to it,
the Indemnified Party may continue to contest or defend such Third Party Claim
and, in such event, the total maximum liability of the Indemnifying Party to
indemnify or otherwise reimburse the Indemnified Party hereunder with respect to
such a claim shall be limited to and shall not exceed the amount of such
settlement offer, plus reasonable out-of-pocket costs and reasonable expenses
(including reasonable attorneys' fees and disbursements) to the date of notice
that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding anything contained in this Agreement or the
Merger Agreement to the contrary, the Indemnifying Parties in the aggregate (i)
shall have no obligation hereunder to provide indemnification for the first
$100,000 of Damages (without counting Immaterial Claims as defined below), and
(ii) in no event shall the Indemnifying Parties have any liability hereunder
with respect to any singular incident or a fact involving a breach or inaccuracy
of the Company if the Damages from such claim are equal to or less than $7,500
("Immaterial Claims"). Notwithstanding anything to the contrary contained herein
or in the Merger Agreement, the obligations of each Stockholder hereunder shall
not exceed fifty percent (50%) of the aggregate value of the Merger
Consideration or Exchange Consideration, as the case may be, paid to such
Stockholder pursuant to any Related Acquisition on the Closing Date.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
Section 14.6 Dispute Resolution.
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(a) Arbitration. The parties hereto agree that any claim,
controversy, dispute or disagreement between or among any of the parties arising
out of or relating to this Agreement shall be governed exclusively by the terms
and provisions of this Section 14.6; provided, however, that within ten (10)
days from the date which any claim, controversy, dispute or disagreement cannot
be resolved and prior to commencing an arbitration procedure pursuant to this
Section 14.6, the parties shall meet to discuss and consider other alternative
dispute resolution procedures other than arbitration including, but not limited
to, Judicial Arbitration & Mediation Services, Inc., if applicable. If at any
time prior to the rendering of the decision by the arbitrator (or pursuant to
such other alternative dispute resolution procedure) as contemplated in this
Section 14.6 to the extent a party makes a written offer to the other party
proposing a settlement of the matter(s) at issue and such offer is rejected,
then the party rejecting such offer shall be obligated to pay the costs and
expenses (excluding the amount of the award granted under the decision) of the
party that offered the settlement from the date such offer was received by such
other party if the decision is for a dollar amount that is less than the amount
of such offer to settle. Notwithstanding the foregoing, the terms and provisions
of this Section 14.6 shall not preclude any party hereto from seeking, or a
court of competent jurisdiction from granting, a temporary restraining order,
temporary injunction or other equitable relief for any breach of (i) any
noncompetition or confidentiality covenant or (ii) any duty, obligation,
covenant, representation or warranty, the breach of which may cause irreparable
harm or damage.
(b) Arbitrators. In the event there is a claim, controversy, dispute
or disagreement among the parties hereto arising out of or relating to this
Agreement (including any claim based on or arising from an alleged tort) and the
parties hereto have not reached agreement regarding an alternative to
arbitration, the parties agree to select within thirty (30) days of notice by a
party to the other of its desire to seek arbitration under this Section 14.6 one
(1) arbitrator mutually acceptable to APP and the Sellers to hear and decide all
such claims under this Section 14.6. Each of the arbitrators proposed shall be
impartial and independent of all parties. If the parties cannot agree on the
selection of an arbitrator within said 30-day period, then any party may in
writing request the judge of the United States District Court for the
[_____________] District of [__________] senior in term of service to appoint
the arbitrator and, subject to this Section 14.6, such arbitrator shall hear all
arbitration matters arising under this Section 14.6.
(c) Applicable Rules.
(1) Each arbitration hearing shall be held at a place in
[_____________] acceptable to the arbitrator. The arbitration shall be conducted
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association to the extent such rules do not conflict with the terms hereof;
provided, however, that if the parties hereto agree to an alternative to
arbitration they may agree to an alternative set of rules, including as to rules
of evidence and procedure. The decision of the arbitrator shall be reduced to
writing and shall be binding on the parties and such decision shall contain a
concise statement of the reasons in support of such decision. Judgment upon the
award(s) rendered by the arbitrator may be entered and execution had in any
court of competent jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement. The charges and
expenses of the arbitrator shall be shared equally by the parties to the
hearing.
(2) The arbitration shall commence within ten (10) days after
the arbitrator is selected in accordance with the provisions of this Section
14.6. In fulfilling his duties with respect to determining the amount of any
loss, the arbitrator may consider such matters as, in the opinion of the
arbitrator, are necessary or helpful to make a proper valuation. The arbitrator
may consult with and engage disinterested third parties to advise the
arbitrator. The arbitrator shall not add any interest factor reflecting the time
value of money to the amount of any loss and shall not award any punitive
damages.
(3) If the arbitrator selected hereunder should die, resign or
be unable to perform his or her duties hereunder, the parties, or such senior
judge (or such judge's successor) in the event the parties cannot agree, shall
select a replacement arbitrator. The procedure set forth in this Section 14.6
for selecting the arbitrator shall be followed from time to time as necessary.
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(4) As to any determination of the amount of any loss, or as
to the resolution of any other claim, controversy, dispute or disagreement, that
under the terms hereof is made subject to arbitration, no lawsuit based on such
claimed loss or such resolution shall be instituted by the parties hereto, other
than to compel arbitration proceedings or enforce the award of the arbitrator,
except as otherwise provided in Section 12.7(b).
(5) All privileges under [STATE] and federal law, including
attorney-client and work-product privileges, shall be preserved and protected to
the same extent that such privileges would be protected in a federal court
proceeding applying [STATE] law.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the Merger
and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual agreement of
all parties;
(b) at any time prior to the Effective Date by APP if any material
representation or warranty of the Company or any Stockholder contained in this
Agreement or in any certificate or other document executed and delivered by the
Company or any Stockholder pursuant to this Agreement is or becomes untrue or
breached in any material respect or if the Company or any Stockholder fails to
comply in any material respect with any material covenant or agreement contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within thirty (30) days after receipt of written notice
thereof;
(c) at any time prior to the Effective Date by the Company if any
representation or warranty of APP contained in this Agreement or in any
certificate or other document executed and delivered by APP pursuant to this
Agreement is or becomes untrue in any material respect of if APP fails to comply
in any material respect with any covenant or agreement contained herein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
(d) at any time prior to the Effective Date by APP if, as a result
of the conduct of due diligence and regulatory compliance procedures, APP deems
termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in Section 16.3,
in the event this Agreement is terminated pursuant to this Article XV, this
Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company recognizes and
acknowledges that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP and the
Surviving Corporation that is valuable, special and a unique asset of such
entity's business. APP acknowledges that it had in the past, currently has, and
in the future may possibly have, access to certain Confidential Information of
the Company that is valuable, special and a unique asset of each such business.
The Company and APP, severally, agree that they will not disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any purpose or
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reason whatsoever, except (a) to authorized representatives of APP, Surviving
Corporation and the Company and (b) to counsel and other advisers to APP,
Surviving Corporation and the Company provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 16.1, unless
(i) such information becomes available to or known by the public generally
through no fault of the Company or APP, as the case may be, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause (ii)
the Company or APP, as the case may be, shall, if possible, give prior written
notice thereof to the Company or APP and provide the Company or APP with the
opportunity to contest such disclosure, (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party, or (iv) the disclosing party is the sole
and exclusive owner of such Confidential Information as a result of the Merger
or otherwise. In the event of a breach or threatened breach by the Company, on
the one hand, and APP, on the other hand, of the provisions of this Section,
APP, the Surviving Corporation and the Company shall be entitled to an
injunction restraining the other party, as the case may be, from disclosing, in
whole or in part, such Confidential Information. Nothing herein shall be
construed as prohibiting any of such parties from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
Section 16.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, the Surviving Corporation and the Company agree
that, in the event of a breach by either of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this Article
XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
Section 17.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP acknowledges
and agrees that the rights and remedies of the Company under this Agreement will
be directly available to the Stockholders as third party beneficiaries of the
rights and remedies of the Company under this Agreement, including, without
limitation, the rights and remedies under Article 14 hereof to indemnification
from APP against Damages incurred by the Stockholders resulting from a breach by
APP of any representation, warranty or covenant of APP contained herein. Except
as provided in the preceding sentence or as otherwise provided herein, neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
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Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder or APP
pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder and APP. Notwithstanding any
provision in this Agreement to the contrary, the representations and warranties
contained herein shall survive the Closing until the second anniversary of the
Closing Date except that (a) the representations and warranties set forth in
Section 3.21 with respect to environmental matters shall survive for a period of
ten (10) years, (b) the representations and warranties set forth in Section 3.30
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.27 and Section 3.33 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 14.1(c) and Section 14.2(c), and solely to
the extent that any party to be indemnified pursuant to such provisions actually
incurs liability under the Securities Act, the Exchange Act or any other federal
or state securities law, the representations and warranties set forth therein
shall survive until the expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF
LAWS) OF THE STATE OF TEXAS.
Section 17.8 Captions. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
Section 17.9 Gender and Number. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each party shall
keep this Agreement and its terms confidential, and shall make no press release
or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the
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other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company M & S X-Ray Associates, P.A.
or any Stockholder: P.O. Box 120310 (mailing only)
730 N. Main, Suite B-109 (fed-ex)
San Antonio, TX 78299
Fax No.: (210) 304-2988
Attn: Randall Preissig, M.D.
with a copy to: Oppenheimer, Blend, Harrison & Tate, Inc.
Sixth Floor
711 Navarro
San Antonio, TX 78205-1796
Fax No.: (210) 299-2305
Attn: Jerome B. Cohen, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
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Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B, Exhibit
C, Exhibit D and Exhibit F and the Disclosure Schedules attached hereto with
their initial letter capitalized and not otherwise defined therein shall have
the meanings as assigned to such terms in this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
-----------------------------------------
Gregory L. Solomon, President
THE COMPANY:
SAN ANTONIO MR, INC.
By:
-----------------------------------------
Its:
-----------------------------------------
THE STOCKHOLDERS:
--------------------------------------------
Neil Bowie
--------------------------------------------
F. Joseph Carabin
--------------------------------------------
Gregory C. Godwin
--------------------------------------------
Michael D. Howard
--------------------------------------------
Philip S. Kline
--------------------------------------------
Julio C. Otazo
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--------------------------------------------
R.K. Daniel Peterson
--------------------------------------------
Randall S. Preissig
--------------------------------------------
Rise P. Ross
--------------------------------------------
Jose A. Saldana
--------------------------------------------
Robert L. Thompson
--------------------------------------------
Gregory W. Wojcik
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EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
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EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
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EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
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EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
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EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
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DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth therein
are delivered in connection with that certain Agreement and Plan of
Reorganization and Merger dated ____________, 1997, by and between American
Physician Partners, Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made pursuant
to one section number can reasonably be interpreted by other parties to be a
disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain exceptions
to the representations and warranties set forth in Article III of the Agreement,
the inclusion of an item on these Disclosure Schedules shall not be deemed an
admission by American Physician Partners, Inc. that such item is material to
American Physician Partners, Inc., the Company or any Company Subsidiary or that
it will have a material adverse effect on American Physician Partners, Inc., the
Company or any Company Subsidiary.
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AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and SAN
ANTONIO MR, INC., a Texas corporation (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
SAN ANTONIO MR, INC.
By:_________________________________
Its:________________________________
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================================================================================
AGREEMENT AND PLAN OF EXCHANGE
dated as of
June 27, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),
LEXINGTON MR, LTD.
(a Texas limited partnership),
and
THE SELLERS LISTED ON THE SIGNATURE PAGES HEREOF
================================================================================
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions...................................................................... 1
Section 1.1 Definitions...................................................................... 1
Section 1.2 Rules Of Interpretation.......................................................... 5
ARTICLE II Exchange......................................................................... 6
ARTICLE III Representations and Warranties of Sellers........................................ 6
Section 3.1 Organization and Good Standing; Qualification.................................... 6
Section 3.2 Authorization and Validity....................................................... 7
Section 3.3 Governmental Authorization....................................................... 7
Section 3.4 Capitalization and Title......................................................... 7
Section 3.5 Transactions in Partnership Units................................................ 7
Section 3.6 Continuity of Business Enterprise................................................ 7
Section 3.7 Subsidiaries and Investments..................................................... 7
Section 3.8 Absence of Conflicting Agreements or Required Consents........................... 8
Section 3.9 Absence of Changes............................................................... 8
Section 3.10 No Undisclosed Liabilities....................................................... 9
Section 3.11 Litigation and Claims............................................................ 9
Section 3.12 No Violation of Law.............................................................. 9
Section 3.13 Lease Agreements................................................................. 10
Section 3.14 Real and Personal Property....................................................... 10
Section 3.15 Indebtedness for Borrowed Money.................................................. 10
Section 3.16 Contracts and Commitments........................................................ 11
Section 3.17 Employee Matters................................................................. 11
Section 3.18 Labor Relations.................................................................. 12
Section 3.19 Employee Benefit Plans........................................................... 12
Section 3.20 Environmental Matters............................................................ 12
Section 3.21 Filing Reports................................................................... 13
Section 3.22 Insurance Policies............................................................... 13
Section 3.23 Accounts Receivable.............................................................. 14
Section 3.24 Accounts Payable; Suppliers...................................................... 14
Section 3.25 Inventory........................................................................ 14
Section 3.26 Licenses, Authorization and Provider Programs.................................... 14
Section 3.27 Inspections and Investigations................................................... 15
Section 3.28 Proprietary Rights and Information............................................... 15
Section 3.29 Taxes............................................................................ 16
Section 3.30 Related Party Arrangements....................................................... 16
Section 3.31 Banking Relations................................................................ 17
Section 3.32 Fraud and Abuse and Self Referral................................................ 17
Section 3.33 Restrictions on Business Activities.............................................. 17
Section 3.34 Agreements in Full Force and Effect.............................................. 17
Section 3.35 Statements True and Correct...................................................... 17
Section 3.36 Schedules........................................................................ 17
Section 3.37 Finders' Fees.................................................................... 17
ARTICLE IV Representations and Warranties of APP............................................ 18
Section 4.1 Organization and Good Standing; Qualification.................................... 18
Section 4.2 Authorization and Validity....................................................... 18
Section 4.3 Governmental Authorization....................................................... 18
</TABLE>
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<TABLE>
<S> <C> <C>
Section 4.4 Capitalization................................................................... 18
Section 4.5 Subsidiaries and Investments..................................................... 19
Section 4.6 Absence of Conflicting Agreements or Required Consents........................... 19
Section 4.7 Absence of Changes............................................................... 19
Section 4.8 No Undisclosed Liabilities....................................................... 19
Section 4.9 Litigation and Claims............................................................ 20
Section 4.10 No Violation of Law.............................................................. 20
Section 4.11 Employee Matters................................................................. 20
Section 4.12 Taxes............................................................................ 20
Section 4.13 Related Party Arrangements....................................................... 21
Section 4.14 Statements True and Correct...................................................... 21
Section 4.15 Schedules........................................................................ 21
Section 4.16 Finder's Fees.................................................................... 21
ARTICLE V Covenants of Seller and Lexington................................................ 21
Section 5.1 Required Conduct of Seller and Lexington......................................... 22
Section 5.2 Prohibited Conduct of Seller and Lexington....................................... 22
Section 5.3 Title to Assets; Indebtedness.................................................... 23
Section 5.4 Access........................................................................... 23
Section 5.5 Acquisition Proposals............................................................ 23
Section 5.6 Compliance With Obligations...................................................... 24
Section 5.7 Notice of Certain Events......................................................... 24
Section 5.8 Partners' Consent................................................................ 25
Section 5.9 Obligations of Seller and ....................................................... 25
Section 5.10 Intentionally omitted............................................................ 25
Section 5.11 Accounting and Tax Matters....................................................... 25
ARTICLE VI Covenants of APP................................................................. 26
Section 6.1 Consummation of Agreement........................................................ 26
Section 6.2 Access........................................................................... 26
Section 6.3 Notification of Certain Matters.................................................. 26
ARTICLE VII Covenants of APP, Seller and Lexington........................................... 26
Section 7.1 Filings; Other Action............................................................ 26
Section 7.2 Amendments of Schedules.......................................................... 27
Section 7.3 Actions Contrary to Stated Intent................................................ 27
Section 7.4 Public Announcements............................................................. 27
Section 7.5 Expenses......................................................................... 27
Section 7.6 Registration Statements.......................................................... 28
ARTICLE VIII Conditions Precedent of APP...................................................... 28
Section 8.1 Representations and Warranties................................................... 28
Section 8.2 Covenants........................................................................ 28
Section 8.3 Legal Opinion.................................................................... 28
Section 8.4 Proceedings...................................................................... 28
Section 8.5 No Material Adverse Effect....................................................... 28
Section 8.6 Government Approvals and Required Consents....................................... 28
Section 8.7 Securities Approvals............................................................. 28
Section 8.8 Closing Deliveries............................................................... 28
Section 8.9 Closing of Initial Public Offering............................................... 29
Section 8.10 Closing of Related Acquisitions.................................................. 29
Section 8.11 Closing of General Partner Acquisition........................................... 29
Section 8.12 Execution by Each Seller and Lexington........................................... 29
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE IX Conditions Precedent of Seller and Lexington..................................... 29
Section 9.1 Representations and Warranties................................................... 29
Section 9.2 Covenants........................................................................ 29
Section 9.3 Legal Opinions................................................................... 29
Section 9.4 Proceedings...................................................................... 29
Section 9.5 Government Approvals and Required Consents....................................... 29
Section 9.6 "Blue Sky" Approvals; Nasdaq Listing............................................. 29
Section 9.7 Closing of Initial Public Offering............................................... 29
Section 9.8 Closing Deliveries............................................................... 30
Section 9.9 No Material Adverse Effect....................................................... 30
ARTICLE X Closing Deliveries............................................................... 30
Section 10.1 Deliveries of Seller and Lexington............................................... 30
Section 10.2 Deliveries of APP. .............................................................. 31
ARTICLE XI Post Closing Matters............................................................. 32
Section 11.1 Further Instruments of Transfer.................................................. 32
Section 11.2 Exchange Tax Covenant............................................................ 32
ARTICLE XII Remedies......................................................................... 32
Section 12.1 Indemnification by Sellers....................................................... 32
Section 12.2 Indemnification by APP........................................................... 33
Section 12.3 Conditions of Indemnification.................................................... 33
Section 12.4 Remedies Not Exclusive........................................................... 36
Section 12.5 Costs, Expenses and Legal Fees................................................... 36
Section 12.6 Tax Benefits; Insurance Proceeds................................................. 36
Section 12.7 Dispute Resolution............................................................... 36
ARTICLE XIII Termination...................................................................... 38
Section 13.1 Termination...................................................................... 38
Section 13.2 Effect of Termination............................................................ 38
ARTICLE XIV Nondisclosure of Confidential Information........................................ 38
Section 14.1 Non-Disclosure Covenant.......................................................... 38
Section 14.2 Damages.......................................................................... 39
Section 14.3 Survival......................................................................... 39
ARTICLE XV Miscellaneous.................................................................... 39
Section 15.1 Amendment; Waivers............................................................... 39
Section 15.2 Assignment....................................................................... 39
Section 15.3 Parties in Interest; No Third Party Beneficiaries................................ 39
Section 15.4 Entire Agreement................................................................. 40
Section 15.5 Severability..................................................................... 40
Section 15.6 Survival of Representations, Warranties and Covenants............................ 40
Section 15.7 Governing Law.................................................................... 40
Section 15.8 Captions......................................................................... 40
Section 15.9 Gender and Number................................................................ 40
Section 15.10 Confidentiality; Publicity and Disclosures....................................... 40
Section 15.11 Notice........................................................................... 41
Section 15.12 No Waiver; Remedies.............................................................. 41
Section 15.13 Counterparts..................................................................... 42
Section 15.14 Defined Terms.................................................................... 42
</TABLE>
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EXHIBITS
<TABLE>
<S> <C>
Exhibit A - List of Sellers and Exchange Consideration.........................................................A-1
Exhibit B - Target Companies...................................................................................B-1
Exhibit C - Legal Opinion of Sellers' Counsel..................................................................C-1
Exhibit D - Legal Opinion of APP's Counsel.....................................................................D-1
Exhibit E - Seller Release.....................................................................................E-1
</TABLE>
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AGREEMENT AND PLAN OF EXCHANGE
This Agreement and Plan of Exchange ("Agreement") dated June ___,
1997 is by and among American Physician Partners, Inc., a Delaware corporation,
("APP"), Lexington MR, Ltd., a Texas limited partnership ("Lexington") and each
of the individuals whose names appear on Exhibit A hereto (each individually, a
"Seller" and collectively "Sellers").
RECITALS
A. Each Seller is a limited partner of Lexington and the Sellers
together own an aggregate of eighteen and 95/100 percent (18.95%) of the total
interests of the partners in Lexington.
B. Lexington owns assets relating to and operates a diagnostic
imaging center.
C. APP is engaged in the business of owning, operating and acquiring
the assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
D. Sellers desire to convey to APP and APP desires to acquire from
Sellers, eighteen and 95/100 percent (18.95%) of the total interests of the
partners in Lexington (the "Partnership Units") in consideration for cash and
shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein (the "Exchange").
E. The General Partner of Lexington, San Antonio MRI Partnership No.
2, LTD., a Texas limited partnership, owns a sixty percent (60%) interest in
Lexington, which interest is being acquired indirectly by APP (the "General
Partner Acquisition").
F. APP and subsidiaries of APP have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Sellers, the "Target Interest Holders") of
each of the entities listed on Exhibit B (together with Lexington, the "Target
Companies").
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
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"Acquisition" shall have the meaning set forth in Section 2.1.
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals
to this Agreement.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the partners
set forth in Exhibit A, stockholder or director, as the case may be, or
executive officer of such entity after reasonable investigation and inquiry by
the executive officers of such entity; provided, however, that to the extent any
of the representations, warranties and statements of Seller and Lexington made
specifically in Section 3.20 is expressly qualified to the knowledge or best
knowledge of Sellers and Lexington, it shall mean the knowledge of any of the
Sellers set forth in Exhibit A, partner or executive officer of Lexington
actually possesses without the necessity of any special inquiry as to the
matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 12.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Current Policies" shall have the meaning set forth in Section 3.22.
"Damages" shall have the meaning set forth in Section 12.1.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Form S-1 Registration
Statement is declared effective by the SEC.
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"Election Period" shall have the meaning set forth in Section
12.3(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.20(e).
"Environmental Liabilities" shall have the meaning set forth in
Section 3.20(e).
"ERISA" shall have the meaning set forth in Section 3.17.
"Exchange" shall have the meaning set forth in the recitals.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agreement" shall have the meaning set forth in the
recitals to this Agreement.
"Exchange Consideration" shall have the meaning set forth in Section
2.1.
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering of
APP Common Stock as consideration under the Exchange and other mergers or
acquisitions contemplated by the Other Agreements.
"FTC" shall mean the United States Federal Trade Commission.
"General Partner Acquisition" shall have the meaning set forth in
the recitals.
"Governmental Programs" shall have the meaning set forth in Section
3.26(a).
"Hazardous Substance" shall have the meaning set forth in Section
3.20(e).
"Indemnified Party" shall have the meaning set forth in Section
12.1.
"Indemnifying Party" shall have the meaning set forth in Section
12.1.
"Indemnity Notice" shall have the meaning set forth in Section
12.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Insurance Policies" shall have the meaning set forth in Section
3.22.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.13.
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"Lexington" shall have the meaning set forth in the preamble to this
Agreement.
"Lock-Up Provisions" shall have the meaning set forth in Section
5.12.
"Material Adverse Effect" shall mean a material adverse effect on
the assets, properties, business, operations, condition (financial or
otherwise), liabilities or results of operations of the Person or Persons being
referred to, taken as a whole (including its consolidated subsidiaries, if any),
in consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651 et seq.,
(v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of Lexington's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
"Medicare and Medicaid Programs" shall have the meaning set forth in
Section 3.26(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals
to this Agreement.
"Partnership Agreement" shall have the meaning set forth in Section
3.1 hereto.
"Partnership Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, partnership interests
of Lexington, or by which Lexington is or may be bound to issue additional
Partnership Units or other Partnership Rights.
"Partnership Subsidiary" shall have the meaning set forth in Section
3.7.
"Partnership Units" shall have the meaning set forth in the recitals
to this Agreement.
"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.
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"Private Programs" shall have the meaning set forth in Section
3.26(a).
"Proprietary Right" shall have the meaning set forth in Section
3.28(a).
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.20(e).
"Related Acquisitions" shall mean, collectively, the mergers and
acquisitions of each Founding Company and its related entities and assets
contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 11.2.
"Schedules" shall mean the schedules attached hereto as of the date
hereof or otherwise delivered by any party hereto pursuant to the terms hereof,
as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller Release" shall have the meaning set forth in Section
11.1(l).
"Target Companies" shall have the meaning set forth in the recitals
to this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
12.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder,"
"hereof," "hereinabove," "hereinafter" and other equivalent words refer to this
Agreement and not solely to the particular Article, Section or subdivision
hereof in which such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed to
be a reference to the designated Article number or Section number of this
Agreement.
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ARTICLE II
Exchange
Section 2.1 Exchange of Partnership Units for Cash and APP Common
Stock.
(a) Subject to and upon the terms and conditions contained
herein, on the Closing Date Sellers shall convey, transfer deliver and assign to
APP forty percent (40%) of the total interests of the partners in Lexington,
free and clear of all obligations, security interests, claims, liens and
encumbrances whatsoever (the "Acquisition"). Subject to and upon the terms and
conditions contained herein, as consideration for such Partnership Units on the
Closing Date each Seller shall receive (i) cash and (ii) validly issued, fully
paid and nonassessable shares of APP Common Stock, all as determined in
accordance with the provisions of Exhibit A attached hereto (the "Exchange
Consideration").
(b) Each Seller shall deliver to APP at the Closing a Bill
of Sale representing the Partnership Units owned by him, her or it. Each Seller
agrees to cure any deficiencies with respect to the conveyance of such
Partnership Units or with respect to the powers accompanying any Partnership
Unit. Upon such delivery, each Seller shall receive in exchange therefor the
Exchange Consideration pursuant to Exhibit A.
Section 2.2 Legends. All APP Common Stock certificates issued to the
Sellers shall bear one or more of the following restrictive legends:
(a) Any legend required to put third-parties on notice of
the existence of the Lock-Up Provisions.
(b) Any legend relating to affiliates of the Company as
required pursuant to the Securities and Exchange Act of 1934.
Section 2.3 Closing. The closing (the "Closing") of the transactions
provided for in Section 2.1 shall take place at 10:00 a.m., local time, at the
offices of APP located at 2301 NationsBank Plaza, 901 Main Street, on the day on
which the transactions contemplated by the Initial Public Offering are
consummated. The date on which the Closing occurs is hereinafter referred to as
the "Closing Date."
ARTICLE III
Representations and Warranties of Sellers and Lexington
As an inducement to APP to enter into this Agreement, each of Seller
and Lexington represents and warrants to APP both as of the date hereof and as
of the Closing Date as set forth below, subject to those exceptions set forth in
the Disclosure Schedules attached hereto and incorporated herein by this
reference, specifically identifying the relevant subparagraph hereof, which
exceptions shall be deemed to be representations and warranties as if made
hereunder.
Section 3.1 Organization and Good Standing; Qualification. Lexington
is a limited partnership duly organized and validly existing under the laws of
its state of organization, with all requisite power and authority to own,
operate and lease its assets and properties and to carry on its business as
currently conducted. Lexington is in good standing in each jurisdiction where
the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except where such failure to be
so qualified or in good standing would not have a Material Adverse Effect
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on Lexington. Copies of the Certificate of Limited Partnership and all
amendments thereto of Lexington and the Amended and Restated Agreement of
Limited Partnership of Lexington, and all amendments thereto (the "Partnership
Agreement") and copies of the minutes of Lexington, all of which have been or
will be made available to APP for review, are true and complete as in effect on
the date of this Agreement, and in the case of the minutes, accurately reflect
all material proceedings of the partners of Lexington (and all committees
thereof).
Section 3.2 Authorization and Validity. Lexington has all requisite
right, power and authority to execute, deliver and perform this Agreement and
all agreements and other documents executed and delivered by it pursuant to this
Agreement or to be executed and delivered on the Closing Date, and has taken all
action required by law, its Certificate of Limited Partnership, its Partnership
Agreement or otherwise, to authorize the execution, delivery and performance of
this Agreement and such related documents. Seller has the legal capacity to
enter into and perform this Agreement and the other agreements to be executed
and delivered in connection herewith. This Agreement and all agreements and
documents executed and delivered in connection herewith have been, or will be as
of the Closing Date, duly executed and delivered by Seller and Lexington and
constitute or will constitute the legal, valid and binding obligations of
Seller, enforceable against Seller and Lexington in accordance with their
respective terms, except as may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally or by general equity
principles, or by public policy.
Section 3.3 Governmental Authorization. Other than consents, filings
or notifications required to be made or obtained solely by APP (including,
without limitation, in connection with the Initial Public Offering, Form S-4 or
any Hart-Scott-Rodino filing to be made by APP, if any), the execution, delivery
and performance by Seller and Lexington of this Agreement and the agreements
provided for herein, and the consummation of the transactions contemplated
hereby and thereby by Seller and Lexington requires no action by or in respect
of, or filing with, any governmental body, agency, official or authority.
Section 3.4 Capitalization and Title. The Sellers collectively are,
and will be immediately prior to the Closing Date, the record and beneficial
owners of all the issued and outstanding Partnership Units of Lexington and
Seller is the owner of the Partnership Units currently held in his or her name
on the record books of Lexington, free and clear of all Encumbrances. Each
Partnership Unit held by Seller has been legally and validly issued and is fully
paid and nonassessable, and was issued pursuant to a valid exemption from
registration under (i) the Securities Act and (ii) all applicable state
securities laws.
Section 3.5 Transactions in Partnership Units. There exist no
Partnership Rights. Except for the General Partner Acquisition referenced
herein, Lexington has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its partnership interests or to pay any
dividend or make any distribution in respect thereof. Neither the equity
structure of Lexington nor the relative ownership of partnership interests among
any of its partners has been altered or changed in contemplation of the Exchange
within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been
any sale, distribution or spin-off of significant assets of Lexington or any of
its Affiliates other than in the ordinary course of business within the two (2)
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. Lexington does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Partnership Subsidiary").
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Section 3.8 Absence of Conflicting Agreements or Required Consents.
The execution, delivery and performance by Seller and Lexington of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on Lexington; (ii) will not conflict with or result in a
violation of any provision of Lexington's Certificate of Limited Partnership or
Partnership Agreement; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to Seller or Lexington or by
which Seller or Lexington or Lexington's properties are subject or bound; (iv)
will not conflict with, constitute grounds for termination of, result in a
breach of, constitute a default under, require any notice under, or accelerate
or modify, or permit any person to accelerate or modify, any performance
required by the terms of any agreement, instrument, license or permit, to which
Lexington is a party or by which Lexington or any of its properties are subject
or bound except for such conflict, termination, breach or default, the
occurrence of which would not result in a Material Adverse Effect on Lexington;
and (v) except as contemplated by this Agreement, will not create any
Encumbrance or restriction upon the Partnership Units or any of the assets or
properties of Lexington.
Section 3.9 Absence of Changes. Except as permitted or contemplated
by this Agreement, since March 31, 1997, Lexington has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on Lexington;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent
with past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to Lexington, taken as a whole, or
made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any
of its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due
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and payable for mechanics, landlords, materialmen, and other statutory liens,
purchase money security interests, sale-leaseback interests granted and all
other Encumbrances granted in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee benefits
for any employee of Lexington, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends or
other distributions to any partner or any other holder of any partnership
interest in Lexington (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.9.
Section 3.10 No Undisclosed Liabilities. To the best knowledge of
Seller and Lexington, Lexington does not have any liabilities or obligations of
any nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected in the Disclosure
Schedules.
Section 3.11 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of Seller and
Lexington, threatened against, or affecting Lexington, any Partnership
Subsidiary, or, to the knowledge of Seller and Lexington, any Seller or any
other licensed professional or other individual affiliated with Lexington
affecting or that would reasonably be likely to affect the Partnership Units or
the operations, business condition (financial or otherwise), or results of
operations of Lexington which (i) if successful, may, individually or in the
aggregate, have a Material Adverse Effect on Lexington or (ii) could adversely
affect the ability of Lexington or any Partnership Subsidiary to effect the
transactions contemplated hereby, and to the knowledge of Seller and Lexington
there is no basis for any such action or any state of facts or occurrence of any
event which would reasonably be likely to give rise to the foregoing. There are
no unsatisfied judgments against Seller, Lexington or any Partnership Subsidiary
or any licensed professional or other individual affiliated with Lexington or
any Partnership Subsidiary relating to services provided on behalf of Lexington
or any Partnership Subsidiary or any consent decrees to which any of the
foregoing is subject. Each of the matters, if any, set forth in this Section
3.11 is fully covered by policies of insurance of Lexington or any Partnership
Subsidiary as in effect on the date hereof.
Section 3.12 No Violation of Law. Neither Lexington nor any
Partnership Subsidiary has been, nor shall be as of the Closing Date (by virtue
of any action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever), in violation of any applicable local,
state or federal law, ordinance, regulation, order, injunction or decree, or any
other requirement of any governmental body, agency, authority or court binding
on it, or relating to its properties, assets or business or its advertising,
sales or pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
Lexington.
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Section 3.13 Lease Agreements. The Disclosure Schedules contain a
true, accurate and complete list of all the lease agreements and license
agreements to which Lexington or any Partnership Subsidiary is a party and
pursuant to which Lexington or any Partnership Subsidiary leases (whether as
lessor or lessee) or licenses (whether as licensor or licensee) any real or
personal property related to the operation of its business and which requires
payments in excess of $12,000 per year (the "Lease Agreements"). Lexington has
delivered to APP true and complete copies of all of the Lease Agreements. Each
Lease Agreement is valid, effective and in full force in accordance with its
terms, and there is not under any such lease (i) any existing or claimed
material default by Lexington or any Partnership Subsidiary (as applicable) or
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by Lexington or any Partnership Subsidiary
(as applicable) and, individually or in the aggregate, may reasonably result in
a Material Adverse Effect on Lexington, or, (ii) to the knowledge of Seller and
Lexington, any existing material default by any other party under any of the
Lease Agreements or any event of material default or event which with notice or
lapse of time, or both, would constitute a material default by any such party.
To the knowledge of Seller and Lexington, there is no pending or threatened
reassessment of any property covered by the Lease Agreements. To the extent
necessary to accomplish the intent of the Agreement, Lexington or any
Partnership Subsidiary shall use reasonable good faith efforts, and Seller shall
use reasonable good faith efforts to cause Lexington, to obtain prior to the
Closing Date the consent of each landlord or lessor whose consent is required to
the assignment of the Lease Agreements and will use reasonable good faith
efforts to deliver to APP in writing such consents as are necessary to effect a
valid and binding transfer or assignment of Lexington's or any Partnership
Subsidiary's rights thereunder. Lexington has a good, clear, valid and
enforceable leasehold interest under each of the Lease Agreements. The Lease
Agreements comply with the exceptions to ownership interests and compensation
arrangements set out in 42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952,
and any similar applicable state law safe harbor or other exemption provisions.
Section 3.14 Real and Personal Property.
(a) Neither Lexington nor each Partnership Subsidiary owns
any interest (other than the Lease Agreements) in real property.
(b) Lexington and each Partnership Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein which it purports to own;
and (ii) owns such rights, interests, assets and property free and clear of all
Encumbrances, title defects or objections (except for taxes not yet due and
payable). The personal property presently used in connection with the operation
of the business of Lexington and each Partnership Subsidiary constitutes the
necessary personal property assets to continue operation of Lexington and each
Partnership Subsidiary.
Section 3.15 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, Lexington does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
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Section 3.16 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and Lexington has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring Lexington to make future
payments of $10,000 in any fiscal year or $25,000 in the aggregate (other than
insurance contracts identified in Section 3.22 or Lease Agreements identified in
Section 3.13) to which Lexington is a party or by which it or any of its
properties or assets are bound including, without limitation, (i) all agreements
between Lexington, on the one hand, and any government entity, provider,
hospital, health maintenance organization, other managed care organization or
other third-party provider, on the other hand, then in effect relating to the
provision of medical, diagnostic imaging or consulting services, treatments,
patient referrals or other similar activities, (ii) all indentures, mortgages,
notes, loan or credit agreements and other agreements and obligations relating
to the borrowing of money or to the direct or indirect guarantee or assumption
of obligations of third parties requiring Lexington to make, or setting forth
conditions under which Lexington would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of Lexington (or any
provider employee of Lexington) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by Lexington in excess of $10,000 in
any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis in the
ordinary course of business and, assuming the receipt of the appropriate
consents, all will continue to be binding in accordance with their terms after
consummation of the transaction contemplated herein; there are no contracts,
agreements or other instruments to which Lexington is a party or is bound (other
than physician employment contracts and insurance policies) which could either
singularly or in the aggregate have a Material Adverse Effect on the value to
APP of the assets and properties to be acquired by APP from Lexington, or which
could inhibit or prevent Lexington from transferring to or vesting in APP good
and sufficient title to the assets and properties to be acquired by APP except
where the failure to transfer would not have a Material Adverse Effect on APP.
In every instance where consent is necessary, on or before the Closing Date
Lexington shall use reasonable good faith efforts, and Seller shall use
reasonable good faith efforts to cause Lexington, to obtain and deliver to APP
in writing, effective as of the Closing Date, such consents as are necessary to
enable APP to enjoy all of the rights now enjoyed by Lexington under such
contracts. Any and all such consents shall be in a form reasonably acceptable to
APP and shall contain an acknowledgment by the consenting party that Lexington
has fully complied with and is not in default under any provision of the
particular contract or agreement.
(b) (i) Neither Lexington nor Seller has received notice of
any plan or intention of any other party to exercise any right to cancel or
terminate any contract, agreement or instrument, and to the knowledge of
Lexington and Seller there are no facts that would justify the exercise of such
a right; and (ii) neither Lexington nor Seller currently contemplates, or has
reason to believe any other Person currently contemplates, any amendment or
change to any such contract, agreement or instrument.
Section 3.17 Employee Matters. Lexington does not have any employees
and is not currently a party to any employment contract (except for oral
employment agreements which are terminable at will), consulting or collective
bargaining contracts, deferred compensation, pension plan (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended, and all
rules and regulations from time to time promulgated thereunder ("ERISA")),
profit sharing, bonus or other nonqualified benefit or compensation commitments,
benefit plans, arrangements or plans (whether written
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or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to Lexington and any of its present or former employees, or any
predecessors in interest.
Section 3.18 Labor Relations. Intentionally omitted.
Section 3.19 Employee Benefit Plans. Intentionally omitted.
Section 3.20 Environmental Matters.
(a) Neither Lexington nor any Partnership Subsidiary has,
within the five (5) years preceding the date hereof, through the Closing Date,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of Seller and Lexington no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by Lexington of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by Lexington to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by Lexington.
(b) Neither Lexington nor any Partnership Subsidiary has
used, transported, disposed of or arranged for the disposal of (as those terms
are defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance that would be reasonably
likely to give rise to any Environmental Liabilities for Lexington under any
applicable Environmental Law that had, or would reasonably be likely to have, a
Material Adverse Effect on Lexington. Neither Lexington nor any Partnership
Subsidiary has engaged in any activity or failed to undertake any activity which
action or failure to act has given, or would reasonably be likely to give, rise
to any Environmental Liabilities or enforcement action by any federal, state or
local regulatory agency or authority, or has resulted, or would reasonably be
likely to result, in any fine or penalty imposed pursuant to any Environmental
Law. The Disclosure Schedules disclose any known presence of asbestos in or on
Lexington's or any Partnership Subsidiary's owned or leased premises. To the
knowledge of Seller and Lexington, there is no friable asbestos in or on
Lexington's or any Partnership Subsidiary's owned or leased premises.
(c) To the knowledge of Seller and Lexington, no soil or
water in or under any assets currently or formerly held for use or sale by
Lexington or any Partnership Subsidiary is or has been contaminated by any
Hazardous Substance while such assets or premises were owned, leased, operated
or managed, directly or indirectly by Lexington or any Partnership Subsidiary,
where such contamination had, or would be reasonably likely to have, a Material
Adverse Effect on Lexington.
(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of Seller
and Lexington, concerning Lexington or any Partnership Subsidiary within the
five (5) years preceding the date hereof through the Closing Date with respect
to any real property now or previously owned or leased by Lexington, any
Partnership Subsidiary or any of its predecessors, true and complete copies of
which have been provided to APP.
(e) For the purposes of this Section 3.20(e), the following
terms have the following meanings:
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"Environmental Laws" shall mean any federal, state or
local laws, ordinances, codes, regulations, rules, policies and
orders (including without limitation, Medical Waste Laws) that are
intended to assure the protection of the environment, or that
classify, regulate, call for the remediation of, require reporting
with respect to, or list or define air, water, groundwater, solid
waste, hazardous, toxic, or radioactive substances, materials,
wastes, pollutants or contaminants, or which are intended to assure
the safety of employees, workers or other persons, including the
public in each case as in effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities
of the Company or any Company Subsidiary, whether contingent or
fixed, which (i) have arisen, or would reasonably be likely to
arise, under Environmental Laws and (ii) relate to actions occurring
or conditions existing on or prior to the date hereof or the Closing
Date.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation,
treatment, storage, recycling, transportation, disposal or release
of any Hazardous Substances.
Section 3.21 Filing Reports. All returns, reports, plans and filings
of any kind or nature necessary to be filed by Lexington with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on Lexington.
Section 3.22 Insurance Policies. The Disclosure Schedules list and
briefly describe Lexington's policies of insurance to which Lexington or any
Partnership Subsidiary is a party or under which Lexington or any Partnership
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of Lexington or any Partnership Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by
Lexington or any Partnership Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
Lexington and its Affiliates for all risks normally insured against by a Person
carrying on a substantially similar business or businesses as Lexington and its
Affiliates, (ii) are sufficient for compliance with legal and contractual
requirements to which Lexington or any of its Affiliates is a party or by which
any of them may be bound, and (iii) shall be maintained in force (including the
payment of all premiums and compliance with their terms) without interruption up
to and including the Closing Date. True, complete and correct copies of all
Insurance Policies have been provided to APP. Neither Lexington nor any
Partnership Subsidiary nor any officer or partner thereof has received any
notice or other written communication from any issuer of any Current Policy
cancelling such policy, materially increasing any deductibles or retained
amounts thereunder, or materially increasing the annual or other premiums
payable thereunder and, to the knowledge of Seller and Lexington, no such
cancellation or increase of deductibles, retainages or premiums is threatened.
There are no outstanding claims, settlements or premiums owed against any
Insurance Policy, and all required notices have been given and all known
potential or actual claims under any Insurance Policy have been presented in due
and timely fashion. Within the five (5) years preceding the Agreement, neither
Lexington nor any Partnership Subsidiary has filed a written application for any
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professional liability insurance coverage which has been denied by an insurance
agency or carrier. The Disclosure Schedules also set forth a list of all claims
under any Insurance Policy in excess of $10,000 per occurrence filed by
Lexington or any Partnership Subsidiary during the immediately preceding
three-year period.
Section 3.23 Accounts Receivable. The Disclosure Schedules set forth
a list and aging of all accounts receivable of Lexington as of March 31, 1997,
which list is complete, true and accurate in all material respects. All such
accounts receivable arose in the ordinary course of business and have not been
previously written off as bad debts and, are, to the extent still uncollected,
to the knowledge of Seller and Lexington collectible in the ordinary course of
business, net of reserves for doubtful and uncollectible accounts shown on the
accounting records of Lexington (which reserves are adequate and calculated
consistent with past practice).
Section 3.24 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete
(i) list of the accounts payable of Lexington as of March 31, 1997, and (ii)
list of each individual indebtedness owned by Lexington of $5,000 or more,
setting forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to Lexington (including, without limitation all providers
of care to patients) which accounted for a dollar volume of purchases paid for
by Lexington in excess of $25,000 for the fiscal year ended [DECEMBER 31, 1996],
or which is reasonably expected to account for a dollar volume of purchases paid
for by Lexington in excess of $25,000 for the fiscal year to end [DECEMBER 31,
1997].
Section 3.25 Inventory. All items of inventory on hand on the date
of this Agreement consist, and all such items on hand on the Closing Date will
consist, net of all applicable reserves with respect thereto (calculated
consistent with past practice), of items of a quality and a quantity usable and
saleable in the ordinary course of Lexington's business and conform to generally
accepted standards in the industry of which Lexington is a part. Purchase
commitments of Lexington for inventory are not materially in excess of normal
requirements, and none of such purchase commitments are at prices in excess of
prevailing market prices at the time of such purchase commitment.
Section 3.26 Licenses, Authorization and Provider Programs.
(a) Lexington and each other licensed employee or contractor
of Lexington (i) is the holder of all valid licenses, approvals, orders,
consents, permits, registrations, qualifications and other rights and
authorizations required by law, ordinance, regulation or ruling of any
governmental regulatory authority necessary to operate his/her/its business and
(ii) is eligible to participate in and to receive reimbursement under Titles
XVIII and XIX of the Social Security Act (the "Medicare and Medicaid Programs")
and any other programs funded in whole or in part by federal, state or local
entities for which Lexington is eligible ("Governmental Programs"). Each of
Lexington and Seller has a current provider number for such Governmental
Programs and with such private non-governmental programs (including without
limitation any private insurance program) under which Lexington is presently
receiving payments directly or indirectly from any Payor for technical imaging
services provided by any licensed technician or contractor of Lexington (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act) and provider agreements is set forth in the Disclosure
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Schedules, true, complete and correct copies of which have been provided to APP.
No violation, default, order or deficiency exists with respect to any of the
items listed in the Disclosure Schedules except for such violations, defaults,
orders or deficiencies which would not be reasonably likely to have a Material
Adverse Effect on Lexington, and there is no action pending or to the knowledge
of Seller and Lexington recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of Lexington in any Governmental Program or Private Program, and
no event has occurred which, with or without notice or lapse of time, or both,
would constitute grounds for a violation, order or deficiency with respect to
any of the items listed in the Disclosure Schedules to revoke, withdraw or
suspend any material license to operate its business as is presently being
conducted by it. To the knowledge of Seller and Lexington, there has been no
decision not to renew any existing agreement with any provider or Payor relating
to Lexington's business as presently being conducted by it. Lexington (i) has
not had its professional license, Drug Enforcement Agency number,
Medicare/Medicaid provider status or staff privileges at any hospital or
diagnostic imaging center suspended, relinquished, terminated or revoked
(including orders that have been entered by any such entities but stayed), (ii)
has not been reprimanded in writing, sentenced, or disciplined by any licensing
board, state agency, regulatory body or authority, hospital, Payor or specialty
board (including orders that have been entered by any such entities but stayed),
(iii) is not the subject of an initial or final determination by any federal or
state authority that could result in any demand or reimbursement under the
Medicare, Medicaid or Government Programs or any exclusion or which monetary
penalty under federal or state law or (iv) has had a final judgment or
settlement entered against it in connection with a malpractice or similar
action.
(b) Lexington is not required, or for the 72-month period
prior to the Closing Date was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.27 Inspections and Investigations. Neither the right of
Lexington, nor the right of any licensed professional or other individual
affiliated with Lexington to receive reimbursements pursuant to any Governmental
Program or Private Program has been terminated or otherwise materially and
adversely affected as a result of any investigation or action whether by any
federal or state governmental regulatory authority or other third party. No
licensed professional or other individual affiliated with the business has,
during the past three (3) years prior to the Closing Date, had their
professional license or staff privileges limited, suspended or revoked by any
governmental regulatory authority or agency, hospital, integrated delivery
system, trade association, professional review organization, accrediting
organization or certifying agency (including orders that have been entered by
any such entities but stayed). True, correct and complete copies of all reports,
correspondence, notices and other documents relating to any matter described or
referenced in this Section 3.27 have been provided to APP.
Section 3.28 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by Lexington or any
Partnership Subsidiary, (ii) all patents and applications therefor and
inventions and discoveries that may be patentable currently owned, in whole or
in part, or used by Lexington or any Partnership Subsidiary, (iii) all licenses,
royalties, and assignments thereof to which Lexington or any Partnership
Subsidiary are a party (iv) all copyrights (for published and unpublished works)
currently owned in whole or part, or used by Lexington or any Partnership
Subsidiary and (v) other similar agreements relating to the foregoing to which
Lexington or any
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Partnership Subsidiary is a party (including expiration date if applicable)
(collectively, the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate
list and summary description of all agreements relating to technology, trade
secrets, know-how or processes that Lexington is licensed or authorized to use
by others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the knowledge of Seller and Lexington, any threatened
disputes or disagreements with respect to any such agreement.
(c) Lexington owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of Seller and
Lexington, no claim has been asserted by any person to the ownership of or for
infringement by Lexington of any Proprietary Right of any other Person, and
neither Lexington nor Seller is aware of any valid basis for any such claim. To
the best knowledge of Seller and Lexington, no proceedings have been threatened
which challenge the Proprietary Rights of Lexington. Lexington has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.29 Taxes.
(a) Filing of Tax Returns. Lexington has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of Lexington for the periods covered thereby.
(b) All Withholding Requirements Satisfied. All monies
required to be withheld by Lexington and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(c) Safe Harbor Lease. None of the properties or assets of
Lexington constitutes property that Lexington, APP, or any Affiliate of APP,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
(d) Tax Exempt Entity. None of the assets or properties of
Lexington are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
(e) Boycotts. Lexington has not at any time participated in
or cooperated with any international boycott as defined in Section 999 of the
Code.
Section 3.30 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, partner or other Affiliate of Lexington in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to Lexington's
business and any arrangement or agreement with any such person concerning the
provision of goods or services
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or other matters pertaining to Lexington's business. There is no commitment to,
and no income that has been derived from, an Affiliate, and following the
Closing Lexington shall not have any obligation of any kind or designation to
any such Affiliate.
Section 3.31 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that Lexington has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.) and
the Person or Persons authorized in respect thereof.
Section 3.32 Fraud and Abuse and Self Referral. Neither Lexington
nor any Partnership Subsidiary has engaged and, to the knowledge of Seller and
Lexington, neither Lexington's officers and partners nor other Persons and
entities providing professional services for or on behalf of Lexington have
engaged, in any activities which are prohibited under 42 U.S.C. Sections 1320a
7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the exceptions or safe
harbor provisions set forth in such legislation), or the regulations promulgated
thereunder or pursuant to similar state or local statutes or regulations, or
which are prohibited by applicable rules of professional conduct or 18 U.S.C.
Sections 24, 287, 371, 664, 669, 1001, 1027, 1035, 1341, 1343, 1347, 1518, 1954,
1956(c)(7)(F) and 3486.
Section 3.33 Restrictions on Business Activities. There is no
material agreement, judgment, injunction, order or decree binding upon
Lexington, any Partnership Subsidiary or officer, partner or key employee of
Lexington or Partnership Subsidiary, which has or reasonably could be expected
to have the effect of prohibiting or materially impairing any acquisition of
property by Lexington or any Partnership Subsidiary or the conduct of business
by Lexington or any Partnership Subsidiary.
Section 3.34 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of Seller and Lexington,
threatened bankruptcy, insolvency or similar proceeding with respect to any
other party to such agreements, and no event has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default thereunder by Lexington or any other party thereto.
Section 3.35 Statements True and Correct. No representation or
warranty made herein by Lexington or Seller, nor any statement, certificate,
information, exhibit or instrument to be furnished by Lexington or Seller to APP
or any of its representatives pursuant to this Agreement, contains or will
contain as of the Closing Date any untrue statement of material fact or omits or
will omit to state a material fact necessary to make the statements contained
herein and therein not misleading.
Section 3.36 Schedules. The Disclosure Schedules required by Article
III hereof and attached hereto are true, correct and complete in all material
respects as of the date of this Agreement.
Section 3.37 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of
Seller or Lexington who is entitled to any fee or commission upon consummation
of the transactions contemplated by this Agreement or referred to herein.
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ARTICLE IV
Representations and Warranties of APP
As inducement to each Seller and Lexington to enter into this
Agreement, APP represents and warrants to each Seller and Lexington both as of
the date hereof and as of the Closing Date as set forth below, subject to those
exceptions set forth in the Disclosure Schedules attached hereto and
incorporated herein by this reference, specifically identifying the relevant
subparagraphs hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder.
Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the
transactions contemplated hereby, all of which have been or will be made
available to Sellers and Lexington for review, are true, correct and complete as
in effect on the date of this Agreement and accurately reflect all material
proceedings of the stockholders and directors of APP (and all committees
thereof) regarding the transactions contemplated hereby. The stock record books
of APP, which have been or will be made available to Sellers and Lexington for
review, contain true, complete and accurate records of the stock ownership of
APP and the transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by APP
of this Agreement, the agreements provided for herein and the Other Agreements,
and the consummation by APP of the transactions contemplated hereby and thereby
are within APP's corporate powers and have been duly authorized by all necessary
action on the part of APP's Board of Directors. This Agreement and the Other
Agreements have been duly executed by APP. This Agreement and all other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which APP is a party constitute, or upon
execution will constitute, valid and binding agreements of APP, enforceable
against it in accordance with their respective terms, except as may be limited
by bankruptcy or other laws affecting creditors' rights generally, or by general
equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than consents, filings
or notifications required to be made or obtained solely by Lexington, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the transactions contemplated
hereby and thereby by APP requires no action by or in respect of, or filing
with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares are
issued and outstanding and 10,000,000 shares of APP Preferred Stock, none of
which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act,
and (ii) all applicable state securities laws. No shares of capital stock are
owned by APP in treasury. No shares of capital stock of APP have been
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issued or disposed of in violation of the preemptive rights, rights of first
refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own, directly
or indirectly, any capital stock or other equity, ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture or
other entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents.
The execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's Certificate of
Incorporation or Bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated
by this Agreement, since March 31, 1997, there has not been (i) any change in
the working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the
Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.
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Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as
of the Closing Date (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever), in violation of
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business or
its advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4,
APP does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted
an extension to any taxing authority of the limitation period during which any
tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
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(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated
to be made by APP will be characterized as an "excess parachute payment" within
the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed
as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. The Disclosure Schedules or
Form S-4 sets forth a description of any interest held, directly or indirectly,
by any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to a Seller or Lexington pursuant
to this Agreement, contains or will contain as of the Closing Date any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Schedules. All Disclosure Schedules required by Article
IV hereof and attached hereto are true, correct and complete in all material
respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
ARTICLE V
Covenants of Seller and Lexington
Each of Seller and Lexington makes the covenants and agreements as
set forth in this Article V, which shall apply with respect to the period from
the date hereof to the Closing Date and, to the extent contemplated herein,
thereafter and agree that:
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Section 5.1 Required Conduct of Seller and Lexington. From the date
hereof until the Closing Date, Lexington shall, and Seller shall use his/her/its
best efforts to cause Lexington to, in all material respects, conduct the
business of Lexington in the ordinary and usual course consistent with past
practices and shall use reasonable efforts to:
(a) preserve intact Lexington's business and its
relationships with referral sources, customers, suppliers, patients, employees
and others having business relations with it;
(b) maintain and keep Lexington's properties and assets in
good repair and condition consistent with past practice as is material to the
conduct of the business of Lexington;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof.
Section 5.2 Prohibited Conduct of Seller and Lexington. Without the
written consent of APP, Lexington shall not, and Seller shall use his/her/its
best efforts to cause Lexington not to:
(a) amend Lexington's Certificate of Limited Partnership or
Partnership Agreement or other charter documents;
(b) issue, sell or authorize for issuance or sale, any
partnership interests of Lexington (except for the General Partner Acquisition)
or any subscriptions, options, warrants, rights or convertible securities, or
enter into any agreements or commitments of any character obligating it to issue
or sell any such interests;
(c) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or any option, warrant or other
right to purchase or acquire any such shares;
(d) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its partnership
interest (except as expressly contemplated herein);
(e) voluntarily sell, transfer, surrender, abandon or
dispose of any of Lexington's assets or property rights (tangible or intangible)
other than the sale of inventory, if any, in the ordinary course of business
consistent with past practices;
(f) grant or make any mortgage or pledge or subject
Lexington or any of Lexington's properties or assets to any lien, charge or
encumbrance of any kind, except liens for taxes not currently due and except for
liens which arise by operation of law;
(g) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary course of
business or which is reasonably necessary for the conduct of Lexington's
business;
(h) make or commit to make any capital expenditures which
are not reasonably necessary for the conduct of Lexington's business;
(i) grant any increase in the compensation payable or to
become payable to partners, officers, consultants or employees other than merit
increases to employees of Lexington who are not partners or officers of
Lexington, except in the ordinary course of business and consistent with past
practices;
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(j) change in any manner any accounting principles or
methods other than changes which are consistent with generally accepted
accounting principles;
(k) enter into any material commitment or transaction other
than in the ordinary course of business;
(l) take any action which could reasonably be expected to
have a Material Adverse Effect on Lexington;
(m) apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any Affiliate of Lexington, other than in
the ordinary course and consistent with past practices;
(n) agree, whether in writing or otherwise, to do any of the
foregoing; and
(o) take any action to in any way amend, revise or otherwise
affect Lexington's prior approval and effectiveness of this Agreement or any of
the agreements attached as exhibits hereto, other than as required to discharge
their fiduciary duties.
Section 5.3 Title to Assets; Indebtedness. As of the Closing Date,
Lexington shall (i) except for sales of assets held as inventory, if any, in the
ordinary course of business prior to the Closing Date and except as otherwise
specifically described in the Schedules to this Agreement, have good and valid
title to all of its assets free and clear of all Encumbrances of any nature
whatsoever, except for current year ad valorem taxes and liens which arise by
operation of law, and (ii) have no direct or indirect indebtedness except for
indebtedness disclosed in the Disclosure Schedules hereto or for normal and
recurring accrued obligations of Lexington arising in connection with its
business operations in the ordinary course of business and which arise from the
purchase of merchandise, supplies, inventory and services used in connection
with the provision of services.
Section 5.4 Access. At all times prior to the Closing Date, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of Lexington, including,
without limitation, deeds, title documents, leases, patient lists, insurance
policies, minute books, Partnership Unit registers, accounts, tax returns,
financial statements and all other data that, in the reasonable opinion of APP,
are required for APP to make such investigation as it may desire of the
properties and business of Lexington. APP shall also be allowed full access upon
reasonable prior notice and during regular business hours (and at such other
times as the parties may reasonably agree) to consult with the officers,
employees (after announcement by Lexington or Seller of the Exchange to the
employees of Lexington which shall occur no later than three (3) days subsequent
to execution hereof by Lexington), accountants, counsel and agents of Lexington
in connection with such investigation of the properties and business of
Lexington. No investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of Lexington under this
Agreement. Any access or investigation referred to in this Section 5.4 shall be
conducted in such a manner as to minimize the disruption to Lexington's ongoing
business operations.
Section 5.5 Acquisition Proposals. Except for the General Partner
Acquisition, Seller shall not, and shall use his/her/its best efforts to cause
Lexington not to, and Lexington shall not, and shall cause each of its partners,
officers, employees or agents not to, directly or indirectly:
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(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or partnership interests of
Lexington, whether by merger, consolidation, share exchange, business
combination, purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of Lexington, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of Lexington. If Lexington receives any offer
or proposal after the date hereof, written or otherwise, of the type referred to
above, Lexington shall promptly inform APP of such offer or proposal, decline
such offer and furnish APP with a copy thereof if such offer or proposal is in
writing.
Section 5.6 Compliance With Obligations. Prior to the Closing Date,
Lexington shall, and Seller shall use his/her/its best efforts to cause
Lexington to, comply in all material respects with (i) all applicable federal,
state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its Partnership Agreements, by which it or
its properties or its assets (real, personal or mixed, tangible or intangible)
may be bound; and (iii) all decrees, orders, writs, injunctions, judgments,
statutes, rules and regulations applicable to Lexington, and its respective
properties or assets.
Section 5.7 Notice of Certain Events. Each of Seller and Lexington
shall, and Seller shall use his/her/its best efforts to cause Lexington to,
promptly notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by
Lexington who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of
Lexington;
(d) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting Lexington which, if pending on the date of this Agreement,
would have been required to have been disclosed to APP hereunder or which relate
to the consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of
Lexington, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in Medicare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
Lexington and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
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Section 5.8 Partners' Consent. Seller hereby consents to this
Agreement and the transactions contemplated hereby, including, without
limitation, the Exchange, on the terms and conditions set forth herein and in
the agreements and documents contemplated hereby, and hereby waives all other
rights of first offer, rights of first refusal and similar rights that Seller
may have with respect to a transfer of Partnership Units by him/her/it or any
other Seller.
Section 5.9 Obligations of Seller and Lexington. Subject to Section
5.8 hereof, each of Seller and Lexington shall, and Seller shall use his/her/its
best efforts to cause Lexington to, perform its obligations under this Agreement
and all related agreements, and each of Seller and Lexington shall, and Seller
shall use his/her/its best efforts to cause Lexington to, consummate the
transactions contemplated hereby and thereby on the terms and conditions set
forth in this Agreement and such agreements.
Section 5.10 Intentionally omitted.
Section 5.11 Accounting and Tax Matters. Lexington will not, and
Seller shall use his/her/its best efforts to cause Lexington not to, change in
any material respect the accounting methods or practices followed by Lexington
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. Lexington will not, and
Seller shall use his/her/its best efforts to cause Lexington not to, make any
material tax election except in the ordinary course of business consistent with
past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment.
Lexington will, and Seller shall use his/her/its best efforts to cause Lexington
to, duly, accurately and timely (without regard to any extensions of time) file
all returns, information statements and other documents relating to taxes of
Lexington required to be filed by it, and Lexington shall, and Seller shall use
his/her/its best efforts to cause Lexington to, pay all taxes required to be
paid by Lexington, on or before the Closing Date.
Section 5.12 Lock-Up Provisions. Seller irrevocably agrees that
he/she/it will not, directly or indirectly, sell, offer, contract for sale, make
any short sale, pledge or otherwise transfer or dispose of any of the APP Common
Stock without the prior written consent of APP (which consent may be
unreasonably withheld in APP's absolute and sole discretion) during the two-year
period commencing on the Effective Date. Notwithstanding the preceding, the
restrictions contained in the prior sentence shall no longer apply (i) as to
twenty-five percent (25%) of the Shares of APP Common Stock received by a Seller
pursuant to the Exchange following expiration of a one-year period following the
Effective Date, (ii) as to an additional twenty-five percent (25%) of the Shares
of APP Common Stock received by a Seller pursuant to the Exchange following
expiration of an eighteen-month period following the Effective Date, and (iii)
as to the remaining fifty percent (50%) of the Shares of APP Common Stock
received by Seller pursuant to the Exchange following expiration of a
twenty-four-month period following the Effective Date. Seller understands and
acknowledges that the restrictions contained in this Section 5.12 (the "Lock-Up
Provisions") are irrevocable and shall be binding upon Seller's heirs, legal
representatives, successors and assigns.
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ARTICLE VI
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 6.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Exchange; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
Section 6.2 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit Lexington and its authorized
representatives reasonable access to, and make available for inspection, all of
the assets and business of APP, including its executive officers, and permit
Lexington and its authorized representatives to inspect and, at Lexington's sole
expense, make copies of all documents, records and information with respect to
the affairs of APP as Lexington and its representatives may reasonably request,
all for the sole purpose of permitting Lexington to become familiar with the
business and assets and liabilities of APP. No investigation by Lexington or
Seller shall diminish or otherwise affect any of the representations,
warranties, covenants or agreements of APP under this Agreement.
Section 6.3 Notification of Certain Matters. APP shall promptly
inform Lexington in writing of (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by APP subsequent to the date of this Agreement
and prior to the Closing Date under any contract, agreement or investment
material to APP's condition (financial or otherwise), operations, assets,
liabilities or business and to which it is subject; (b) any material adverse
change in APP's condition (financial or otherwise), operations, assets,
liabilities or business or (c) defaults or disputes regarding Other Agreements.
ARTICLE VII
Covenants of APP, Seller and Lexington
APP, Seller and Lexington agree as follows:
Section 7.1 Filings; Other Action.
(a) Lexington shall cooperate with APP to promptly prepare and file
with the SEC the Registration Statements on Form S-1 and Form S-4 (or other
appropriate Forms) to be filed by APP in connection with its Initial Public
Offering and offering of the shares of APP Common Stock to the Target Interest
Holders pursuant to the transactions contemplated by this Agreement and the
Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. Seller and Lexington shall cooperate with APP in
the preparation of the Registration Statements and shall furnish all information
concerning Lexington as may be reasonably requested in connection with any such
action in a timely manner.
(b) Seller, Lexington and APP and each separately represent and
warrant that (i) in the case of Seller and Lexington, none of the written
information or documents supplied or to be supplied by
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Seller and Lexington specifically for inclusion in the Registration Statements,
by exhibit or otherwise and (ii) in the case of APP, will, at the time the
Registration Statements and each amendment and supplement thereto, if any,
becomes effective under the Securities Act, none of them contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Seller and Lexington
shall be entitled to review the Registration Statements and each of the
amendments thereto, if any, prior to the time each becomes effective under the
Securities Act. Seller and Lexington shall have no responsibility for
information contained in the Registration Statements except for information
provided by Seller or Lexington specifically for inclusion therein. Seller's and
Lexington's review of the Registration Statements shall not diminish or
otherwise affect the representations, covenants and warranties of APP contained
in this Agreement.
(c) Seller and Lexington shall, upon request, furnish APP with all
information concerning Lexington, its subsidiaries, partners and officers, and
such other matters as may be reasonably requested by APP in connection with the
preparation of the Registration Statements and each of the amendments or
supplements thereto, or any other statement, filing, notice or application made
by or on behalf of each such party or any of its subsidiaries to any
governmental entity in connection with the transactions contemplated by this
Agreement.
Section 7.2 Amendments of Schedules. Each party hereto agrees that,
with respect to the representations and warranties of such party contained in
this Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly the Schedules with respect to any matter
that would have been or would be required to be set forth or described in the
Schedules in order to not materially breach any representation, warranty or
covenant of such party contained herein; provided that no amendment or
supplement to a Schedule that constitutes or reflects a Material Adverse Effect
on Lexington may be made unless APP consents to such amendment or supplement,
and no amendment or supplement to a Schedule that constitutes or reflects a
Material Adverse Effect on APP may be made unless Sellers and Lexington consent
to such amendment or supplement. For purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 8.1 and 9.1 have been fulfilled, the Disclosure Schedules hereto
shall be deemed to be the Disclosure Schedules as amended or supplemented
pursuant to this Section 7.2. In the event that Sellers or Lexington seek to
amend or supplement a Disclosure Schedule pursuant to this Section 7.2 and APP
does not consent to such amendment or supplement, or APP seeks to amend or
supplement a Disclosure Schedule pursuant to this Section 7.2, and Seller and
Lexington do not consent, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 13.1(a) hereof.
Section 7.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Closing Date, take any action that would
prevent the Exchange from qualifying as a tax-free exchange within the meaning
of Section 351 of the Code.
Section 7.4 Public Announcements. The parties hereto will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and,
except as may be required by applicable law, will not issue any such press
release or make any such public statement prior to such consultation, although
the foregoing shall not apply to any disclosure by APP in any filing with the
DOJ, FTC or SEC.
Section 7.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by Seller and Lexington shall be paid by Seller in full
immediately prior to the Closing.
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Section 7.6 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state "Blue Sky" or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the transactions contemplated
hereby.
ARTICLE VIII
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Closing Date of each
of the following conditions:
Section 8.1 Representations and Warranties. The representations and
warranties of the Sellers and Lexington contained herein shall have been true
and correct in all material respects when initially made and shall be true and
correct in all material respects as of the Closing Date.
Section 8.2 Covenants. Each Seller and Lexington shall have
performed and complied in all material respects with all covenants required by
this Agreement to be performed and complied with by each Seller and Lexington,
respectively, prior to the Closing Date.
Section 8.3 Legal Opinion. Counsel to Sellers and Lexington shall
have delivered to APP their opinion, dated as of the Closing Date, in form and
substance substantially in the form set forth in Exhibit C.
Section 8.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 8.5 No Material Adverse Effect. No Material Adverse Effect
on Lexington shall have occurred since March 31, 1997, whether or not such
change shall have been caused by the deliberate act or omission of any Seller or
Lexington.
Section 8.6 Government Approvals and Required Consents. Seller,
Lexington and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents required under any law,
statements, rule, regulation or ordinance to consummate the transactions
contemplated by this Agreement.
Section 8.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Closing Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 8.8 Closing Deliveries. APP shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 10.1.
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Section 8.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 8.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 8.11 Closing of General Partner Acquisition. The General
Partner Acquisition shall have closed.
Section 8.12 Execution by Each Seller and Lexington. Each Seller and
Lexington shall have executed this Agreement and its respective Partnership
Units shall have been transferred to APP.
ARTICLE IX
Conditions Precedent of Seller and Lexington
Except as may be waived in writing by Seller and Lexington, the
obligations of Seller and Lexington hereunder are subject to fulfillment at or
prior to the Closing Date of each of the following conditions:
Section 9.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Closing Date.
Section 9.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Closing Date.
Section 9.3 Legal Opinions. Counsel to APP shall have delivered to
Seller and Lexington their opinion, dated as of the Closing Date, in form and
substance substantially in the form set forth in Exhibit D.
Section 9.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 9.5 Government Approvals and Required Consents. Sellers,
Lexington and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents (including consents of
Sellers required by applicable state law or the Partnership Agreement) required
under any law, contracts or any statute, rule, regulation or ordinances to
consummate the transactions contemplated by this Agreement.
Section 9.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statements shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Closing Date, APP shall have received
all state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. At or prior to the Closing Date, the APP
Common Stock shall have been approved for listing on the Nasdaq National Market,
subject only to official notification of issuance.
Section 9.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
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Section 9.8 Closing Deliveries. Seller and Lexington shall have
received all Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to Sellers and Lexington referred to
in Section 10.2.
Section 9.9 No Material Adverse Effect. No Material Adverse Effect
on APP shall have occurred since [__________], 1997, whether or not such change
shall have been caused by the deliberate act or omission of APP.
ARTICLE X
Closing Deliveries
Section 10.1 Deliveries of Seller and Lexington. At or prior to the
Closing Date, Seller and Lexington shall deliver to APP the following, all of
which shall be in a form reasonably satisfactory to APP:
(a) bill of sale representing the Partnership Units held by
each Seller which bill of sale certificates shall represent all of the issued
and outstanding Partnership Units of Lexington;
(b) a copy of resolutions of the partners of Lexington or of
Seller, if applicable, authorizing the execution, delivery and performance of
this Agreement and all related documents and agreements and consummation of the
transactions contemplated hereby, each certified by an officer as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(c) a certificate of each of Seller and an officer of
Lexington dated the Closing Date, as to the truth and correctness of the
representations and warranties of Seller and Lexington, respectively, contained
herein on and as of the Closing Date;
(d) a certificate of each of Seller and an officer of
Lexington dated the Closing Date, (i) as to the performance of and compliance in
all material respects by Lexington and Seller, respectively, with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent required by Seller and Lexington, respectively, to be
satisfied shall have been satisfied;
(e) a certificate of an officer of Lexington certifying as
to the incumbency and as to the signatures of each of the officers of Lexington
who have executed documents delivered at the Closing on behalf of Lexington;
(f) certificates, dated within ten (10) days prior to the
Closing Date, of the Secretary of State of Texas for Lexington establishing that
Lexington is in existence in the state of Texas;
(g) certificates, dated within ten (10) days prior to the
Closing Date, of the Secretaries of State of the states in which Lexington is
qualified to do business, to the effect that Lexington is qualified to do
business and, if applicable, is in good standing as a foreign entity in each of
such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of officers of Lexington as requested
by APP;
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(j) a nonforeign affidavit, as such affidavit is referred to
in Section 1445(b)(2) of the Code, of Seller, signed under a penalty of perjury
and dated as of the Closing Date, to the effect that Seller is a United States
citizen or a resident alien (and thus not a foreign person) and providing
Seller's United States taxpayer identification number;
(k) an executed Seller Release by Seller in substantially
the form attached hereto as Exhibit E (the "Seller Release"); and
(l) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of this
Agreement.
Section 10.2 Deliveries of APP. At or prior to the Closing Date, APP
shall deliver to each Seller and Lexington the following, all of which shall be
in a form reasonably satisfactory to Seller and Lexington:
(a) the Exchange Consideration;
(b) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(c) a certificate of the President of APP dated the Closing
Date as to the truth and correctness of the representations and warranties of
APP contained herein on and as of the Closing Date;
(d) a certificate of the President of APP dated the Closing
Date, (i) as to the performance and compliance by APP with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent required to be satisfied by APP have been satisfied;
(e) a certificate of the Secretary of APP certifying as to
the incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the
Closing Date, of the Secretary of State of Delaware establishing that APP is in
existence, has paid all franchise or similar taxes, if any, and otherwise is in
good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten
(10) days prior to the Closing Date, of the Secretaries of State of the states
in which either APP is qualified to do business, to the effect that APP is
qualified to do business and is in good standing as a foreign corporation in
such state;
(h) such other instrument or instruments of transfer
prepared by Seller or Lexington as shall be necessary or appropriate, as Seller
or Lexington or his/her/its respective counsel shall reasonably request, to
carry out and effect the purpose and intent of this Agreement.
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ARTICLE XI
Post Closing Matters
Section 11.1 Further Instruments of Transfer. Following the Closing,
at the request of APP and at APP's sole cost and expense, Seller and Lexington
shall deliver any further instruments of transfer and take all reasonable action
as may be necessary or appropriate to carry out the purpose and intent of this
Agreement.
Section 11.2 Exchange Tax Covenant.
(a) The parties intend that the Exchange will qualify as a
tax-free transaction within the meaning of Section 351 of the Code in which the
Company will not recognize gain or loss, and pursuant to which any gain
recognized by Seller as a result of the Exchange will not exceed the amount of
any cash received by a Seller in the Exchange (a "Reorganization").
(b) Both prior to and after the Closing Date, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Exchange being treated as a
Reorganization. These obligations are excused as to a party required to maintain
the books or file a Tax Return if such party has provided to the other parties a
written opinion of competent tax counsel to the effect that there is not
substantial authority, within the meaning of Section 6662(d)(2)(B)(i) of the
Code, to report the Exchange as a Reorganization and such opinion either is
furnished prior to the Closing Date or is based on facts or events not known at
the Closing Date. Each party shall provide to each other party such tax
information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Exchange as a
Reorganization.
(c) APP shall cause the requirements of Rule 144(c) under
the Securities Act to be met with respect to APP for so long as those
requirements must be met to enable sales by the Sellers who are affiliates of
Lexington to meet the requirements of Rule 145(d) under the Securities Act.
ARTICLE XII
Remedies
Section 12.1 Indemnification by Sellers. Subject to the terms,
limitations and conditions of this Agreement, Sellers (each an "Indemnifying
Party" and collectively, the "Indemnifying Parties"), severally, agree to
indemnify, defend and hold APP and its directors, officers, employees, agents,
attorneys, consultants and Affiliates (each an "Indemnified Party" and
collectively, the "Indemnified Parties"), harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, reasonable attorneys' fees and expenses (including, without limitation,
all costs of experts and all costs incidental to or in connection with any
appellate process) (collectively, "Damages") asserted against or incurred by an
Indemnified Party arising out of or resulting from:
(a) a breach of any representation, warranty or covenant of
any Seller or Lexington contained in this Agreement (without giving effect to
any Material Adverse Effect qualifier contained as part of any such
representation or warranty or covenant contained in this Agreement or in any
Schedule or certificate delivered hereunder);
(b) any violation (or alleged violation) by any Seller or
Lexington and/or any of its past or present partners, employees, agents,
attorneys, consultants and Affiliates of any state or federal
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law governing health care fraud and abuse or prohibition on referral of patients
to Persons in which a licensed professional has a financial or other form of
interest (including, but not limited to, fraud and abuse in the Medicare and
Medicaid Programs) occurring on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act
or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statement
of a material fact in any Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto relating to
Lexington (including any Partnership Subsidiary) or (ii) failure to state
information necessary to make the statements required to be stated therein not
misleading arising (in the case of either (i) or (ii)) solely from information
provided in writing to APP or its counsel by Lexington or any Seller or their
agents specifically for inclusion in any such Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto (including, without limitation, schedules, exhibits and certifications
delivered by Lexington or any of its agents in connection with this Agreement).
Notwithstanding anything herein to the contrary, nothing contained
in this Agreement shall relieve any Seller or Lexington of any liability or
limit any liability that he, she or it may have in the case of fraud in
connection with the transactions contemplated by this Agreement.
Section 12.2 Indemnification by APP. Subject to the terms,
limitations and conditions of this Agreement, APP (an "Indemnifying Party")
hereby agrees to indemnify, defend and hold the Sellers, and, as applicable,
their respective directors, partners, officers, stockholders, employees, agents,
attorneys, consultants and Affiliates (each an "Indemnified Party" and
collectively, the "Indemnified Parties") harmless from and against all Damages
asserted against or incurred by such individuals and/or entities arising out of
or resulting from:
(a) a breach by APP of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of APP contained in
this Agreement or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act
or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statements
of a material fact in any Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto or (ii) failure to
state information necessary to make the statements required to be stated therein
not misleading (except for any liability based upon any actual or alleged untrue
statement of material fact or an omission to state a material fact relating to
Lexington or any Seller which was derived from any information provided in
writing by the Company or a Company Subsidiary or any of their agents contained
in the representations and warranties set forth in this Agreement or any
certificate, exhibit, schedule or instrument required to be delivered under this
Agreement.)
Notwithstanding anything herein to the contrary, nothing contained
in this Agreement shall relieve APP of any liability or limit any liability that
it may have in the case of fraud in connection with the transactions
contemplated by this Agreement.
Section 12.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) The Indemnified Party shall promptly (and, in any event,
at least ten (10) days prior to the due date for any responsive pleadings,
filings or other documents) (i) notify each
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Indemnifying Party of any third-party claim or claims asserted against the
Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying
Parties a written notice ("Claim Notice") describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), an estimate of the amount of Damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. The failure to promptly deliver a Claim
Notice shall not relieve any Indemnifying Party of its obligations to any
Indemnified Party with respect to the related Third Party Claim except to the
extent that the resulting delay is materially prejudicial to the defense of such
claim. Within thirty (30) days after receipt of any Claim Notice (the "Election
Period"), the Indemnifying Parties shall notify the Indemnified Party (x)
whether the Indemnifying Parties dispute their potential liability to the
Indemnified Party under this Agreement with respect to such Third Party Claim
and (y) whether the Indemnifying Parties desire, at the sole cost and expense of
each Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim.
(b) If the Indemnifying Parties notify the Indemnified Party
within the Election Period that the Indemnifying Parties elect to assume the
defense of the Third Party Claim, then the Indemnifying Parties shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party or Indemnified Parties, such Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted
diligently by the Indemnifying Parties to a final conclusion or settled at the
discretion of the Indemnifying Parties in accordance with this Section 12.3(b).
Except as set forth in Section 12.3(f) below, the Indemnifying Parties shall
have full control of such defense and proceedings, including any compromise or
settlement thereof. The Indemnified Party is hereby authorized, at the sole cost
and expense of the Indemnifying Parties (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period, any
motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Parties and not prejudicial to the Indemnifying Parties. If requested by the
Indemnifying Parties, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Parties, to cooperate with the Indemnifying Parties and
their counsel in contesting any Third Party Claim that the Indemnifying Parties
elect to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Parties pursuant to this Section 12.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Parties and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Parties, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Parties, and upon written
notification thereof, the Indemnifying Parties shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Parties shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Parties shall be prohibited from confessing or settling any
criminal allegations brought against the Indemnified Party without the express
written consent of the Indemnified Party.
(c) If the Indemnifying Parties fail to notify the
Indemnified Party within the Election Period that the Indemnifying Parties elect
to defend the Indemnified Party pursuant to Section 12.3(b), or if the
Indemnifying Parties elect to defend the Indemnified Party pursuant to Section
12.3(b) but fail
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diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Parties (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Parties to a final conclusion or settled. The Indemnified
Parties shall have full control of such defense and proceedings, provided,
however, that the Indemnified Parties may not enter into, without the
Indemnifying Parties' consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Parties have delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement and if such
dispute is resolved in favor of the Indemnifying Parties, the Indemnifying
Parties shall not be required to bear the costs and expenses of the Indemnified
Parties' defense pursuant to this paragraph or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Parties in full for all costs and
expenses of such litigation. The Indemnifying Parties may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section 12.3(c), and the Indemnifying Parties shall bear their
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnifying Parties have been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnified Party, then the Indemnifying Parties may employ
separate counsel and upon written notification thereof, the Indemnified Party
shall not have the right to assume the defense of such action on behalf of the
Indemnifying Parties.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Parties hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Parties a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification under
this Agreement. If the Indemnifying Parties do not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Parties dispute such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Parties hereunder. If the Indemnifying Parties have timely disputed such claim,
as provided above, such dispute shall be resolved by the procedures set forth in
Section 12.7.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Agreement relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of such Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication of
such Third Party Claim, or (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Parties liability to the Indemnified
Party under this Agreement. Payments of all amounts owing by the Indemnifying
Parties pursuant to Section 12.3(d) shall be made within thirty (30) days after
the later of (i) the expiration of the 60-day Indemnity Notice period or (ii)
the expiration of the period for appeal of a final adjudication of the
Indemnifying Parties liability to the Indemnified Party under this Agreement.
During the two-year period following the Closing Date, each Seller shall be
entitled to satisfy payments owed to APP by transfer of APP Common Stock from
such Seller to APP. For all purposes of this Agreement, the value of each share
of APP Common Stock transferred to APP pursuant to this Agreement shall be
calculated by averaging the daily closing prices for a share of APP Common Stock
for the twenty (20) consecutive trading days on which such shares are actually
traded on the Nasdaq National Market preceding the date of the Claim Notice. The
number of shares of APP Common Stock permitted to be transferred under this
Section 12.3(e) shall be diminished proportionately in accordance with the
percentage of APP Common Stock released under the Lock-Up Provisions set forth
herein. The
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rights of any Seller to transfer shares of APP Common Stock in satisfaction of
payments owed to APP pursuant to this Agreement shall terminate upon the earlier
of (x) the termination of the Lock-Up Provisions set forth herein or (y) at the
end of the two-year period following the Closing Date.
(f) The Indemnifying Parties shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or compromise
a Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Parties notify the Indemnified Party in writing that the Indemnifying Parties
agree to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Parties to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Parties desired to accept such settlement.
(g) Notwithstanding anything contained in this Agreement to
the contrary, Indemnifying Parties in the aggregate (i) shall have no obligation
hereunder to provide indemnification for the first [$___________] of Damages
(without counting Immaterial Claims as defined below), and (ii) in no event
shall the Indemnifying Parties have any liability hereunder with respect to any
singular incident or a fact involving a breach or inaccuracy of Lexington if the
Damages from such claim are equal to or less than [$______________] ("Immaterial
Claims"). Notwithstanding anything to the contrary contained herein, the
obligations of each Seller hereunder shall not exceed the value of the Exchange
Consideration paid to such Seller pursuant to the Related Acquisition, if any,
on the Closing Date.
Section 12.4 Remedies Exclusive. The remedies provided in this
Agreement are the exclusive remedies available to one party against the other,
either at law or in equity, except in the case of fraud.
Section 12.5 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 12.6 Tax Benefits; Insurance Proceeds. The total amount of
any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
Section 12.7 Dispute Resolution.
(a) Arbitration. The parties hereto agree that any claim,
controversy, dispute or disagreement between or among any of the parties arising
out of or relating to this Agreement shall be governed exclusively by the terms
and provisions of this Section 12.7; provided, however, that within ten (10)
days from the date which any claim, controversy, dispute or disagreement cannot
be resolved and prior to commencing an arbitration procedure pursuant to this
Section 12.7, the parties shall meet to discuss and consider other alternative
dispute resolution procedures other than arbitration including, but not limited
to, Judicial Arbitration & Mediation Services, Inc., if applicable. If at any
time prior to the rendering of the decision by the arbitrator (or pursuant to
such other alternative dispute resolution
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procedure) as contemplated in this Section 12.7 to the extent a party makes a
written offer to the other party proposing a settlement of the matter(s) at
issue and such offer is rejected, then the party rejecting such offer shall be
obligated to pay the costs and expenses (excluding the amount of the award
granted under the decision) of the party that offered the settlement from the
date such offer was received by such other party if the decision is for a dollar
amount that is less than the amount of such offer to settle. Notwithstanding the
foregoing, the terms and provisions of this Section 12.7 shall not preclude any
party hereto from seeking, or a court of competent jurisdiction from granting, a
temporary restraining order, temporary injunction or other equitable relief for
any breach of (i) any noncompetition or confidentiality covenant or (ii) any
duty, obligation, covenant, representation or warranty, the breach of which may
cause irreparable harm or damage.
(b) Arbitrators. In the event there is a claim, controversy,
dispute or disagreement among the parties hereto arising out of or relating to
this Agreement (including any claim based on or arising from an alleged tort)
and the parties hereto have not reached agreement regarding an alternative to
arbitration, the parties agree to select within thirty (30) days of notice by a
party to the other of its desire to seek arbitration under this Section 12.7 one
(1) arbitrator mutually acceptable to APP and the Sellers to hear and decide all
such claims under this Section 12.7. Each of the arbitrators proposed shall be
impartial and independent of all parties. If the parties cannot agree on the
selection of an arbitrator within said 30-day period, then any party may in
writing request the judge of the United States District Court for the Western
District of Texas senior in term of service to appoint the arbitrator and,
subject to this Section 12.7, such arbitrator shall hear all arbitration matters
arising under this Section 12.7.
(c) Applicable Rules.
(1) Each arbitration hearing shall be held at a place in
Boxar County, Texas acceptable to the arbitrator. The arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association to the extent such rules do not conflict with the terms
hereof; provided, however, that if the parties hereto agree to an alternative to
arbitration they may agree to an alternative set of rules, including as to rules
of evidence and procedure. The decision of the arbitrator shall be reduced to
writing and shall be binding on the parties and such decision shall contain a
concise statement of the reasons in support of such decision. Judgment upon the
award(s) rendered by the arbitrator may be entered and execution had in any
court of competent jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement. The charges and
expenses of the arbitrator shall be shared equally by the parties to the
hearing.
(2) The arbitration shall commence within ten (10) days
after the arbitrator is selected in accordance with the provisions of this
Section 12.7. In fulfilling his duties with respect to determining the amount of
any loss, the arbitrator may consider such matters as, in the opinion of the
arbitrator, are necessary or helpful to make a proper valuation. The arbitrator
may consult with and engage disinterested third parties to advise the
arbitrator. The arbitrator shall not add any interest factor reflecting the time
value of money to the amount of any loss and shall not award any punitive
damages.
(3) If the arbitrator selected hereunder should die,
resign or be unable to perform his or her duties hereunder, the parties, or such
senior judge (or such judge's successor) in the event the parties cannot agree,
shall select a replacement arbitrator. The procedure set forth in this Section
12.7 for selecting the arbitrator shall be followed from time to time as
necessary.
(4) As to any determination of the amount of any loss,
or as to the resolution of any other claim, controversy, dispute or
disagreement, that under the terms hereof is made subject to
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arbitration, no lawsuit based on such claimed loss or such resolution shall be
instituted by the parties hereto, other than to compel arbitration proceedings
or enforce the award of the arbitrator, except as otherwise provided in Section
12.7(b).
(5) All privileges under Texas and federal law,
including attorney-client and work-product privileges, shall be preserved and
protected to the same extent that such privileges would be protected in a
federal court proceeding applying Texas law.
ARTICLE XIII
Termination
Section 13.1 Termination. This Agreement may be terminated and the
Exchange may be abandoned:
(a) at any time prior to the Closing Date by mutual
agreement of all parties;
(b) at any time prior to the Closing Date by APP if any
material representation or warranty of any Seller or Lexington contained in this
Agreement or in any certificate or other document executed and delivered by any
Seller or Lexington pursuant to this Agreement is or becomes untrue or breached
in any material respect or if any Seller or Lexington fails to comply in any
material respect with any material covenant or agreement contained herein, and
any such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
(c) at any time prior to the Closing Date by Seller as to
Seller if any representation or warranty of APP contained in this Agreement or
in any certificate or other document executed and delivered by APP pursuant to
this Agreement is or becomes untrue in any material respect of if APP fails to
comply in any material respect with any covenant or agreement contained herein,
and any such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
(d) at any time prior to the Closing Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or Seller as to Seller if the Exchange shall not
have been consummated by September 30, 1997.
Section 13.2 Effect of Termination. Except as set forth in Section
14.3, in the event this Agreement is terminated pursuant to this Article XIV,
this Agreement shall forthwith become void.
ARTICLE XIV
Nondisclosure of Confidential Information
Section 14.1 Non-Disclosure Covenant. Seller and Lexington recognize
and acknowledge that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP that is
valuable, special and a unique asset of such entity's business. APP acknowledges
that it had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of Lexington that is valuable,
special and a unique asset of each such business. Seller, Lexington and APP,
severally, agree that they will not disclose such Confidential Information to
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any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of APP, Seller and
Lexington and (b) to counsel and other advisers to APP, Sellers and Lexington
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.1, unless (i) such information becomes available
to or known by the public generally through no fault of Lexington, Seller or
APP, as the case may be, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii) Lexington, Seller or APP, as the
case may be, shall, if possible, give prior written notice thereof to Lexington,
Seller or APP and provide Lexington, Seller or APP with the opportunity to
contest such disclosure, (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party, or (iv) the disclosing party is the sole and exclusive
owner of such Confidential Information as a result of the Exchange or otherwise.
In the event of a breach or threatened breach by Seller or Lexington, on the one
hand, and APP, on the other hand, of the provisions of this Section, APP, Seller
and Lexington shall be entitled to an injunction restraining the other party, as
the case may be, from disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting any of such
parties from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
Section 14.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, Seller and Lexington agree that,
in the event of a breach by either of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
Section 14.3 Survival. The obligations of the parties under this
Article XIV shall survive the termination of this Agreement.
ARTICLE XV
Miscellaneous
Section 15.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
Section 15.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto, except
by APP to a wholly owned subsidiary of APP; provided that any such assignment
shall not relieve APP of its obligations hereunder.
Section 15.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Except as
otherwise provided herein, neither this Agreement nor any other agreement
contemplated hereby shall be deemed to confer upon any person not a party hereto
or thereto any rights or remedies hereunder or thereunder.
Section 15.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior
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agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof.
Section 15.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 15.6 Survival of Representations, Warranties and Covenants.
The representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of Lexington, Seller or APP pursuant to
this Agreement shall be deemed to have been representations and warranties made
by Lexington, Seller and APP, respectively. Notwithstanding any provision in
this Agreement to the contrary, the representations and warranties contained
herein shall survive the Closing until the second anniversary of the Closing
Date except that (a) the representations and warranties set forth in Section
3.20 with respect to environmental matters shall survive for a period of ten
(10) years, (b) the representations and warranties set forth in Section 3.29
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.26 and Section 3.32 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 12.1(c) and Section 12.2(b), and solely to
the extent that any party to be indemnified pursuant to such provisions actually
incurs liability under the Securities Act, the Exchange Act or any other federal
or state securities law, the representations and warranties set forth therein
shall survive until the expiration of any applicable limitations period.
Section 15.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF TEXAS.
Section 15.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
Section 15.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and neuter
and the number of all words shall include the singular and plural.
Section 15.10 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Target Companies; provided that APP shall reasonably promptly
provide notice of any release. In the
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event that the transactions contemplated hereby are not consummated for any
reason whatsoever, the parties hereto agree not to disclose or use any
Confidential Information they may have concerning the affairs of the other
parties, except for information that is required by law to be disclosed;
provided that should the transactions contemplated hereby not be consummated,
nothing contained in this Section shall be construed to prohibit the parties
hereto from operating businesses in competition with each other.
Section 15.11 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to Lexington or Seller: Lexington MR, Ltd.
730 N. Main, Suite B-109
San Antonio, TX 78299
Attn: Managing Partner
with a copy to : Oppenheimer, Blend, Harrison & Tate, Inc.
Sixth Floor
711 Navarro
San Antonio, TX 78205-1796
Attn: Jerome B. Cohen
Section 15.12 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 16.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. Except as set forth herein,
no remedy set forth in this Agreement or otherwise conferred upon or reserved to
any party shall be considered exclusive of any other remedy available to any
party, but the same shall be distinct, separate and cumulative and may be
exercised from time to time as often as occasion may arise or as may be deemed
expedient.
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Section 15.13 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Section 15.14 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, and the Schedules attached hereto with their
initial letter capitalized and not otherwise defined therein shall have the
meanings as assigned to such terms in this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:______________________________
Gregory L. Solomon, President
LEXINGTON:
LEXINGTON MR, LTD.
By:______________________________
Its:_____________________________
_________________________________
Neil Bowie
_________________________________
Joseph F. Carabin
_________________________________
Gregory C. Godwin
_________________________________
Michael D. Howard
_________________________________
Philip S. Kline
_________________________________
Julio C. Otazo
_________________________________
R.K. Daniel Peterson
_________________________________
Randall S. Preissig
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<PAGE> 709
_________________________________
Jose A. Saldana
_________________________________
Anthony F. Smith
_________________________________
Robert L. Thompson
_________________________________
Jeremy N. Wiersig
_________________________________
Gregory W. Wojcik
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<PAGE> 710
EXHIBIT A
LIST OF SELLERS AND EXCHANGE CONSIDERATION
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EXHIBIT B
TARGET COMPANIES
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EXHIBIT C
LEGAL OPINION OF SELLERS' COUNSEL
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EXHIBIT D
LEGAL OPINION OF APP'S COUNSEL
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EXHIBIT E
SELLER RELEASE
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<PAGE> 715
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF EXCHANGE
DATED AS OF [_____________], 1997
The following Disclosure Schedules and the disclosures set forth
therein are delivered in connection with that certain Agreement and Plan of
Exchange dated [____________], 1997, by and between American Physician Partners,
Inc., Lexington MR, Ltd. and Sellers (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made pursuant
to one section number can reasonably be interpreted by other parties to be a
disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
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<PAGE> 716
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF EXCHANGE
This Amendment No. 1 to the Agreement and Plan of Exchange (this
"Amendment No. 1"), dated as of September 30, 1997, is by and among AMERICAN
PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and LEXINGTON MR, LTD.,
a Texas limited partnership (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Exchange dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 13.1(e). APP and the Company hereby agree to
amend Section 13.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
LEXINGTON MR, LTD.
By:_________________________________
Its:________________________________
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<PAGE> 717
================================================================================
AGREEMENT AND PLAN OF EXCHANGE
dated as of
June 27, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),
MADISON SQUARE JOINT VENTURE
(a general partnership)
and
THE SELLERS LISTED ON THE SIGNATURE PAGES HEREOF
================================================================================
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<PAGE> 718
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions..................................................... 1
Section 1.1 Definitions.............................................. 1
Section 1.2 Rules Of Interpretation.................................. 5
ARTICLE II Exchange....................................................... 5
ARTICLE III Representations and Warranties of Sellers..................... 6
Section 3.1 Organization and Good Standing; Qualification............ 6
Section 3.2 Authorization and Validity............................... 7
Section 3.3 Governmental Authorization............................... 7
Section 3.4 Capitalization and Title................................. 7
Section 3.5 Transactions in Partnership Units........................ 7
Section 3.6 Continuity of Business Enterprise........................ 7
Section 3.7 Subsidiaries and Investments............................. 7
Section 3.8 Absence of Conflicting Agreements or Required Consents... 8
Section 3.9 Absence of Changes....................................... 8
Section 3.10 No Undisclosed Liabilities.............................. 9
Section 3.11 Litigation and Claims................................... 9
Section 3.12 No Violation of Law..................................... 9
Section 3.13 Lease Agreements........................................ 10
Section 3.14 Real and Personal Property.............................. 10
Section 3.15 Indebtedness for Borrowed Money......................... 10
Section 3.16 Contracts and Commitments............................... 10
Section 3.17 Employee Matters........................................ 11
Section 3.18 Labor Relations......................................... 12
Section 3.19 Employee Benefit Plans.................................. 12
Section 3.20 Environmental Matters................................... 12
Section 3.21 Filing Reports.......................................... 13
Section 3.22 Insurance Policies...................................... 13
Section 3.23 Accounts Receivable..................................... 14
Section 3.24 Accounts Payable; Suppliers............................. 14
Section 3.25 Inventory............................................... 14
Section 3.26 Licenses, Authorization and Provider Programs........... 14
Section 3.27 Inspections and Investigations.......................... 15
Section 3.28 Proprietary Rights and Information...................... 15
Section 3.29 Taxes................................................... 16
Section 3.30 Related Party Arrangements.............................. 16
Section 3.31 Banking Relations....................................... 17
Section 3.32 Fraud and Abuse and Self Referral....................... 17
Section 3.33 Restrictions on Business Activities..................... 17
Section 3.34 Agreements in Full Force and Effect..................... 17
Section 3.35 Statements True and Correct............................. 17
Section 3.36 Schedules............................................... 17
Section 3.37 Finders' Fees........................................... 17
ARTICLE IV Representations and Warranties of APP.......................... 18
Section 4.1 Organization and Good Standing; Qualification............ 18
Section 4.2 Authorization and Validity............................... 18
Section 4.3 Governmental Authorization............................... 18
</TABLE>
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<TABLE>
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Section 4.4 Capitalization........................................... 18
Section 4.5 Subsidiaries and Investments............................. 19
Section 4.6 Absence of Conflicting Agreements or Required Consents... 19
Section 4.7 Absence of Changes....................................... 19
Section 4.8 No Undisclosed Liabilities............................... 19
Section 4.9 Litigation and Claims.................................... 19
Section 4.10 No Violation of Law..................................... 20
Section 4.11 Employee Matters........................................ 20
Section 4.12 Taxes................................................... 20
Section 4.13 Related Party Arrangements.............................. 21
Section 4.14 Statements True and Correct............................. 21
Section 4.15 Schedules............................................... 21
Section 4.16 Finder's Fees........................................... 21
ARTICLE V Covenants of Seller and Madison................................. 21
Section 5.1 Required Conduct of Seller and Madison................... 21
Section 5.2 Prohibited Conduct of Seller and Madison................. 22
Section 5.3 Title to Assets; Indebtedness............................ 23
Section 5.4 Access................................................... 23
Section 5.5 Acquisition Proposals.................................... 23
Section 5.6 Compliance With Obligations.............................. 24
Section 5.7 Notice of Certain Events................................. 24
Section 5.8 Partners' Consent........................................ 25
Section 5.9 Obligations of Seller and ............................... 25
Section 5.10 Intentionally omitted................................... 25
Section 5.11 Accounting and Tax Matters.............................. 25
ARTICLE VI Covenants of APP............................................... 26
Section 6.1 Consummation of Agreement................................ 26
Section 6.2 Access................................................... 26
Section 6.3 Notification of Certain Matters.......................... 26
ARTICLE VII Covenants of APP, Seller and Madison.......................... 26
Section 7.1 Filings; Other Action.................................... 26
Section 7.2 Amendments of Schedules.................................. 27
Section 7.3 Actions Contrary to Stated Intent........................ 27
Section 7.4 Public Announcements..................................... 27
Section 7.5 Expenses................................................. 27
Section 7.6 Registration Statements.................................. 28
ARTICLE VIII Conditions Precedent of APP.................................. 28
Section 8.1 Representations and Warranties........................... 28
Section 8.2 Covenants................................................ 28
Section 8.3 Legal Opinion............................................ 28
Section 8.4 Proceedings.............................................. 28
Section 8.5 No Material Adverse Effect............................... 28
Section 8.6 Government Approvals and Required Consents............... 28
Section 8.7 Securities Approvals..................................... 28
Section 8.8 Closing Deliveries....................................... 28
Section 8.9 Closing of Initial Public Offering....................... 29
Section 8.10 Closing of Related Acquisitions......................... 29
Section 8.11 Execution by Each Seller................................ 29
</TABLE>
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<TABLE>
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ARTICLE IX Conditions Precedent of Seller and Madison..................... 29
Section 9.1 Representations and Warranties........................... 29
Section 9.2 Covenants................................................ 29
Section 9.3 Legal Opinions........................................... 29
Section 9.4 Proceedings.............................................. 29
Section 9.5 Government Approvals and Required Consents............... 29
Section 9.6 "Blue Sky" Approvals; Nasdaq Listing..................... 29
Section 9.7 Closing of Initial Public Offering....................... 29
Section 9.8 Closing Deliveries....................................... 29
Section 9.9 No Material Adverse Effect............................... 30
ARTICLE X Closing Deliveries.............................................. 30
Section 10.1 Deliveries of Seller and Madison........................ 30
Section 10.2 Deliveries of APP. ..................................... 31
ARTICLE XI Post Closing Matters........................................... 32
Section 11.1 Further Instruments of Transfer......................... 32
Section 11.2 Exchange Tax Covenant................................... 32
ARTICLE XII Remedies...................................................... 32
Section 12.1 Indemnification by Sellers.............................. 32
Section 12.2 Indemnification by APP.................................. 33
Section 12.3 Conditions of Indemnification........................... 33
Section 12.4 Remedies Not Exclusive.................................. 36
Section 12.5 Costs, Expenses and Legal Fees.......................... 36
Section 12.6 Tax Benefits; Insurance Proceeds........................ 36
Section 12.7 Dispute Resolution...................................... 36
ARTICLE XIII Termination.................................................. 38
Section 13.1 Termination............................................. 38
Section 13.2 Effect of Termination................................... 38
ARTICLE XIV Nondisclosure of Confidential Information..................... 38
Section 14.1 Non-Disclosure Covenant................................. 38
Section 14.2 Damages................................................. 39
Section 14.3 Survival................................................ 39
ARTICLE XV Miscellaneous.................................................. 39
Section 15.1 Amendment; Waivers...................................... 39
Section 15.2 Assignment.............................................. 39
Section 15.3 Parties in Interest; No Third Party Beneficiaries....... 39
Section 15.4 Entire Agreement........................................ 39
Section 15.5 Severability............................................ 40
Section 15.6 Survival of Representations, Warranties and Covenants... 40
Section 15.7 Governing Law........................................... 40
Section 15.8 Captions................................................ 40
Section 15.9 Gender and Number....................................... 40
Section 15.10 Confidentiality; Publicity and Disclosures............. 40
Section 15.11 Notice................................................. 41
Section 15.12 No Waiver; Remedies.................................... 41
Section 15.13 Counterparts........................................... 42
Section 15.14 Defined Terms.......................................... 42
</TABLE>
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EXHIBITS
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Exhibit A - List of Sellers and Exchange Consideration.....................A-1
Exhibit B - Target Companies...............................................B-1
Exhibit C - Legal Opinion of Sellers' Counsel..............................C-1
Exhibit D - Legal Opinion of APP's Counsel.................................D-1
Exhibit E - Seller Release.................................................E-1
</TABLE>
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AGREEMENT AND PLAN OF EXCHANGE
This Agreement and Plan of Exchange ("Agreement") dated May ___, 1997 is
by and among American Physician Partners, Inc., a Delaware corporation, ("APP"),
Madison Square Joint Venture, a Texas general partnership ("Madison") and each
of the individuals whose names appear on Exhibit A hereto (each individually, a
"Seller" and collectively "Sellers").
RECITALS
A. Each Seller is a partner of Madison and the Sellers are the only
partners of Madison.
B. Madison owns assets relating to and operates a diagnostic imaging
center.
C. APP is engaged in the business of owning, operating and acquiring the
assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
D. Sellers desire to convey to APP and APP desires to acquire from
Sellers, one hundred percent of the outstanding general partnership interests of
Madison (the "Partnership Units") in consideration for cash and shares of common
stock, par value $.0001 per share, of APP (the "APP Common Stock") as set forth
herein (the "Exchange").
E. APP and subsidiaries of APP have entered into, or intend to enter into,
an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Sellers, the "Target Interest Holders") of
each of the entities listed on Exhibit B (together with Madison, the "Target
Companies").
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Acquisition" shall have the meaning set forth in Section 2.1.
"Affiliate" with respect to any person shall mean a person that, directly
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such person.
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"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"Best knowledge" or "to the knowledge of" and similar phrases shall mean
(i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the partners
set forth in Exhibit A, stockholder or director, as the case may be, or
executive officer of such entity after reasonable investigation and inquiry by
the executive officers of such entity; provided, however, that to the extent any
of the representations, warranties and statements of Seller and Madison made
specifically in Section 3.20 is expressly qualified to the knowledge or best
knowledge of Sellers and Madison, it shall mean the knowledge of any of the
Sellers set forth in Exhibit A, partner or executive officer of Madison actually
possesses without the necessity of any special inquiry as to the matters which
are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 12.3(a).
"Closing" shall mean the closing of the transactions contemplated by this
Agreement as set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Current Policies" shall have the meaning set forth in Section 3.22.
"Damages" shall have the meaning set forth in Section 12.1.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Form S-1 Registration
Statement is declared effective by the SEC.
"Election Period" shall have the meaning set forth in Section 12.3(a).
"Encumbrance" shall mean any charge, claim, community property interest,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
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"Environmental Laws" shall have the meaning set forth in Section 3.20(e).
"Environmental Liabilities" shall have the meaning set forth in Section
3.20(e).
"ERISA" shall have the meaning set forth in Section 3.17.
"Exchange" shall have the meaning set forth in the recitals.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agreement" shall have the meaning set forth in the recitals to
this Agreement.
"Exchange Consideration" shall have the meaning set forth in Section 2.1.
"Form S-1" shall mean the Form S-1 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with its Initial Public
Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with the offering of APP
Common Stock as consideration under the Exchange and other mergers or
acquisitions contemplated by the Other Agreements.
"FTC" shall mean the United States Federal Trade Commission.
"Governmental Programs" shall have the meaning set forth in Section
3.26(a).
"Hazardous Substance" shall have the meaning set forth in Section 3.20(e).
"Indemnified Party" shall have the meaning set forth in Section 12.1.
"Indemnifying Party" shall have the meaning set forth in Section 12.1.
"Indemnity Notice" shall have the meaning set forth in Section 12.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Insurance Policies" shall have the meaning set forth in Section 3.22.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.13.
"Lock-Up Provisions" shall have the meaning set forth in Section 5.12.
"Madison" shall have the meaning set forth in the preamble to this
Agreement.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
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"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA SectionSection 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA SectionSection 1401
et seq., (iv) The Occupational Safety and Health Act, 29 USCA SectionSection 651
et seq., (v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of Madison's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
"Medicare and Medicaid Programs" shall have the meaning set forth in
Section 3.26(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Partnership Agreement" shall have the meaning set forth in Section 3.1 to
this Agreement.
"Partnership Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, general partnership
interests of Madison, or by which Madison is or may be bound to issue additional
Partnership Units or other Partnership Rights.
"Partnership Subsidiary" shall have the meaning set forth in Section 3.7.
"Partnership Units" shall have the meaning set forth in the recitals to
this Agreement.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Private Programs" shall have the meaning set forth in Section 3.26(a).
"Proprietary Right" shall have the meaning set forth in Section 3.28(a).
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section 3.20(e).
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"Related Acquisitions" shall mean, collectively, the mergers and
acquisitions of each Founding Company and its related entities and assets
contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 11.2.
"Schedules" shall mean the schedules attached hereto as of the date hereof
or otherwise delivered by any party hereto pursuant to the terms hereof, as such
may be amended or supplemented from time to time pursuant to the provisions
hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller Release" shall have the meaning set forth in Section 10.1(l).
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the recitals
to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign income,
excise, corporate, franchise, property, sales, use, payroll, withholding,
provider, environmental, duties, value added and other tax returns (including
information returns).
"Third Party Claim" shall have the meaning set forth in Section 12.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in Section
1.1 shall be equally applicable to both the singular and the plural forms of the
terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number (e.g.,
Article IV) or a Section number (e.g., Section 6.2) shall be construed to be a
reference to the designated Article number or Section number of this Agreement.
ARTICLE II
Exchange
Section 2.1 Exchange of Partnership Units for Cash and APP Common Stock.
(a) Subject to and upon the terms and conditions contained herein,
on the Closing Date Sellers shall convey, transfer deliver and assign to APP all
of the Partnership Units, free and clear of all obligations, security interests,
claims, liens and encumbrances whatsoever (the "Acquisition"). Subject to and
upon the terms and conditions contained herein, as consideration for the
Partnership Units on the Closing Date each Seller shall receive (i) cash and
(ii) validly issued, fully paid and nonassessable shares of APP Common Stock,
all as determined in accordance with the provisions of Exhibit A attached hereto
(the "Exchange Consideration").
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(b) Each Seller shall deliver to APP at the Closing a Bill of Sale
representing the Partnership Units owned by him, her or it. Each Seller agrees
to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to such Partnership Units or with
respect to the powers accompanying any Partnership Unit. Upon such delivery,
each Seller shall receive in exchange therefor the Exchange Consideration
pursuant to Exhibit A.
Section 2.2 Legends. All APP Common Stock certificates issued to the
Sellers shall bear one or more of the following restrictive legends:
(a) Any legend required to put third-parties on notice of the
existence of the Lock-Up Provisions.
(b) Any legend relating to affiliates of the Company as required
pursuant to the Securities and Exchange Act of 1934.
Section 2.3 Closing. The closing (the "Closing") of the transactions
provided for in Section 2.1 shall take place at 10:00 a.m., local time, at the
offices of APP located at 2301 NationsBank Plaza, 901 Main Street, on the day on
which the transactions contemplated by the Initial Public Offering are
consummated. The date on which the Closing occurs is hereinafter referred to as
the "Closing Date."
Section 2.4 Resignations. At the Closing, the persons who are the officers
of Madison immediately prior to the Closing Date shall submit a written
resignation, in form and substance acceptable to APP, effective as of the
Closing Date.
ARTICLE III
Representations and Warranties of Sellers and Madison
As an inducement to APP to enter into this Agreement, each of Seller and
Madison represents and warrants to APP both as of the date hereof and as of the
Closing Date as set forth below, subject to those exceptions set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
specifically identifying the relevant subparagraph hereof, which exceptions
shall be deemed to be representations and warranties as if made hereunder.
Section 3.1 Organization and Good Standing; Qualification. Madison is a
general partnership duly organized, validly existing under the laws of its state
of organization, with all requisite power and authority to own, operate and
lease its assets and properties and to carry on its business as currently
conducted. Copies of the Joint Venture Agreement of Madison, as amended (the
"Partnership Agreement"), and copies of the minutes of Madison, all of which
have been or will be made available to APP for review, are true and complete as
in effect on the date of this Agreement, and in the case of the minutes,
accurately reflect all material proceedings of the partners of Madison (and all
committees thereof).
Section 3.2 Authorization and Validity. Madison has all requisite right,
power and authority to execute, deliver and perform this Agreement and all
agreements and other documents executed and delivered by it pursuant to this
Agreement or to be executed and delivered on the Closing Date, and has taken all
action required by law, its Partnership Agreement or otherwise, to authorize the
execution, delivery and performance of this Agreement and such related
documents. Seller has the legal capacity to enter into and perform this
Agreement and the other agreements to be executed and delivered in connection
herewith. This Agreement and all agreements and documents executed and delivered
in
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connection herewith have been, or will be as of the Closing Date, duly executed
and delivered by Seller and Madison and constitute or will constitute the legal,
valid and binding obligations of Seller, enforceable against Seller and Madison
in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or by general equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than consents, filings or
notifications required to be made or obtained solely by APP (including, without
limitation, in connection with the Initial Public Offering, Form S-4 or any
Hart-Scott-Rodino filing to be made by APP, if any), the execution, delivery and
performance by Seller and Madison of this Agreement and the agreements provided
for herein, and the consummation of the transactions contemplated hereby and
thereby by Seller and Madison requires no action by or in respect of, or filing
with, any governmental body, agency, official or authority.
Section 3.4 Capitalization and Title. The Sellers collectively are, and
will be immediately prior to the Closing Date, the record and beneficial owners
of all the issued and outstanding Partnership Units of Madison and Seller is the
owner of the Partnership Units currently held in his or her name on the record
books of Madison, free and clear of all Encumbrances. Each Partnership Unit held
by Seller has been legally and validly issued and is fully paid and
nonassessable, and was issued pursuant to a valid exemption from registration
under (i) the Securities Act and (ii) all applicable state securities laws.
Section 3.5 Transactions in Partnership Units. There exist no Partnership
Rights. Madison has no obligation (contingent or otherwise) to purchase, redeem
or otherwise acquire any of its Partnership Units or to pay any dividend or make
any distribution in respect thereof. Neither the equity structure of Madison nor
the relative ownership of partnership interests among any of its partners has
been altered or changed in contemplation of the Exchange within the two (2)
years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of Madison or any of its
Affiliates other than in the ordinary course of business within the two (2)
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. Madison does not own, directly
or indirectly, any capital stock or other equity, ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture or
other entity (each a "Partnership Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance by Seller and Madison of this Agreement and
any other documents contemplated hereby (with or without the giving of notice,
the lapse of time, or both): (i) do not require the consent of any governmental
or regulatory body or authority or any other third party except for such
consents, for which the failure to obtain would not result in a Material Adverse
Effect on Madison; (ii) will not conflict with or result in a violation of any
provision of Madison's Partnership Agreement, (iii) will not conflict with,
result in a violation of, or constitute a default under any law, rule,
ordinance, regulation or any ruling, decree, determination, award, judgment,
order or injunction of any court or governmental instrumentality which is
applicable to Seller or Madison or by which Seller or Madison or Madison's
properties are subject or bound; (iv) will not conflict with, constitute grounds
for termination of, result in a breach of, constitute a default under, require
any notice under, or accelerate or modify, or permit any person to accelerate or
modify, any performance required by the terms of any agreement, instrument,
license or permit, to which Madison is a party or by which Madison or any of its
properties are subject or bound except for such conflict, termination, breach or
default, the occurrence of which would not result in a Material Adverse Effect
on Madison; and (v) except as contemplated by this
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Agreement, will not create any Encumbrance or restriction upon the Partnership
Units or any of the assets or properties of Madison.
Section 3.9 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, Madison has conducted its business only in
the ordinary course and has not:
(a) suffered any change or changes in its working capital, condition
(financial or otherwise), assets, liabilities, reserves, business or operations
(whether or not covered by insurance) that individually or in the aggregate has
had or could reasonably be expected to have a Material Adverse Effect on
Madison;
(b) paid, discharged or satisfied any material liability, other than
the payment, discharge or satisfaction of liabilities in the ordinary course of
business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent with
past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the ordinary
course of business that is material to Madison, taken as a whole, or made any
capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or accounting
practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with past
practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of its
assets, tangible or intangible, to any claim or Encumbrance, except for liens
for current personal property taxes not yet due and payable for mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any equity or
other interest in itself;
(j) increased any salaries, wages or any employee benefits for any
employee of Madison, except in the ordinary course of business and consistent
with past practice;
(k) hired, committed to hire or terminated any employee except in
the ordinary course of business;
(l) declared, set aside or made any payments, dividends or other
distributions to any partner or any other holder of any partnership interest in
Madison (except as expressly contemplated herein); or
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(m) agreed, whether in writing or otherwise, to take any action
described in this Section 3.9.
Section 3.10 No Undisclosed Liabilities. To the best knowledge of Seller
and Madison, Madison does not have any liabilities or obligations of any nature,
whether accrued, absolute, contingent or otherwise, asserted or unasserted
except for liabilities or obligations reflected in the Disclosure Schedules.
Section 3.11 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of Seller and Madison,
threatened against, or affecting Madison, any Partnership Subsidiary, or, to the
knowledge of Seller and Madison, any Seller or any other licensed professional
or other individual affiliated with Madison affecting or that would reasonably
be likely to affect the Partnership Units or the operations, business condition
(financial or otherwise), or results of operations of Madison which (i) if
successful, may, individually or in the aggregate, have a Material Adverse
Effect on Madison or (ii) could adversely affect the ability of Madison or any
Partnership Subsidiary to effect the transactions contemplated hereby, and to
the knowledge of Seller and Madison there is no basis for any such action or any
state of facts or occurrence of any event which would reasonably be likely to
give rise to the foregoing. There are no unsatisfied judgments against Seller,
Madison or any Partnership Subsidiary or any licensed professional or other
individual affiliated with Madison or any Partnership Subsidiary relating to
services provided on behalf of Madison or any Partnership Subsidiary or any
consent decrees to which any of the foregoing is subject. Each of the matters,
if any, set forth in this Section 3.11 is fully covered by policies of insurance
of Madison or any Partnership Subsidiary as in effect on the date hereof.
Section 3.12 No Violation of Law. Neither Madison nor any Partnership
Subsidiary has been, nor shall be as of the Closing Date (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
Madison.
Section 3.13 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which Madison or any Partnership Subsidiary is a party and pursuant to which
Madison or any Partnership Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the operation of its business and which requires payments in excess of
$12,000 per year (the "Lease Agreements"). Madison has delivered to APP true and
complete copies of all of the Lease Agreements. Each Lease Agreement is valid,
effective and in full force in accordance with its terms, and there is not under
any such lease (i) any existing or claimed material default by Madison or any
Partnership Subsidiary (as applicable) or event of material default or event
which with notice or lapse of time, or both, would constitute a material default
by Madison or any Partnership Subsidiary (as applicable) and, individually or in
the aggregate, may reasonably result in a Material Adverse Effect on Madison,
or, (ii) to the knowledge of Seller and Madison, any existing material default
by any other party under any of the Lease Agreements or any event of material
default or event which with notice or lapse of time, or both, would constitute a
material default by any such party. To the knowledge of Seller and Madison,
there is no pending or threatened reassessment of any property covered by the
Lease Agreements. To the extent necessary to accomplish the intent of the
Agreement, Madison or any Partnership Subsidiary shall use reasonable good faith
efforts, and Seller shall use reasonable good faith efforts to cause
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Madison, to obtain prior to the Closing Date the consent of each landlord or
lessor whose consent is required to the assignment of the Lease Agreements and
will use reasonable good faith efforts to deliver to APP in writing such
consents as are necessary to effect a valid and binding transfer or assignment
of Madison's or any Partnership Subsidiary's rights thereunder. Madison has a
good, clear, valid and enforceable leasehold interest under each of the Lease
Agreements. The Lease Agreements comply with the exceptions to ownership
interests and compensation arrangements set out in 42 U.S.C. Section 1395nn, 42
C.F.R. Section 1001.952, and any similar applicable state law safe harbor or
other exemption provisions.
Section 3.14 Real and Personal Property.
(a) Neither Madison nor each Partnership Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) Madison and each Partnership Subsidiary (i) has good title to
all of its properties and assets (real, personal and mixed, tangible and
intangible) and any rights or interests therein which it purports to own; and
(ii) owns such rights, interests, assets and property free and clear of all
Encumbrances, title defects or objections (except for taxes not yet due and
payable). The personal property presently used in connection with the operation
of the business of Madison and each Partnership Subsidiary constitutes the
necessary personal property assets to continue operation of Madison and each
Partnership Subsidiary.
Section 3.15 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, Madison does not have any direct or
indirect indebtedness for borrowed money, including indebtedness by way of
lease-purchase arrangements or guarantees, and is not obligated in any manner
(actual or contingent) to assume or guarantee any indebtedness or obligation of
another Person.
Section 3.16 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and complete
list, and Madison has delivered to APP true and complete copies, of each
contract, agreement and other instrument requiring Madison to make future
payments of $10,000 in any fiscal year or $25,000 in the aggregate (other than
insurance contracts identified in Section 3.22 or Lease Agreements identified in
Section 3.13) to which Madison is a party or by which it or any of its
properties or assets are bound including, without limitation, (i) all agreements
between Madison, on the one hand, and any government entity, provider, hospital,
health maintenance organization, other managed care organization or other
third-party provider, on the other hand, then in effect relating to the
provision of medical, diagnostic imaging or consulting services, treatments,
patient referrals or other similar activities, (i) all indentures, mortgages,
notes, loan or credit agreements and other agreements and obligations relating
to the borrowing of money or to the direct or indirect guarantee or assumption
of obligations of third parties requiring Madison to make, or setting forth
conditions under which Madison would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(ii) all agreements for capital improvements or acquisitions involving an amount
of $75,000 in any fiscal year or $75,000 in the aggregate, (iii) all agreements
containing a covenant limiting the freedom of Madison (or any provider employee
of Madison) to compete in any line of business with any person or entity or in
any geographic area or (iv) all written contracts and commitments providing for
future payments by Madison in excess of $10,000 in any fiscal year or $25,000 in
the aggregate and that are not cancelable by providing notice of sixty (60) days
or less. All such contracts, agreements or other instruments are in full force
and effect, there has been no threatened cancellation thereof, there are no
outstanding disputes thereunder, each is with unrelated third parties and was
entered into on an arms-length basis in the ordinary course
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of business and, assuming the receipt of the appropriate consents, all will
continue to be binding in accordance with their terms after consummation of the
transaction contemplated herein; there are no contracts, agreements or other
instruments to which Madison is a party or is bound (other than physician
employment contracts and insurance policies) which could either singularly or in
the aggregate have a Material Adverse Effect on the value to APP of the assets
and properties to be acquired by APP from Madison, or which could inhibit or
prevent Madison from transferring to or vesting in APP good and sufficient title
to the assets and properties to be acquired by APP except where the failure to
transfer would not have a Material Adverse Effect on APP. In every instance
where consent is necessary, on or before the Closing Date Madison shall use
reasonable good faith efforts, and Seller shall use reasonable good faith
efforts to cause Madison, to obtain and deliver to APP in writing, effective as
of the Closing Date, such consents as are necessary to enable APP to enjoy all
of the rights now enjoyed by Madison under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that Madison has fully complied with and
is not in default under any provision of the particular contract or agreement.
(b) (i) Neither Madison nor Seller has received notice of any plan
or intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument, and to the knowledge of Madison and Seller
there are no facts that would justify the exercise of such a right; and (ii)
neither Madison nor Seller currently contemplates, or has reason to believe any
other Person currently contemplates, any amendment or change to any such
contract, agreement or instrument.
Section 3.17 Employee Matters. Madison does not have any employees and is
not currently a party to any employment contract (except for oral employment
agreements which are terminable at will), consulting or collective bargaining
contracts, deferred compensation, pension plan (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended, and all rules
and regulations from time to time promulgated thereunder ("ERISA")), profit
sharing, bonus or other nonqualified benefit or compensation commitments,
benefit plans, arrangements or plans (whether written or oral), including all
welfare plans (as defined in Section 3(1) of ERISA) of or pertaining to Madison
and any of its present or former employees, or any predecessors in interest.
Section 3.18 Labor Relations. Intentionally omitted.
Section 3.19 Employee Benefit Plans. Intentionally omitted.
Section 3.20 Environmental Matters.
(a) Neither Madison nor any Partnership Subsidiary has, within the
five (5) years preceding the date hereof, through the Closing Date, received
from any federal, state or local governmental body, agency, authority or entity,
or any other Person, any written notice, demand, citation, summons, complaint or
order or any notice of any penalty, lien or assessment, and to the knowledge of
Seller and Madison no investigation or review is pending by any governmental
entity, with respect to any (i) alleged violation by Madison of any
Environmental Law (as defined in subsection (e) below) (ii) alleged failure by
Madison to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by Madison.
(b) Neither Madison nor any Partnership Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance that would be reasonably
likely to give rise to any Environmental Liabilities for Madison under any
applicable
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Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on Madison. Neither Madison nor any Partnership Subsidiary has
engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law. The
Disclosure Schedules disclose any known presence of asbestos in or on Madison's
or any Partnership Subsidiary's owned or leased premises. To the knowledge of
Seller and Madison, there is no friable asbestos in or on Madison's or any
Partnership Subsidiary's owned or leased premises.
(c) To the knowledge of Seller and Madison, no soil or water in or
under any assets currently or formerly held for use or sale by Madison or any
Partnership Subsidiary is or has been contaminated by any Hazardous Substance
while such assets or premises were owned, leased, operated or managed, directly
or indirectly by Madison or any Partnership Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on
Madison.
(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of Seller and
Madison, concerning Madison or any Partnership Subsidiary within the five (5)
years preceding the date hereof through the Closing Date with respect to any
real property now or previously owned or leased by Madison, any Partnership
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.20(e), the following terms
have the following meanings:
"Environmental Laws" shall mean any federal, state or local laws,
ordinances, codes, regulations, rules, policies and orders (including
without limitation, Medical Waste Laws) that are intended to assure the
protection of the environment, or that classify, regulate, call for the
remediation of, require reporting with respect to, or list or define air,
water, groundwater, solid waste, hazardous, toxic, or radioactive
substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons,
including the public in each case as in effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which (i)
have arisen, or would reasonably be likely to arise, under Environmental
Laws and (ii) relate to actions occurring or conditions existing on or
prior to the date hereof or the Closing Date.
"Hazardous Substances" shall mean any toxic or hazardous substances,
material or waste, including Medical Waste, or any pollutant or
contaminant, or infectious or radioactive substance or material, including
without limitation, those substances, materials and wastes defined in or
regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous
Substances.
Section 3.21 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by Madison with any governmental agency
or authority have been properly completed and timely filed in compliance with
all applicable requirements, except where failure to so file would not have a
Material Adverse Effect on Madison.
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Section 3.22 Insurance Policies. The Disclosure Schedules list and briefly
describe Madison's policies of insurance to which Madison or any Partnership
Subsidiary is a party or under which Madison or any Partnership Subsidiary,
officer or director thereof is or has been covered at any time during the last
five (5) years preceding the date of this Agreement relating to the business of
Madison or any Partnership Subsidiary (the "Insurance Policies"). All of the
Insurance Policies are valid, outstanding and enforceable policies, except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies and all
premiums with respect thereto which are due and payable are currently paid. All
Insurance Policies currently maintained by Madison or any Partnership Subsidiary
("Current Policies") taken together, (i) provide adequate insurance coverage for
the assets, properties and operations of Madison and its Affiliates for all
risks normally insured against by a Person carrying on a substantially similar
business or businesses as Madison and its Affiliates, (ii) are sufficient for
compliance with legal and contractual requirements to which Madison or any of
its Affiliates is a party or by which any of them may be bound, and (iii) shall
be maintained in force (including the payment of all premiums and compliance
with their terms) without interruption up to and including the Closing Date.
True, complete and correct copies of all Insurance Policies have been provided
to APP. Neither Madison nor any Partnership Subsidiary nor any officer or
partner thereof has received any notice or other written communication from any
issuer of any Current Policy cancelling such policy, materially increasing any
deductibles or retained amounts thereunder, or materially increasing the annual
or other premiums payable thereunder and, to the knowledge of Seller and
Madison, no such cancellation or increase of deductibles, retainages or premiums
is threatened. There are no outstanding claims, settlements or premiums owed
against any Insurance Policy, and all required notices have been given and all
known potential or actual claims under any Insurance Policy have been presented
in due and timely fashion. Within the five (5) years preceding the Agreement,
neither Madison nor any Partnership Subsidiary has filed a written application
for any professional liability insurance coverage which has been denied by an
insurance agency or carrier. The Disclosure Schedules also set forth a list of
all claims under any Insurance Policy in excess of $10,000 per occurrence filed
by Madison or any Partnership Subsidiary during the immediately preceding
three-year period.
Section 3.23 Accounts Receivable. The Disclosure Schedules set forth a
list and aging of all accounts receivable of Madison as of March 31, 1997, which
list is complete, true and accurate in all material respects. All such accounts
receivable arose in the ordinary course of business and have not been previously
written off as bad debts and, are, to the extent still uncollected, to the
knowledge of Seller and Madison collectible in the ordinary course of business,
net of reserves for doubtful and uncollectible accounts shown on the accounting
records of Madison (which reserves are adequate and calculated consistent with
past practice).
Section 3.24 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i) list
of the accounts payable of Madison as of March 31, 1997, and (ii) list of each
individual indebtedness owned by Madison of $5,000 or more, setting forth the
payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and complete
list of the names and addresses of each of the providers/suppliers of products
or services to Madison (including, without limitation all providers of care to
patients) which accounted for a dollar volume of purchases paid for by Madison
in excess of $25,000 for the fiscal year ended [DECEMBER 31, 1996], or which is
reasonably expected to account for a dollar volume of purchases paid for by
Madison in excess of $25,000 for the fiscal year to end [DECEMBER 31, 1997].
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Section 3.25 Inventory. All items of inventory on hand on the date of this
Agreement consist, and all such items on hand on the Closing Date will consist,
net of all applicable reserves with respect thereto (calculated consistent with
past practice), of items of a quality and a quantity usable and saleable in the
ordinary course of Madison's business and conform to generally accepted
standards in the industry of which Madison is a part. Purchase commitments of
Madison for inventory are not materially in excess of normal requirements, and
none of such purchase commitments are at prices in excess of prevailing market
prices at the time of such purchase commitment.
Section 3.26 Licenses, Authorization and Provider Programs.
(a) Madison and each other licensed employee or contractor of
Madison (i) is the holder of all valid licenses, approvals, orders, consents,
permits, registrations, qualifications and other rights and authorizations
required by law, ordinance, regulation or ruling of any governmental regulatory
authority necessary to operate his/her/its business and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which Madison is eligible ("Governmental Programs"). Each of Madison and Seller
has a current provider number for such Governmental Programs and with such
private non-governmental programs (including without limitation any private
insurance program) under which Madison is presently receiving payments directly
or indirectly from any Payor for technical imaging services provided by any
licensed technician or contractor of Madison (such non-governmental programs
herein referred to as "Private Programs"). A true, correct and complete list of
such licenses, permits and other authorizations (including, but not limited to
verification of Medicare and Medicaid provider numbers and participating
physician contracts under 1842(h) of the Social Security Act) and provider
agreements is set forth in the Disclosure Schedules, true, complete and correct
copies of which have been provided to APP. No violation, default, order or
deficiency exists with respect to any of the items listed in the Disclosure
Schedules except for such violations, defaults, orders or deficiencies which
would not be reasonably likely to have a Material Adverse Effect on Madison, and
there is no action pending or to the knowledge of Seller and Madison recommended
by any state or federal agencies having jurisdiction over the items listed in
the Disclosure Schedules, either to revoke, withdraw or suspend any material
license or to terminate the participation of Madison in any Governmental Program
or Private Program, and no event has occurred which, with or without notice or
lapse of time, or both, would constitute grounds for a violation, order or
deficiency with respect to any of the items listed in the Disclosure Schedules
to revoke, withdraw or suspend any material license to operate its business as
is presently being conducted by it. To the knowledge of Seller and Madison,
there has been no decision not to renew any existing agreement with any provider
or Payor relating to Madison's business as presently being conducted by it.
Madison (i) has not had its professional license, Drug Enforcement Agency
number, Medicare/Medicaid provider status or staff privileges at any hospital or
diagnostic imaging center suspended, relinquished, terminated or revoked
(including orders that have been entered by any such entities but stayed), (ii)
has not been reprimanded in writing, sentenced, or disciplined by any licensing
board, state agency, regulatory body or authority, hospital, Payor or specialty
board (including orders that have been entered by any such entities but stayed),
(iii) is not the subject of an initial or final determination by any federal or
state authority that could result in any demand or reimbursement under the
Medicare, Medicaid or Government Programs or any exclusion or which monetary
penalty under federal or state law or (iv) has had a final judgment or
settlement entered against it in connection with a malpractice or similar
action.
(b) Madison is not required, or for the 72-month period prior to
the Closing Date was not required, to file any cost reports or other reports
with any Governmental Program or Private Program.
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Section 3.27 Inspections and Investigations. Neither the right of Madison,
nor the right of any licensed professional or other individual affiliated with
Madison to receive reimbursements pursuant to any Governmental Program or
Private Program has been terminated or otherwise materially and adversely
affected as a result of any investigation or action whether by any federal or
state governmental regulatory authority or other third party. No licensed
professional or other individual affiliated with the business has, during the
past three (3) years prior to the Closing Date, had their professional license
or staff privileges limited, suspended or revoked by any governmental regulatory
authority or agency, hospital, integrated delivery system, trade association,
professional review organization, accrediting organization or certifying agency
(including orders that have been entered by any such entities but stayed). True,
correct and complete copies of all reports, correspondence, notices and other
documents relating to any matter described or referenced in this Section 3.27
have been provided to APP.
Section 3.28 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by Madison or any
Partnership Subsidiary, (ii) all patents and applications therefor and
inventions and discoveries that may be patentable currently owned, in whole or
in part, or used by Madison or any Partnership Subsidiary, (iii) all licenses,
royalties, and assignments thereof to which Madison or any Partnership
Subsidiary are a party (iv) all copyrights (for published and unpublished works)
currently owned in whole or part, or used by Madison or any Partnership
Subsidiary and (v) other similar agreements relating to the foregoing to which
Madison or any Partnership Subsidiary is a party (including expiration date if
applicable) (collectively, the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate list
and summary description of all agreements relating to technology, trade secrets,
know-how or processes that Madison is licensed or authorized to use by others
(other than technology, know-how or processes generally available to other
health care providers) or which it licenses or authorizes others to use, true,
correct and complete copies of which have been provided to APP. There are no
outstanding and, to the knowledge of Seller and Madison, any threatened disputes
or disagreements with respect to any such agreement.
(c) Madison owns or has the legal right to use the Proprietary
Rights without conflicting with, infringing or violating the rights of any other
Person. No consent of any person will be required for the use thereof by APP
upon consummation of the transactions contemplated hereby and the Proprietary
Rights are freely transferable. To the knowledge of Seller and Madison, no claim
has been asserted by any person to the ownership of or for infringement by
Madison of any Proprietary Right of any other Person, and neither Madison nor
Seller is aware of any valid basis for any such claim. To the best knowledge of
Seller and Madison, no proceedings have been threatened which challenge the
Proprietary Rights of Madison. Madison has the right to use, free and clear of
any adverse claims or rights of others, all trade secrets, customer lists and
proprietary information required for the performance and marketing of all
medical services.
Section 3.29 Taxes.
(a) Filing of Tax Returns. Madison has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are
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complete and accurate in all material respects and properly reflect the taxes of
Madison for the periods covered thereby.
(b) All Withholding Requirements Satisfied. All monies required to
be withheld by Madison and paid to governmental agencies for all income, social
security, unemployment insurance, sales, excise, use, and other taxes have been
collected or withheld and paid to the respective governmental agencies.
(c) Safe Harbor Lease. None of the properties or assets of Madison
constitutes property that Madison, APP, or any Affiliate of APP, will be
required to treat as being owned by another person pursuant to the "Safe Harbor
Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the Tax
Equity and Fiscal Responsibility Act of 1982.
(d) Tax Exempt Entity. None of the assets or properties of Madison
are subject to a lease to a "tax exempt entity" as such term is defined in
Section 168(h)(2) of the Code.
(e) Boycotts. Madison has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
Section 3.30 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, partner or other Affiliate of Madison in any property, real or personal
or mixed, tangible or intangible, used in or pertaining to Madison's business
and any arrangement or agreement with any such person concerning the provision
of goods or services or other matters pertaining to Madison's business. There is
no commitment to, and no income that has been derived from, an Affiliate, and
following the Closing Madison shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.31 Banking Relations. Set forth in the Disclosure Schedules is a
complete and accurate list of all borrowing and investing arrangements that
Madison has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the Person
or Persons authorized in respect thereof.
Section 3.32 Fraud and Abuse and Self Referral. Neither Madison nor any
Partnership Subsidiary has engaged and, to the knowledge of Seller and Madison,
neither Madison's officers and partners nor other Persons and entities providing
professional services for or on behalf of Madison have engaged, in any
activities which are prohibited under 42 U.S.C. Sections 1320a 7, 7a or 7b or 42
U.S.C. Section 1395nn (subject to the exceptions or safe harbor provisions set
forth in such legislation), or the regulations promulgated thereunder or
pursuant to similar state or local statutes or regulations, or which are
prohibited by applicable rules of professional conduct or 18 U.S.C. Sections 24,
287, 371, 664, 669, 1001, 1027, 1035, 1341, 1343, 1347, 1518, 1954,
1956(c)(7)(F) and 3486.
Section 3.33 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon Madison, any
Partnership Subsidiary or officer, partner or key employee of Madison or
Partnership Subsidiary, which has or reasonably could be expected to have the
effect of prohibiting or materially impairing any acquisition of property by
Madison or any Partnership Subsidiary or the conduct of business by Madison or
any Partnership Subsidiary.
Section 3.34 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Disclosure Schedules delivered
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hereunder are valid and binding, and are in full force and effect and are
enforceable in accordance with their terms, except to the extent that the
validity or enforceability thereof may be limited by bankruptcy or other laws
affecting the enforcement of creditors' rights generally, or by general equity
principles, or by public policy. There is no pending or, to the knowledge of
Seller and Madison, threatened bankruptcy, insolvency or similar proceeding with
respect to any other party to such agreements, and no event has occurred which
(whether with or without notice, lapse of time or the happening or occurrence of
any other event) would constitute a default thereunder by Madison or any other
party thereto.
Section 3.35 Statements True and Correct. No representation or warranty
made herein by Madison or Seller, nor any statement, certificate, information,
exhibit or instrument to be furnished by Madison or Seller to APP or any of its
representatives pursuant to this Agreement, contains or will contain as of the
Closing Date any untrue statement of material fact or omits or will omit to
state a material fact necessary to make the statements contained herein and
therein not misleading.
Section 3.36 Schedules. The Disclosure Schedules required by Article III
hereof and attached hereto are true, correct and complete in all material
respects as of the date of this Agreement.
Section 3.37 Finders' Fees. No investment banker, broker, finder or other
intermediary has been retained by or is authorized to act on behalf of Seller or
Madison who is entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement or referred to herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to each Seller and Madison to enter into this Agreement, APP
represents and warrants to each Seller and Madison both as of the date hereof
and as of the Closing Date as set forth below, subject to those exceptions set
forth in the Disclosure Schedules attached hereto and incorporated herein by
this reference, specifically identifying the relevant subparagraphs hereof,
which exceptions shall be deemed to be representations and warranties as if made
hereunder.
Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the
transactions contemplated hereby, all of which have been or will be made
available to Sellers and Madison for review, are true, correct and complete as
in effect on the date of this Agreement and accurately reflect all material
proceedings of the stockholders and directors of APP (and all committees
thereof) regarding the transactions contemplated hereby. The stock record books
of APP, which have been or will be made available to Sellers and Madison for
review, contain true, complete and accurate records of the stock ownership of
APP and the transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by APP of this
Agreement, the agreements provided for herein and the Other Agreements, and the
consummation by APP of the transactions contemplated hereby and thereby are
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within APP's corporate powers and have been duly authorized by all necessary
action on the part of APP's Board of Directors. This Agreement and the Other
Agreements have been duly executed by APP. This Agreement and all other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which APP is a party constitute, or upon
execution will constitute, valid and binding agreements of APP, enforceable
against it in accordance with their respective terms, except as may be limited
by bankruptcy or other laws affecting creditors' rights generally, or by general
equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than consents, filings or
notifications required to be made or obtained solely by Madison, the execution,
delivery and performance by APP of this Agreement and the agreements provided
for herein, and the consummation of the transactions contemplated hereby and
thereby by APP requires no action by or in respect of, or filing with, any
governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP consists
of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares are issued
and outstanding and 10,000,000 shares of APP Preferred Stock, none of which are
outstanding. Each outstanding share of APP Common Stock has been legally and
validly issued and is fully paid and nonassessable, and was issued pursuant to a
valid exemption from registration under (i) the Securities Act, and (ii) all
applicable state securities laws. No shares of capital stock are owned by APP in
treasury. No shares of capital stock of APP have been issued or disposed of in
violation of the preemptive rights, rights of first refusal or similar rights of
any stockholders of APP. APP has no bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the stockholders of
APP on any matter. There exist no options, warrants, subscriptions, calls,
commitments or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of APP and no
option, warrant, subscription, call, or commitment or commission right of any
kind exists which obligates APP to issue any of its authorized but unissued
capital stock. APP has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's Certificate of
Incorporation or Bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
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Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or obligation accrued, contingent or
otherwise, that is reasonably likely to have a Material Adverse Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits, actions,
arbitrations, administrative or other proceedings, governmental investigations
or inquiries pending or, to the knowledge of APP, threatened against, or
affecting APP. There are no unsatisfied judgments against APP or any consent
decrees to which APP is subject. Each of the matters, if any, set forth in the
Disclosure Schedules are fully covered by policies of insurance of APP as in
effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of the
Closing Date (by virtue of any action, omission to act, contract to which it is
a party or any occurrence or state of facts whatsoever), in violation of any
applicable local, state or federal law, ordinance, regulation, order, injunction
or decree, or any other requirement of any governmental body, agency or
authority or court binding on it, or relating to its property or business or its
advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be disputing
in good faith by proceedings in compliance with applicable law, which are
described in the Disclosure Schedules, (i) APP has paid all taxes, penalties,
assessments and interest that have become due with respect to any Tax Returns
that it has filed and has properly accrued on its books and records for all of
the same that have
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not yet become due and (ii) APP is not delinquent in the payment of any tax,
assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or Audits.
APP has not received any notice that any tax deficiency or delinquency has been
asserted against APP. There is no unpaid assessment, proposal for additional
taxes, deficiency or delinquency in the payment of any of the taxes of APP that
could be asserted by any taxing authority. There is no taxing authority audit of
APP pending, or to the knowledge of APP, threatened, and the results of any
completed audits are properly reflected in the financial statements of APP. APP
has not violated any federal, state, local or foreign tax law.
(d) No Extension of Limitation Period. APP has not granted an
extension to any taxing authority of the limitation period during which any tax
liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required to
be withheld by APP and paid to governmental agencies for all income, social
security, unemployment insurance, sales, excise, use, and other taxes have been
collected or withheld and paid to the respective governmental agencies.
(f) Foreign Person. Neither APP nor any holders of APP Common Stock
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Code.
(g) Tax Exempt Entity. None of the assets of APP are subject to a
lease to a "tax exempt entity" as such term is defined in Section 168(h)(2) of
the Code.
(h) Collapsible Corporation. APP has not at any time consented, and
the holders of APP Common Stock will not permit APP to elect, to have the
provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or cooperated
with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated to be
made by APP will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed as an
"S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. The Disclosure Schedules or Form
S-4 sets forth a description of any interest held, directly or indirectly, by
any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to a Seller
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or Madison pursuant to this Agreement, contains or will contain as of the
Closing Date any untrue statement of material fact or omits or will omit to
state a material fact necessary to make the statements contained herein and
therein not misleading.
Section 4.15 Schedules. All Disclosure Schedules required by Article IV
hereof and attached hereto are true, correct and complete in all material
respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or other
intermediary has been retained by or is authorized to act on behalf of APP who
is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
ARTICLE V
Covenants of Seller and Madison
Each of Seller and Madison makes the covenants and agreements as set forth
in this Article V, which shall apply with respect to the period from the date
hereof to the Closing Date and, to the extent contemplated herein, thereafter
and agree that:
Section 5.1 Required Conduct of Seller and Madison. From the date hereof
until the Closing Date, Madison shall, and Seller shall use his/her best efforts
to cause Madison to, in all material respects, conduct the business of Madison
in the ordinary and usual course consistent with past practices and shall use
reasonable efforts to:
(a) preserve intact Madison's business and its relationships with
referral sources, customers, suppliers, patients, employees and others having
business relations with it;
(b) maintain and keep Madison's properties and assets in good
repair and condition consistent with past practice as is material to the conduct
of the business of Madison;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof.
Section 5.2 Prohibited Conduct of Seller and Madison. Without the written
consent of APP, Madison shall not, and Seller shall use his/her best efforts to
cause Madison not to:
(a) amend Madison's Partnership Agreement or other charter
documents;
(b) issue, sell or authorize for issuance or sale, any partnership
interests of Madison or any subscriptions, options, warrants, rights or
convertible securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such interests;
(c) redeem, purchase or otherwise acquire, directly or indirectly,
any shares of its capital stock or any option, warrant or other right to
purchase or acquire any such shares;
(d) declare or pay any dividend or other distribution (whether in
cash, stock or other property) with respect to its partnership interest (except
as expressly contemplated herein);
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(e) voluntarily sell, transfer, surrender, abandon or dispose of
any of Madison's assets or property rights (tangible or intangible) other than
the sale of inventory, if any, in the ordinary course of business consistent
with past practices;
(f) grant or make any mortgage or pledge or subject Madison or any
of Madison's properties or assets to any lien, charge or encumbrance of any
kind, except liens for taxes not currently due and except for liens which arise
by operation of law;
(g) voluntarily incur or assume any liability or indebtedness
(contingent or otherwise), except in the ordinary course of business or which is
reasonably necessary for the conduct of Madison's business;
(h) make or commit to make any capital expenditures which are not
reasonably necessary for the conduct of Madison's business;
(i) grant any increase in the compensation payable or to become
payable to partners, officers, consultants or employees other than merit
increases to employees of Madison who are not partners or officers of Madison,
except in the ordinary course of business and consistent with past practices;
(j) change in any manner any accounting principles or methods other
than changes which are consistent with generally accepted accounting principles;
(k) enter into any material commitment or transaction other than in
the ordinary course of business;
(l) take any action which could reasonably be expected to have a
Material Adverse Effect on Madison;
(m) apply any of its assets to the direct or indirect payment,
discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any Affiliate of Madison, other than in the
ordinary course and consistent with past practices;
(n) agree, whether in writing or otherwise, to do any of the
foregoing; and
(o) take any action to in any way amend, revise or otherwise affect
Madison's prior approval and effectiveness of this Agreement or any of the
agreements attached as exhibits hereto, other than as required to discharge
their fiduciary duties.
Section 5.3 Title to Assets; Indebtedness. As of the Closing Date, Madison
shall (i) except for sales of assets held as inventory, if any, in the ordinary
course of business prior to the Closing Date and except as otherwise
specifically described in the Schedules to this Agreement, have good and valid
title to all of its assets free and clear of all Encumbrances of any nature
whatsoever, except for current year ad valorem taxes and liens which arise by
operation of law, and (ii) have no direct or indirect indebtedness except for
indebtedness disclosed in the Disclosure Schedules hereto or for normal and
recurring accrued obligations of Madison arising in connection with its business
operations in the ordinary course of business and which arise from the purchase
of merchandise, supplies, inventory and services used in connection with the
provision of services.
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Section 5.4 Access. At all times prior to the Closing Date, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of Madison, including,
without limitation, deeds, title documents, leases, patient lists, insurance
policies, minute books, Partnership Unit registers, accounts, tax returns,
financial statements and all other data that, in the reasonable opinion of APP,
are required for APP to make such investigation as it may desire of the
properties and business of Madison. APP shall also be allowed full access upon
reasonable prior notice and during regular business hours (and at such other
times as the parties may reasonably agree) to consult with the officers,
employees (after announcement by Madison or Seller of the Exchange to the
employees of Madison which shall occur no later than three (3) days subsequent
to execution hereof by Madison), accountants, counsel and agents of Madison in
connection with such investigation of the properties and business of Madison. No
investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of Madison under this
Agreement. Any access or investigation referred to in this Section 5.4 shall be
conducted in such a manner as to minimize the disruption to Madison's ongoing
business operations.
Section 5.5 Acquisition Proposals. Seller shall not, and shall use his/her
best efforts to cause Madison not to, and Madison shall not, and shall cause
each of its partners, officers, employees or agents not to, directly or
indirectly:
(a) solicit, initiate, encourage or participate in any negotiations
or discussions with respect to any offer or proposal to acquire all or a
substantial portion of the business, properties or partnership interests of
Madison, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of Madison, or, without APP's prior written approval, afford to
any Person other than APP and its agents access to the properties, books or
records of Madison. If Madison receives any offer or proposal after the date
hereof, written or otherwise, of the type referred to above, Madison shall
promptly inform APP of such offer or proposal, decline such offer and furnish
APP with a copy thereof if such offer or proposal is in writing.
Section 5.6 Compliance With Obligations. Prior to the Closing Date,
Madison shall, and Seller shall use his/her/its best efforts to cause Madison
to, comply in all material respects with (i) all applicable federal, state,
local and foreign laws, rules and regulations; (ii) all material agreements and
obligations, including the Partnership Agreement, by which it or its properties
or its assets (real, personal or mixed, tangible or intangible) may be bound;
and (iii) all decrees, orders, writs, injunctions, judgments, statutes, rules
and regulations applicable to Madison, and its respective properties or assets.
Section 5.7 Notice of Certain Events. Each of Seller and Madison shall,
and Seller shall use his/her best efforts to cause Madison to, promptly notify
APP of:
(a) any notice or other communication from any Person or entity
alleging that the consent of such Person or entity is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by Madison who is
expected to receive annualized compensation of at least $50,000 in 1997;
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(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of
Madison;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
Madison which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of Madison,
including but not limited to any licensure or certification deficiencies, or
violations; limitations on a license or a provider agreement; freeze or
reduction in Medicare or Medicaid rates, notice of overpayment; being the
subject of any investigation relating to patient abuse, fraud, kickbacks, false
claims or other alleged illegal payment practices under the Fraud and Abuse
Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
Madison and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 5.8 Partners' Consent. Seller hereby consents to this Agreement
and the transactions contemplated hereby, including, without limitation, the
Exchange, on the terms and conditions set forth herein and in the agreements and
documents contemplated hereby, and hereby waives all other rights of first
offer, rights of first refusal and similar rights that Seller may have with
respect to a transfer of Partnership Units by him/her or any other Seller.
Section 5.9 Obligations of Seller and Madison. Subject to Section 5.8
hereof, each of Seller and Madison shall, and Seller shall use his/her best
efforts to cause Madison to, perform its obligations under this Agreement and
all related agreements, and each of Seller and Madison shall, and Seller shall
use his/her best efforts to cause Madison to, consummate the transactions
contemplated hereby and thereby on the terms and conditions set forth in this
Agreement and such agreements.
Section 5.10 Intentionally omitted.
Section 5.11 Accounting and Tax Matters. Madison will not, and Seller
shall use his/her best efforts to cause Madison not to, change in any material
respect the accounting methods or practices followed by Madison (including any
material change in any assumption underlying, or any method of calculating, any
bad debt, contingency or other reserve), except as may be required by generally
accepted accounting principles. Madison will not, and Seller shall use his/her
best efforts to cause Madison not to, make any material tax election except in
the ordinary course of business consistent with past practice, change any
material tax election already made, adopt any tax accounting method except in
the ordinary course of business consistent with past practice, change any tax
accounting method, enter into any closing agreement, settle any tax claim or
assessment or consent to any tax claim or assessment or any waiver of the
statute of limitations for any such claim or assessment. Madison will, and
Seller shall use his/her best efforts to cause Madison to, duly, accurately and
timely (without regard to any extensions of time) file all returns, information
statements and other documents relating to taxes of Madison required to be filed
by it, and Madison shall, and Seller shall use his/her best efforts to cause
Madison to, pay all taxes required to be paid by Madison, on or before the
Closing Date.
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Section 5.12 Lock-Up Provisions. Seller irrevocably agrees that he/she
will not, directly or indirectly, sell, offer, contract for sale, make any short
sale, pledge or otherwise transfer or dispose of any of the APP Common Stock
without the prior written consent of APP (which consent may be unreasonably
withheld in APP's absolute and sole discretion) during the two-year period
commencing on the Effective Date. Notwithstanding the preceding, the
restrictions contained in the prior sentence shall no longer apply (i) as to
twenty-five percent (25%) of the Shares of APP Common Stock received by a Seller
pursuant to the Exchange following expiration of a one-year period following the
Effective Date, (ii) as to an additional twenty-five percent (25%) of the Shares
of APP Common Stock received by a Seller pursuant to the Exchange following
expiration of an eighteen-month period following the Effective Date, and (iii)
as to the remaining fifty percent (50%) of the Shares of APP Common Stock
received by Seller pursuant to the Exchange following expiration of a
twenty-four-month period following the Effective Date. Seller understands and
acknowledges that the restrictions contained in this Section 5.12 (the "Lock-Up
Provisions") are irrevocable and shall be binding upon Seller's heirs, legal
representatives, successors and assigns.
ARTICLE VI
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 6.1 Consummation of Agreement. APP will take all action reasonably
necessary to cause the consummation of the transactions contemplated hereby in
accordance with their terms and conditions and take all corporate and other
action necessary to approve the Exchange; provided, however, that this covenant
shall not require APP to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein.
Section 6.2 Access. APP shall, at reasonable times during normal business
hours and on reasonable notice, permit Madison and its authorized
representatives reasonable access to, and make available for inspection, all of
the assets and business of APP, including its executive officers, and permit
Madison and its authorized representatives to inspect and, at Madison's sole
expense, make copies of all documents, records and information with respect to
the affairs of APP as Madison and its representatives may reasonably request,
all for the sole purpose of permitting Madison to become familiar with the
business and assets and liabilities of APP. No investigation by Madison or
Seller shall diminish or otherwise affect any of the representations,
warranties, covenants or agreements of APP under this Agreement.
Section 6.3 Notification of Certain Matters. APP shall promptly inform
Madison in writing of (a) any notice of, or other communication relating to, a
default or event that, with notice or lapse of time or both, would become a
default, received by APP subsequent to the date of this Agreement and prior to
the Closing Date under any contract, agreement or investment material to APP's
condition (financial or otherwise), operations, assets, liabilities or business
and to which it is subject; (b) any material adverse change in APP's condition
(financial or otherwise), operations, assets, liabilities or business or (c)
defaults or disputes regarding Other Agreements.
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ARTICLE VII
Covenants of APP, Seller and Madison
APP, Seller and Madison agree as follows:
Section 7.1 Filings; Other Action.
(a) Madison shall cooperate with APP to promptly prepare and file with the
SEC the Registration Statements on Form S-1 and Form S-4 (or other appropriate
Forms) to be filed by APP in connection with its Initial Public Offering and
offering of the shares of APP Common Stock to the Target Interest Holders
pursuant to the transactions contemplated by this Agreement and the Other
Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. Seller and Madison shall cooperate with APP in
the preparation of the Registration Statements and shall furnish all information
concerning Madison as may be reasonably requested in connection with any such
action in a timely manner.
(b) Seller, Madison and APP and each separately represent and warrant that
(i) in the case of Seller and Madison, none of the written information or
documents supplied or to be supplied by Seller and Madison specifically for
inclusion in the Registration Statements, by exhibit or otherwise and (ii) in
the case of APP, will, at the time the Registration Statements and each
amendment and supplement thereto, if any, becomes effective under the Securities
Act, none of them contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Seller and Madison shall be entitled to review the
Registration Statements and each of the amendments thereto, if any, prior to the
time each becomes effective under the Securities Act. Seller and Madison shall
have no responsibility for information contained in the Registration Statements
except for information provided by Seller or Madison specifically for inclusion
therein. Seller's and Madison's review of the Registration Statements shall not
diminish or otherwise affect the representations, covenants and warranties of
APP contained in this Agreement.
(c) Seller and Madison shall, upon request, furnish APP with all
information concerning Madison, its subsidiaries, partners and officers, and
such other matters as may be reasonably requested by APP in connection with the
preparation of the Registration Statements and each of the amendments or
supplements thereto, or any other statement, filing, notice or application made
by or on behalf of each such party or any of its subsidiaries to any
governmental entity in connection with the transactions contemplated by this
Agreement.
Section 7.2 Amendments of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Schedules with respect to any matter that would
have been or would be required to be set forth or described in the Schedules in
order to not materially breach any representation, warranty or covenant of such
party contained herein; provided that no amendment or supplement to a Schedule
that constitutes or reflects a Material Adverse Effect on Madison may be made
unless APP consents to such amendment or supplement, and no amendment or
supplement to a Schedule that constitutes or reflects a Material Adverse Effect
on APP may be made unless Sellers and Madison consent to such amendment or
supplement. For purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Disclosure Schedules hereto shall be deemed to be the
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Disclosure Schedules as amended or supplemented pursuant to this Section 7.2. In
the event that Sellers or Madison seek to amend or supplement a Disclosure
Schedule pursuant to this Section 7.2 and APP does not consent to such amendment
or supplement, or APP seeks to amend or supplement a Disclosure Schedule
pursuant to this Section 7.2, and Seller and Madison do not consent, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
13.1(a) hereof.
Section 7.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Closing Date, take any action that would
prevent the Exchange from qualifying as a tax-free exchange within the meaning
of Section 351 of the Code.
Section 7.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 7.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by Seller and Madison shall be paid by Seller in full
immediately prior to the Closing.
Section 7.6 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state "Blue Sky" or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the transactions contemplated
hereby.
ARTICLE VIII
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Closing Date of each
of the following conditions:
Section 8.1 Representations and Warranties. The representations and
warranties of the Sellers and Madison contained herein shall have been true and
correct in all material respects when initially made and shall be true and
correct in all material respects as of the Closing Date.
Section 8.2 Covenants. Each Seller and Madison shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed and complied with by each Seller and Madison, respectively,
prior to the Closing Date.
Section 8.3 Legal Opinion. Counsel to Sellers and Madison shall have
delivered to APP their opinion, dated as of the Closing Date, in form and
substance substantially in the form set forth in Exhibit C.
Section 8.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
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Section 8.5 No Material Adverse Effect. No Material Adverse Effect on
Madison shall have occurred since March 31, 1997, whether or not such change
shall have been caused by the deliberate act or omission of any Seller or
Madison.
Section 8.6 Government Approvals and Required Consents. Seller, Madison
and APP shall have obtained all licenses, permits and all necessary government
and other third-party approvals and consents required under any law, statements,
rule, regulation or ordinance to consummate the transactions contemplated by
this Agreement.
Section 8.7 Securities Approvals. The Registration Statements shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Closing Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 8.8 Closing Deliveries. APP shall have received all Schedules,
documents, assignments and agreements, duly executed and delivered in form
reasonably satisfactory to APP, referred to in Section 10.1.
Section 8.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 8.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 8.11 Execution by Each Seller and Madison. Each Seller and Madison
shall have executed this Agreement.
ARTICLE IX
Conditions Precedent of Seller and Madison
Except as may be waived in writing by Seller and Madison, the obligations
of Seller and Madison hereunder are subject to fulfillment at or prior to the
Closing Date of each of the following conditions:
Section 9.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Closing Date.
Section 9.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Closing Date.
Section 9.3 Legal Opinions. Counsel to APP shall have delivered to Seller
and Madison their opinion, dated as of the Closing Date, in form and substance
substantially in the form set forth in Exhibit D.
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Section 9.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 9.5 Government Approvals and Required Consents. Sellers, Madison
and APP shall have obtained all licenses, permits and all necessary government
and other third-party approvals and consents (including consent of Sellers
required under applicable state law or the Partnership Agreement) required under
any law, contracts or any statute, rule, regulation or ordinances to consummate
the transactions contemplated by this Agreement.
Section 9.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statements shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Closing Date, APP shall have received
all state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. At or prior to the Closing Date, the APP
Common Stock shall have been approved for listing on the Nasdaq National Market,
subject only to official notification of issuance.
Section 9.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 9.8 Closing Deliveries. Seller and Madison shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to Sellers and Madison referred to in Section 10.2.
Section 9.9 No Material Adverse Effect. No Material Adverse Effect on APP
shall have occurred since [__________], 1997, whether or not such change shall
have been caused by the deliberate act or omission of APP.
ARTICLE X
Closing Deliveries
Section 10.1 Deliveries of Seller and Madison. At or prior to the Closing
Date, Seller and Madison shall deliver to APP the following, all of which shall
be in a form reasonably satisfactory to APP:
(a) a bill of sale representing the Partnership Units held by each
Seller, which bill of sale shall represent all of the issued and outstanding
Partnership Units of Madison;
(b) a copy of resolutions of the partners of Madison or of Seller,
if applicable, authorizing the execution, delivery and performance of this
Agreement and all related documents and agreements and consummation of the
transactions contemplated hereby, each certified by an officer as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(c) a certificate of each of Seller and an officer of Madison dated
the Closing Date, as to the truth and correctness of the representations and
warranties of Seller and Madison, respectively, contained herein on and as of
the Closing Date;
(d) a certificate of each of Seller and an officer of Madison dated
the Closing Date, (i) as to the performance of and compliance in all material
respects by Madison and Seller, respectively,
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with all covenants contained herein on and as of the Closing Date and (ii)
certifying that all conditions precedent required by Seller and Madison,
respectively, to be satisfied shall have been satisfied;
(e) a certificate of an officer of Madison certifying as to the
incumbency and as to the signatures of each of the officers of Madison who have
executed documents delivered at the Closing on behalf of Madison;
(f) intentionally omitted;
(g) intentionally omitted;
(h) all authorizations, consents, approvals, permits and licenses
referenced in Section 3.27;
(i) the resignations of officers of Madison as requested by APP;
(j) a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Code, of Seller, signed under a penalty of perjury and
dated as of the Closing Date, to the effect that Seller is a United States
citizen or a resident alien (and thus not a foreign person) and providing
Seller's United States taxpayer identification number;
(k) an executed Seller Release by Seller in substantially the form
attached hereto as Exhibit E (the "Seller Release"); and
(l) such other instrument or instruments of transfer prepared by
APP as shall be necessary or appropriate, as APP or its counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
Section 10.2 Deliveries of APP. At or prior to the Closing Date, APP shall
deliver to each Seller and Madison the following, all of which shall be in a
form reasonably satisfactory to Seller and Madison:
(a) the Exchange Consideration;
(b) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(c) a certificate of the President of APP dated the Closing Date as
to the truth and correctness of the representations and warranties of APP
contained herein on and as of the Closing Date;
(d) a certificate of the President of APP dated the Closing Date,
(i) as to the performance and compliance by APP with all covenants contained
herein on and as of the Closing Date and (ii) certifying that all conditions
precedent required to be satisfied by APP have been satisfied;
(e) a certificate of the Secretary of APP certifying as to the
incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
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(f) a certificate, dated within ten (10) days prior to the Closing
Date, of the Secretary of State of Delaware establishing that APP is in
existence, has paid all franchise or similar taxes, if any, and otherwise is in
good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten (10)
days prior to the Closing Date, of the Secretaries of State of the states in
which either APP is qualified to do business, to the effect that APP is
qualified to do business and is in good standing as a foreign corporation in
such state;
(h) such other instrument or instruments of transfer prepared by
Seller or Madison as shall be necessary or appropriate, as Seller or Madison or
his/her/its respective counsel shall reasonably request, to carry out and effect
the purpose and intent of this Agreement.
ARTICLE XI
Post Closing Matters
Section 11.1 Further Instruments of Transfer. Following the Closing, at
the request of APP and at APP's sole cost and expense, Seller and Madison shall
deliver any further instruments of transfer and take all reasonable action as
may be necessary or appropriate to carry out the purpose and intent of this
Agreement.
Section 11.2 Exchange Tax Covenant.
(a) The parties intend that the Exchange will qualify as a tax-free
transaction within the meaning of Section 351 of the Code in which the Company
will not recognize gain or loss, and pursuant to which any gain recognized by
Seller as a result of the Exchange will not exceed the amount of any cash
received by a Seller in the Exchange (a "Reorganization").
(b) Both prior to and after the Closing Date, all books and records
shall be maintained, and all Tax Returns and schedules thereto shall be filed in
a manner consistent with the Exchange being treated as a Reorganization. These
obligations are excused as to a party required to maintain the books or file a
Tax Return if such party has provided to the other parties a written opinion of
competent tax counsel to the effect that there is not substantial authority,
within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report the
Exchange as a Reorganization and such opinion either is furnished prior to the
Closing Date or is based on facts or events not known at the Closing Date. Each
party shall provide to each other party such tax information, reports, returns,
or schedules as may be reasonably required to assist such party in accounting
for and reporting the Exchange as a Reorganization.
(c) APP shall cause the requirements of Rule 144(c) under the
Securities Act to be met with respect to APP for so long as those requirements
must be met to enable sales by the Sellers who are affiliates of Madison to meet
the requirements of Rule 145(d) under the Securities Act.
ARTICLE XII
Remedies
Section 12.1 Indemnification by Sellers. Subject to the terms, limitations
and conditions of this Agreement, Sellers (each an "Indemnifying Party" and
collectively, the "Indemnifying Parties"), severally, agree to indemnify, defend
and hold APP and its directors, officers, employees, agents,
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attorneys, consultants and Affiliates (each an "Indemnified Party" and
collectively, the "Indemnified Parties"), harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, reasonable attorneys' fees and expenses (including, without limitation,
all costs of experts and all costs incidental to or in connection with any
appellate process) (collectively, "Damages") asserted against or incurred by an
Indemnified Party arising out of or resulting from:
(a) a breach of any representation, warranty or covenant of any
Seller or Madison contained in this Agreement (without giving effect to any
Material Adverse Effect qualifier contained as part of any such representation
or warranty or covenant contained in this Agreement or in any Schedule or
certificate delivered hereunder);
(b) any violation (or alleged violation) by any Seller or Madison
and/or any of its past or present directors, officers, partners, employees,
agents, attorneys, consultants and Affiliates of any state or federal law
governing health care fraud and abuse or prohibition on referral of patients to
Persons in which a licensed professional has a financial or other form of
interest (including, but not limited to, fraud and abuse in the Medicare and
Medicaid Programs) occurring on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act or any
other federal or state "Blue Sky" or securities law or regulation, at common law
or otherwise, arising out of or based upon any (i) untrue statement of a
material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto relating to Madison
(including any Partnership Subsidiary) or (ii) failure to state information
necessary to make the statements required to be stated therein not misleading
arising (in the case of either (i) or (ii)) solely from information provided in
writing to APP or its counsel by Madison or any Seller or their agents
specifically for inclusion in any such Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto
(including, without limitation, schedules, exhibits and certifications delivered
by Madison or any of its agents in connection with this Agreement).
Notwithstanding anything herein to the contrary, nothing contained in this
Agreement shall relieve any Seller or Madison of any liability or limit any
liability that he, she or it may have in the case of fraud in connection with
the transactions contemplated by this Agreement.
Section 12.2 Indemnification by APP. Subject to the terms, limitations and
conditions of this Agreement, APP (an "Indemnifying Party") hereby agrees to
indemnify, defend and hold the Sellers, and, as applicable, their respective
directors, partners, officers, stockholders, employees, agents, attorneys,
consultants and Affiliates (each an "Indemnified Party" and collectively, the
"Indemnified Parties") harmless from and against all Damages asserted against or
incurred by such individuals and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty (without
giving effect to any Material Adverse Effect qualifier contained as part of any
such representation or warranty) or covenant of APP contained in this Agreement
or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act or any
other federal or state "Blue Sky" or securities law or regulation, at common law
or otherwise, arising out of or based upon any (i) untrue statements of a
material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or (ii) failure to
state information necessary to make the statements required to be stated therein
not misleading (except for any liability based upon any actual or alleged untrue
statement of material fact or an omission to state a material fact relating to
Madison or any Seller which was derived from any information provided in writing
by the
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Company or a Company Subsidiary or any of their agents contained in the
representations and warranties set forth in this Agreement or any certificate,
exhibit, schedule or instrument required to be delivered under this Agreement.)
Notwithstanding anything herein to the contrary, nothing contained in this
Agreement shall relieve APP of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
Section 12.3 Conditions of Indemnification. All claims for indemnification
under this Agreement shall be asserted and resolved as follows:
(a) The Indemnified Party shall promptly (and, in any event, at
least ten (10) days prior to the due date for any responsive pleadings, filings
or other documents) (i) notify each Indemnifying Party of any third-party claim
or claims asserted against the Indemnified Party ("Third Party Claim") that
could give rise to a right of indemnification under this Agreement and (ii)
transmit to the Indemnifying Parties a written notice ("Claim Notice")
describing in reasonable detail the nature of the Third Party Claim, a copy of
all papers served with respect to such claim (if any), an estimate of the amount
of Damages attributable to the Third Party Claim and the basis of the
Indemnified Party's request for indemnification under this Agreement. The
failure to promptly deliver a Claim Notice shall not relieve any Indemnifying
Party of its obligations to any Indemnified Party with respect to the related
Third Party Claim except to the extent that the resulting delay is materially
prejudicial to the defense of such claim. Within thirty (30) days after receipt
of any Claim Notice (the "Election Period"), the Indemnifying Parties shall
notify the Indemnified Party (x) whether the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement with respect
to such Third Party Claim and (y) whether the Indemnifying Parties desire, at
the sole cost and expense of each Indemnifying Party, to defend the Indemnified
Party against such Third Party Claim.
(b) If the Indemnifying Parties notify the Indemnified Party within
the Election Period that the Indemnifying Parties elect to assume the defense of
the Third Party Claim, then the Indemnifying Parties shall have the right to
defend, at their sole cost and expense, with counsel reasonably acceptable to
such Indemnified Party or Indemnified Parties, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Parties to a final conclusion or settled at the discretion of the
Indemnifying Parties in accordance with this Section 12.3(b). Except as set
forth in Section 12.3(f) below, the Indemnifying Parties shall have full control
of such defense and proceedings, including any compromise or settlement thereof.
The Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Parties (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Parties and
not prejudicial to the Indemnifying Parties. If requested by the Indemnifying
Parties, the Indemnified Party agrees, at the sole cost and expense of the
Indemnifying Parties, to cooperate with the Indemnifying Parties and their
counsel in contesting any Third Party Claim that the Indemnifying Parties elect
to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Parties pursuant to this Section 12.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Parties and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Parties, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying
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Parties, and upon written notification thereof, the Indemnifying Parties shall
not have the right to assume the defense of such action on behalf of the
Indemnified Party; provided further that the Indemnifying Parties shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for the Indemnified Party,
which firm shall be designated in writing by the Indemnified Party.
Notwithstanding the foregoing, the Indemnifying Parties shall be prohibited from
confessing or settling any criminal allegations brought against the Indemnified
Party without the express written consent of the Indemnified Party.
(c) If the Indemnifying Parties fail to notify the Indemnified
Party within the Election Period that the Indemnifying Parties elect to defend
the Indemnified Party pursuant to Section 12.3(b), or if the Indemnifying
Parties elect to defend the Indemnified Party pursuant to Section 12.3(b) but
fail diligently and promptly to prosecute or settle the Third Party Claim, then
the Indemnified Party shall have the right to defend, at the sole cost and
expense of the Indemnifying Parties (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Parties to a final conclusion or settled. The Indemnified
Parties shall have full control of such defense and proceedings, provided,
however, that the Indemnified Parties may not enter into, without the
Indemnifying Parties' consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Parties have delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement and if such
dispute is resolved in favor of the Indemnifying Parties, the Indemnifying
Parties shall not be required to bear the costs and expenses of the Indemnified
Parties' defense pursuant to this paragraph or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Parties in full for all costs and
expenses of such litigation. The Indemnifying Parties may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section 12.3(c), and the Indemnifying Parties shall bear their
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnifying Parties have been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnified Party, then the Indemnifying Parties may employ
separate counsel and upon written notification thereof, the Indemnified Party
shall not have the right to assume the defense of such action on behalf of the
Indemnifying Parties.
(d) In the event any Indemnified Party should have a claim against
any Indemnifying Parties hereunder that does not involve a Third Party Claim,
the Indemnified Party shall transmit to the Indemnifying Parties a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Parties do not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Parties dispute such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Parties hereunder. If the Indemnifying Parties have timely disputed such claim,
as provided above, such dispute shall be resolved by the procedures set forth in
Section 12.7.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Agreement relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of such Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication
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of such Third Party Claim, or (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Parties liability to the Indemnified
Party under this Agreement. Payments of all amounts owing by the Indemnifying
Parties pursuant to Section 12.3(d) shall be made within thirty (30) days after
the later of (i) the expiration of the 60-day Indemnity Notice period or (ii)
the expiration of the period for appeal of a final adjudication of the
Indemnifying Parties liability to the Indemnified Party under this Agreement.
During the two-year period following the Closing Date, each Seller shall be
entitled to satisfy payments owed to APP by transfer of APP Common Stock from
such Seller to APP. For all purposes of this Agreement, the value of each share
of APP Common Stock transferred to APP pursuant to this Agreement shall be
calculated by averaging the daily closing prices for a share of APP Common Stock
for the twenty (20) consecutive trading days on which such shares are actually
traded on the Nasdaq National Market preceding the date of the Claim Notice. The
number of shares of APP Common Stock permitted to be transferred under this
Section 12.3(e) shall be diminished proportionately in accordance with the
percentage of APP Common Stock released under the Lock-Up Provisions set forth
herein. The rights of any Seller to transfer shares of APP Common Stock in
satisfaction of payments owed to APP pursuant to this Agreement shall terminate
upon the earlier of (x) the termination of the Lock-Up Provisions set forth
herein or (y) at the end of the two-year period following the Closing Date.
(f) The Indemnifying Parties shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Parties notify the Indemnified Party in writing that the Indemnifying Parties
agree to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Parties to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Parties desired to accept such settlement.
(g) Notwithstanding anything contained in this Agreement to the
contrary, Indemnifying Parties in the aggregate (i) shall have no obligation
hereunder to provide indemnification for the first [$______________] of Damages
(without counting Immaterial Claims as defined below), and (ii) in no event
shall the Indemnifying Parties have any liability hereunder with respect to any
singular incident or a fact involving a breach or inaccuracy of Madison if the
Damages from such claim are equal to or less than [$_____________] ("Immaterial
Claims"). Notwithstanding anything to the contrary contained herein, the
obligations of each Seller hereunder shall not exceed __________ percent
(_____%) of the value of the Exchange Consideration paid to such Seller pursuant
to the Related Acquisition, if any, on the Closing Date.
Section 12.4 Remedies Exclusive. The remedies provided in this Agreement
are the exclusive rights or remedies available to one party against the other,
either at law or in equity, except in the case of fraud.
Section 12.5 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 12.6 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit
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received by the party to be indemnified or the net proceeds received by the
party to be indemnified with respect to recovery from third parties or insurance
proceeds, and such correlative insurance benefit shall be net of the insurance
premium, if any, that becomes due as a result of such claim.
Section 12.7 Dispute Resolution.
(a) Arbitration. The parties hereto agree that any claim,
controversy, dispute or disagreement between or among any of the parties arising
out of or relating to this Agreement shall be governed exclusively by the terms
and provisions of this Section 12.7; provided, however, that within ten (10)
days from the date which any claim, controversy, dispute or disagreement cannot
be resolved and prior to commencing an arbitration procedure pursuant to this
Section 12.7, the parties shall meet to discuss and consider other alternative
dispute resolution procedures other than arbitration including, but not limited
to, Judicial Arbitration & Mediation Services, Inc., if applicable. If at any
time prior to the rendering of the decision by the arbitrator (or pursuant to
such other alternative dispute resolution procedure) as contemplated in this
Section 12.7 to the extent a party makes a written offer to the other party
proposing a settlement of the matter(s) at issue and such offer is rejected,
then the party rejecting such offer shall be obligated to pay the costs and
expenses (excluding the amount of the award granted under the decision) of the
party that offered the settlement from the date such offer was received by such
other party if the decision is for a dollar amount that is less than the amount
of such offer to settle. Notwithstanding the foregoing, the terms and provisions
of this Section 12.7 shall not preclude any party hereto from seeking, or a
court of competent jurisdiction from granting, a temporary restraining order,
temporary injunction or other equitable relief for any breach of (i) any
noncompetition or confidentiality covenant or (ii) any duty, obligation,
covenant, representation or warranty, the breach of which may cause irreparable
harm or damage.
(b) Arbitrators. In the event there is a claim, controversy,
dispute or disagreement among the parties hereto arising out of or relating to
this Agreement (including any claim based on or arising from an alleged tort)
and the parties hereto have not reached agreement regarding an alternative to
arbitration, the parties agree to select within thirty (30) days of notice by a
party to the other of its desire to seek arbitration under this Section 12.7 one
(1) arbitrator mutually acceptable to APP and the Sellers to hear and decide all
such claims under this Section 12.7. Each of the arbitrators proposed shall be
impartial and independent of all parties. If the parties cannot agree on the
selection of an arbitrator within said 30-day period, then any party may in
writing request the judge of the United States District Court for the Western
District of Texas senior in term of service to appoint the arbitrator and,
subject to this Section 12.7, such arbitrator shall hear all arbitration matters
arising under this Section 12.7.
(c) Applicable Rules.
(1) Each arbitration hearing shall be held at a place in Boxar
County, Texas acceptable to the arbitrator. The arbitration shall be conducted
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association to the extent such rules do not conflict with the terms hereof;
provided, however, that if the parties hereto agree to an alternative to
arbitration they may agree to an alternative set of rules, including as to rules
of evidence and procedure. The decision of the arbitrator shall be reduced to
writing and shall be binding on the parties and such decision shall contain a
concise statement of the reasons in support of such decision. Judgment upon the
award(s) rendered by the arbitrator may be entered and execution had in any
court of competent jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement. The charges and
expenses of the arbitrator shall be shared equally by the parties to the
hearing.
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(2) The arbitration shall commence within ten (10)
days after the arbitrator is selected in accordance with the provisions of this
Section 12.7. In fulfilling his duties with respect to determining the amount of
any loss, the arbitrator may consider such matters as, in the opinion of the
arbitrator, are necessary or helpful to make a proper valuation. The arbitrator
may consult with and engage disinterested third parties to advise the
arbitrator. The arbitrator shall not add any interest factor reflecting the time
value of money to the amount of any loss and shall not award any punitive
damages.
(3) If the arbitrator selected hereunder should die,
resign or be unable to perform his or her duties hereunder, the parties, or such
senior judge (or such judge's successor) in the event the parties cannot agree,
shall select a replacement arbitrator. The procedure set forth in this Section
12.7 for selecting the arbitrator shall be followed from time to time as
necessary.
(4) As to any determination of the amount of any loss,
or as to the resolution of any other claim, controversy, dispute or
disagreement, that under the terms hereof is made subject to arbitration, no
lawsuit based on such claimed loss or such resolution shall be instituted by the
parties hereto, other than to compel arbitration proceedings or enforce the
award of the arbitrator, except as otherwise provided in Section 12.7(b).
(5) All privileges under Texas and federal law,
including attorney-client and work-product privileges, shall be preserved and
protected to the same extent that such privileges would be protected in a
federal court proceeding applying Texas law.
ARTICLE XIII
Termination
Section 13.1 Termination. This Agreement may be terminated and the
Exchange may be abandoned:
(a) at any time prior to the Closing Date by mutual agreement of
all parties;
(b) at any time prior to the Closing Date by APP if any material
representation or warranty of any Seller or Madison contained in this Agreement
or in any certificate or other document executed and delivered by any Seller or
Madison pursuant to this Agreement is or becomes untrue or breached in any
material respect or if any Seller or Madison fails to comply in any material
respect with any material covenant or agreement contained herein, and any such
misrepresentation, noncompliance or breach is not cured, waived or eliminated
within thirty (30) days after receipt of written notice thereof;
(c) at any time prior to the Closing Date by Seller as to Seller if
any representation or warranty of APP contained in this Agreement or in any
certificate or other document executed and delivered by APP pursuant to this
Agreement is or becomes untrue in any material respect of if APP fails to comply
in any material respect with any covenant or agreement contained herein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
(d) at any time prior to the Closing Date by APP if, as a result of
the conduct of due diligence and regulatory compliance procedures, APP deems
termination to be advisable; or
(e) by APP or Seller as to Seller if the Exchange shall not have
been consummated by September 30, 1997.
A-397
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Section 13.2 Effect of Termination. Except as set forth in Section 14.3,
in the event this Agreement is terminated pursuant to this Article XIV, this
Agreement shall forthwith become void.
ARTICLE XIV
Nondisclosure of Confidential Information
Section 14.1 Non-Disclosure Covenant. Seller and Madison recognize and
acknowledge that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP that is
valuable, special and a unique asset of such entity's business. APP acknowledges
that it had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of Madison that is valuable, special
and a unique asset of each such business. Seller, Madison and APP, severally,
agree that they will not disclose such Confidential Information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of APP, Seller and Madison
and (b) to counsel and other advisers to APP, Sellers and Madison provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such information becomes available to or known by
the public generally through no fault of Madison, Seller or APP, as the case may
be, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii) Madison, Seller or APP, as the case may be, shall,
if possible, give prior written notice thereof to Madison, Seller or APP and
provide Madison, Seller or APP with the opportunity to contest such disclosure,
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, or
(iv) the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Exchange or otherwise. In the event of a breach
or threatened breach by Seller or Madison, on the one hand, and APP, on the
other hand, of the provisions of this Section, APP, Seller and Madison shall be
entitled to an injunction restraining the other party, as the case may be, from
disclosing, in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting any of such parties from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages.
Section 14.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, Seller and Madison agree that, in the event of a
breach by either of them of the foregoing covenant, the covenant may be enforced
against them by injunctions and restraining orders.
Section 14.3 Survival. The obligations of the parties under this Article
XIV shall survive the termination of this Agreement.
ARTICLE XV
Miscellaneous
Section 15.1 Amendment; Waivers. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
A-398
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Section 15.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
Section 15.3 Parties in Interest; No Third Party Beneficiaries. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Except as
otherwise provided herein, neither this Agreement nor any other agreement
contemplated hereby shall be deemed to confer upon any person not a party hereto
or thereto any rights or remedies hereunder or thereunder.
Section 15.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 15.5 Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 15.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of Madison, Seller or APP pursuant to this
Agreement shall be deemed to have been representations and warranties made by
Madison, Seller and APP, respectively. Notwithstanding any provision in this
Agreement to the contrary, the representations and warranties contained herein
shall survive the Closing until the second anniversary of the Closing Date
except that (a) the representations and warranties set forth in Section 3.20
with respect to environmental matters shall survive for a period of ten (10)
years, (b) the representations and warranties set forth in Section 3.29 with
respect to tax matters shall survive until such time as the limitations period
has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.26 and Section 3.32 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 12.1(c) and Section 12.2(b), and solely to
the extent that any party to be indemnified pursuant to such provisions actually
incurs liability under the Securities Act, the Exchange Act or any other federal
or state securities law, the representations and warranties set forth therein
shall survive until the expiration of any applicable limitations period.
Section 15.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF
LAWS) OF THE STATE OF TEXAS.
Section 15.8 Captions. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
A-399
<PAGE> 761
Section 15.9 Gender and Number. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
Section 15.10 Confidentiality; Publicity and Disclosures. Each party shall
keep this Agreement and its terms confidential, and shall make no press release
or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Target Companies; provided that APP shall reasonably promptly
provide notice of any release. In the event that the transactions contemplated
hereby are not consummated for any reason whatsoever, the parties hereto agree
not to disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 15.11 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to Madison or Seller: Madison Square Joint Venture
730 N. Main, Suite B-109
San Antonio, TX 78299
Attn: Managing Partner
A-400
<PAGE> 762
with a copy to:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Attn:
----------------------------
Section 15.12 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 16.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 15.13 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 15.14 Defined Terms. Terms used in Exhibit A, Exhibit B, Exhibit
C, Exhibit D Exhibit E, and the Schedules attached hereto with their initial
letter capitalized and not otherwise defined therein shall have the meanings as
assigned to such terms in this Agreement.
A-401
<PAGE> 763
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
-----------------------------------------
Gregory L. Solomon, President
Madison:
MADISON SQUARE JOINT VENTURE
By:
-----------------------------------------
Its: Managing General Partner
SELLERS:
--------------------------------------------
Neil Bowie
--------------------------------------------
Joseph F. Carabin
--------------------------------------------
Gregory C. Godwin
--------------------------------------------
Michael D. Howard
--------------------------------------------
Philip S. Kline
--------------------------------------------
Julio C. Otazo
--------------------------------------------
R.K. Daniel Peterson
A-402
<PAGE> 764
--------------------------------------------
Randall S. Preissig
--------------------------------------------
Jose A. Saldana
--------------------------------------------
Anthony F. Smith
--------------------------------------------
Robert L. Thompson
--------------------------------------------
Jeremy N. Wiersig
--------------------------------------------
Frank Wilson
A-403
<PAGE> 765
EXHIBIT A
LIST OF SELLERS AND EXCHANGE CONSIDERATION
A-404
<PAGE> 766
EXHIBIT B
TARGET COMPANIES
A-405
<PAGE> 767
EXHIBIT C
LEGAL OPINION OF SELLERS' COUNSEL
A-406
<PAGE> 768
EXHIBIT D
LEGAL OPINION OF APP'S COUNSEL
A-407
<PAGE> 769
EXHIBIT E
SELLER RELEASE
A-408
<PAGE> 770
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF EXCHANGE
DATED AS OF [_____________], 1997
The following Disclosure Schedules and the disclosures set forth therein
are delivered in connection with that certain Agreement and Plan of Exchange
dated [____________], 1997, by and between American Physician Partners, Inc.,
Madison Square Joint Venture and Sellers (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made pursuant
to one section number can reasonably be interpreted by other parties to be a
disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
A-409
<PAGE> 771
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF EXCHANGE
This Amendment No. 1 to the Agreement and Plan of Exchange (this
"Amendment No. 1"), dated as of September 30, 1997, is by and among AMERICAN
PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and MADISON SQUARE
JOINT VENTURE, a Texas partnership (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Exchange dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 13.1(e). APP and the Company hereby agree to
amend Section 13.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
MADISON SQUARE JOINT VENTURE
By:_________________________________
Its:________________________________
A-410
<PAGE> 772
================================================================================
AGREEMENT AND PLAN OF EXCHANGE
dated as of
June 27, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),
SOUTH TEXAS NO. 1 MRI LIMITED PARTNERSHIP
(a Texas limited partnership)
and
THE SELLERS LISTED ON THE SIGNATURE PAGES HEREOF
================================================================================
A-411
<PAGE> 773
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions......................................................... 2
Section 1.1 Definitions......................................................... 2
Section 1.2 Rules Of Interpretation............................................. 5
ARTICLE II Exchange............................................................ 6
ARTICLE III Representations and Warranties of Sellers........................... 6
Section 3.1 Organization and Good Standing; Qualification....................... 7
Section 3.2 Authorization and Validity.......................................... 7
Section 3.3 Governmental Authorization.......................................... 7
Section 3.4 Capitalization and Title............................................ 7
Section 3.5 Transactions in Partnership Units................................... 7
Section 3.6 Continuity of Business Enterprise................................... 8
Section 3.7 Subsidiaries and Investments........................................ 8
Section 3.8 Absence of Conflicting Agreements or Required Consents.............. 8
Section 3.9 Absence of Changes.................................................. 8
Section 3.10 No Undisclosed Liabilities.......................................... 9
Section 3.11 Litigation and Claims............................................... 9
Section 3.12 No Violation of Law................................................. 9
Section 3.13 Lease Agreements.................................................... 10
Section 3.14 Real and Personal Property.......................................... 10
Section 3.15 Indebtedness for Borrowed Money..................................... 10
Section 3.16 Contracts and Commitments........................................... 11
Section 3.17 Employee Matters.................................................... 11
Section 3.18 Labor Relations..................................................... 12
Section 3.19 Employee Benefit Plans.............................................. 12
Section 3.20 Environmental Matters............................................... 12
Section 3.21 Filing Reports...................................................... 13
Section 3.22 Insurance Policies.................................................. 13
Section 3.23 Accounts Receivable................................................. 14
Section 3.24 Accounts Payable; Suppliers......................................... 14
Section 3.25 Inventory........................................................... 14
Section 3.26 Licenses, Authorization and Provider Programs....................... 14
Section 3.27 Inspections and Investigations...................................... 15
Section 3.28 Proprietary Rights and Information.................................. 15
Section 3.29 Taxes............................................................... 16
Section 3.30 Related Party Arrangements.......................................... 16
Section 3.31 Banking Relations................................................... 17
Section 3.32 Fraud and Abuse and Self Referral................................... 17
Section 3.33 Restrictions on Business Activities................................. 17
Section 3.34 Agreements in Full Force and Effect................................. 17
Section 3.35 Statements True and Correct......................................... 17
Section 3.36 Schedules........................................................... 17
Section 3.37 Finders' Fees....................................................... 17
ARTICLE IV Representations and Warranties of APP............................... 18
Section 4.1 Organization and Good Standing; Qualification....................... 18
Section 4.2 Authorization and Validity.......................................... 18
Section 4.3 Governmental Authorization.......................................... 18
</TABLE>
A-412
<PAGE> 774
<TABLE>
<S> <C> <C>
Section 4.4 Capitalization...................................................... 18
Section 4.5 Subsidiaries and Investments........................................ 19
Section 4.6 Absence of Conflicting Agreements or Required Consents.............. 19
Section 4.7 Absence of Changes.................................................. 19
Section 4.8 No Undisclosed Liabilities.......................................... 19
Section 4.9 Litigation and Claims............................................... 20
Section 4.10 No Violation of Law................................................. 20
Section 4.11 Employee Matters.................................................... 20
Section 4.12 Taxes............................................................... 20
Section 4.13 Related Party Arrangements.......................................... 21
Section 4.14 Statements True and Correct......................................... 21
Section 4.15 Schedules........................................................... 21
Section 4.16 Finder's Fees....................................................... 21
ARTICLE V Covenants of Seller and South Texas................................. 21
Section 5.1 Required Conduct of Seller and South Texas.......................... 22
Section 5.2 Prohibited Conduct of Seller and South Texas........................ 22
Section 5.3 Title to Assets; Indebtedness....................................... 23
Section 5.4 Access.............................................................. 23
Section 5.5 Acquisition Proposals............................................... 23
Section 5.6 Compliance With Obligations......................................... 24
Section 5.7 Notice of Certain Events............................................ 24
Section 5.8 Partners' Consent................................................... 25
Section 5.9 Obligations of Seller and .......................................... 25
Section 5.10 Intentionally omitted............................................... 25
Section 5.11 Accounting and Tax Matters.......................................... 25
ARTICLE VI Covenants of APP.................................................... 26
Section 6.1 Consummation of Agreement........................................... 26
Section 6.2 Access.............................................................. 26
Section 6.3 Notification of Certain Matters..................................... 26
ARTICLE VII Covenants of APP, Seller and South Texas............................ 26
Section 7.1 Filings; Other Action............................................... 26
Section 7.2 Amendments of Schedules............................................. 27
Section 7.3 Actions Contrary to Stated Intent................................... 27
Section 7.4 Public Announcements................................................ 27
Section 7.5 Expenses............................................................ 27
Section 7.6 Registration Statements............................................. 28
ARTICLE VIII Conditions Precedent of APP......................................... 28
Section 8.1 Representations and Warranties...................................... 28
Section 8.2 Covenants........................................................... 28
Section 8.3 Legal Opinion....................................................... 28
Section 8.4 Proceedings......................................................... 28
Section 8.5 No Material Adverse Effect.......................................... 28
Section 8.6 Government Approvals and Required Consents.......................... 28
Section 8.7 Securities Approvals................................................ 28
Section 8.8 Closing Deliveries.................................................. 29
Section 8.9 Closing of Initial Public Offering.................................. 29
Section 8.10 Closing of Related Acquisitions..................................... 29
Section 8.11 Closing of General Partner Acquisition.............................. 29
Section 8.12 Execution by Each Seller and South Texas............................ 29
</TABLE>
A-413
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<TABLE>
<S> <C> <C>
ARTICLE IX Conditions Precedent of Seller and South Texas...................... 29
Section 9.1 Representations and Warranties...................................... 29
Section 9.2 Covenants........................................................... 29
Section 9.3 Legal Opinions...................................................... 29
Section 9.4 Proceedings......................................................... 29
Section 9.5 Government Approvals and Required Consents.......................... 29
Section 9.6 "Blue Sky" Approvals; Nasdaq Listing................................ 29
Section 9.7 Closing of Initial Public Offering.................................. 30
Section 9.8 Closing Deliveries.................................................. 30
Section 9.9 No Material Adverse Effect.......................................... 30
ARTICLE X Closing Deliveries.................................................. 30
Section 10.1 Deliveries of Seller and South Texas................................ 30
Section 10.2 Deliveries of APP................................................... 31
ARTICLE XI Post Closing Matters................................................ 32
Section 11.1 Further Instruments of Transfer..................................... 32
Section 11.2 Exchange Tax Covenant............................................... 32
ARTICLE XII Remedies............................................................ 32
Section 12.1 Indemnification by Sellers.......................................... 32
Section 12.2 Indemnification by APP.............................................. 33
Section 12.3 Conditions of Indemnification....................................... 34
Section 12.4 Remedies Not Exclusive.............................................. 36
Section 12.5 Costs, Expenses and Legal Fees...................................... 36
Section 12.6 Tax Benefits; Insurance Proceeds.................................... 36
Section 12.7 Dispute Resolution.................................................. 37
ARTICLE XIII Termination......................................................... 38
Section 13.1 Termination......................................................... 38
Section 13.2 Effect of Termination............................................... 38
ARTICLE XIV Nondisclosure of Confidential Information........................... 39
Section 14.1 Non-Disclosure Covenant............................................. 39
Section 14.2 Damages............................................................. 39
Section 14.3 Survival............................................................ 39
ARTICLE XV Miscellaneous....................................................... 39
Section 15.1 Amendment; Waivers.................................................. 39
Section 15.2 Assignment.......................................................... 39
Section 15.3 Parties in Interest; No Third Party Beneficiaries................... 40
Section 15.4 Entire Agreement.................................................... 40
Section 15.5 Severability........................................................ 40
Section 15.6 Survival of Representations, Warranties and Covenants............... 40
Section 15.7 Governing Law....................................................... 40
Section 15.8 Captions............................................................ 40
Section 15.9 Gender and Number................................................... 40
Section 15.10 Confidentiality; Publicity and Disclosures.......................... 41
Section 15.11 Notice.............................................................. 41
Section 15.12 No Waiver; Remedies................................................. 42
Section 15.13 Counterparts........................................................ 42
Section 15.14 Defined Terms....................................................... 42
</TABLE>
A-414
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EXHIBITS
<TABLE>
<S> <C>
Exhibit A - List of Sellers and Exchange Consideration.......................................... A-1
Exhibit B - Target Companies.................................................................... B-1
Exhibit C - Legal Opinion of Sellers' Counsel................................................... C-1
Exhibit D - Legal Opinion of APP's Counsel...................................................... D-1
Exhibit E - Seller Release...................................................................... E-1
</TABLE>
A-415
<PAGE> 777
AGREEMENT AND PLAN OF EXCHANGE
This Agreement and Plan of Exchange ("Agreement") dated June ___,
1997 is by and among American Physician Partners, Inc., a Delaware corporation,
("APP"), South Texas No. 1 MRI Limited Partnership, a Texas limited partnership
("South Texas") and each of the individuals whose names appear on Exhibit A
hereto (each individually, a "Seller" and collectively "Sellers").
RECITALS
A. Each Seller is a limited partner of South Texas and the Sellers
together own an aggregate of ninety-nine percent (99%) of the total interests of
the partners in South Texas.
B. South Texas owns a forty-nine percent (49%) interest in Baptist
Imaging Center and Northeast Baptist Imaging Center, respectively, and each such
entity owns assets relating to and operates a diagnostic imaging center.
C. APP is engaged in the business of owning, operating and acquiring
the assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
D. Sellers desire to convey to APP and APP desires to acquire from
Sellers, ninety-nine percent (99%) of the total interests of the partners in
South Texas (the "Partnership Units") in consideration for cash and shares of
common stock, par value $.0001 per share, of APP (the "APP Common Stock") as set
forth herein (the "Exchange").
E. The General Partner of South Texas, South Texas MR, Inc., a Texas
corporation, owns a one percent (1%) interest in South Texas, which interest is
being acquired indirectly by APP (the "General Partner Acquisition").
F. APP and subsidiaries of APP have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Sellers, the "Target Interest Holders") of
each of the entities listed on Exhibit B (together with South Texas, the "Target
Companies").
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
A-416
<PAGE> 778
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Acquisition" shall have the meaning set forth in Section 2.1.
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals
to this Agreement.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the partners
set forth in Exhibit A, stockholder or director, as the case may be, or
executive officer of such entity after reasonable investigation and inquiry by
the executive officers of such entity; provided, however, that to the extent any
of the representations, warranties and statements of Seller and South Texas made
specifically in Section 3.20 is expressly qualified to the knowledge or best
knowledge of Sellers and South Texas, it shall mean the knowledge of any of the
Sellers set forth in Exhibit A, partner or executive officer of South Texas
actually possesses without the necessity of any special inquiry as to the
matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 12.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Current Policies" shall have the meaning set forth in Section 3.22.
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"Damages" shall have the meaning set forth in Section 12.1.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Form S-1 Registration
Statement is declared effective by the SEC.
"Election Period" shall have the meaning set forth in Section
12.3(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.20(e).
"Environmental Liabilities" shall have the meaning set forth in
Section 3.20(e).
"ERISA" shall have the meaning set forth in Section 3.17.
"Exchange" shall have the meaning set forth in the recitals.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agreement" shall have the meaning set forth in the
recitals to this Agreement.
"Exchange Consideration" shall have the meaning set forth in Section
2.1.
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering of
APP Common Stock as consideration under the Exchange and other mergers or
acquisitions contemplated by the Other Agreements.
"FTC" shall mean the United States Federal Trade Commission.
"General Partner Acquisition" shall have the meaning set forth in
the recitals.
"Governmental Programs" shall have the meaning set forth in Section
3.26(a).
"Hazardous Substance" shall have the meaning set forth in Section
3.20(e).
"Indemnified Party" shall have the meaning set forth in Section
12.1.
"Indemnifying Party" shall have the meaning set forth in Section
12.1.
"Indemnity Notice" shall have the meaning set forth in Section
12.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
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"Insurance Policies" shall have the meaning set forth in Section
3.22.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.13.
"Lock-Up Provisions" shall have the meaning set forth in Section
5.12.
"Material Adverse Effect" shall mean a material adverse effect on
the assets, properties, business, operations, condition (financial or
otherwise), liabilities or results of operations of the Person or Persons being
referred to, taken as a whole (including its consolidated subsidiaries, if any),
in consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651 et seq.,
(v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of South Texas's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
"Medicare and Medicaid Programs" shall have the meaning set forth in
Section 3.26(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals
to this Agreement.
"Partnership Agreement" shall have the meaning set forth in Section
3.1 hereto.
"Partnership Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, partnership interests
of South Texas, or by which South Texas is or may be bound to issue additional
Partnership Units or other Partnership Rights.
"Partnership Subsidiary" shall have the meaning set forth in Section
3.7.
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"Partnership Units" shall have the meaning set forth in the recitals
to this Agreement.
"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.
"Private Programs" shall have the meaning set forth in Section
3.26(a).
"Proprietary Right" shall have the meaning set forth in Section
3.28(a).
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.20(e).
"Related Acquisitions" shall mean, collectively, the mergers and
acquisitions of each Founding Company and its related entities and assets
contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 11.2.
"Schedules" shall mean the schedules attached hereto as of the date
hereof or otherwise delivered by any party hereto pursuant to the terms hereof,
as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller Release" shall have the meaning set forth in Section
11.1(l).
"South Texas" shall have the meaning set forth in the preamble to
this Agreement.
"Target Companies" shall have the meaning set forth in the recitals
to this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
12.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder,"
"hereof," "hereinabove," "hereinafter" and other equivalent words refer to this
Agreement and not solely to the particular Article, Section or subdivision
hereof in which such word is used.
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Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed to
be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
Exchange
Section 2.1 Exchange of Partnership Units for Cash and APP Common
Stock.
(a) Subject to and upon the terms and conditions contained
herein, on the Closing Date Sellers shall convey, transfer deliver and assign to
APP ninety-nine percent (99%) of the total interests of the partners in South
Texas, free and clear of all obligations, security interests, claims, liens and
encumbrances whatsoever (the "Acquisition"). Subject to and upon the terms and
conditions contained herein, as consideration for such Partnership Units on the
Closing Date each Seller shall receive (i) cash and (ii) validly issued, fully
paid and nonassessable shares of APP Common Stock, all as determined in
accordance with the provisions of Exhibit A attached hereto (the "Exchange
Consideration").
(b) Each Seller shall deliver to APP at the Closing a Bill
of Sale representing the Partnership Units owned by him, her or it. Each Seller
agrees to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Partnership
Units or with respect to the powers accompanying any Partnership Unit. Upon such
delivery, each Seller shall receive in exchange therefor the Exchange
Consideration pursuant to Exhibit A.
Section 2.2 Legends. All APP Common Stock certificates issued to the
Sellers shall bear one or more of the following restrictive legends:
(a) Any legend required to put third-parties on notice of
the existence of the Lock-Up Provisions.
(b) Any legend relating to affiliates of the Company as
required pursuant to the Securities and Exchange Act of 1934.
Section 2.3 Closing. The closing (the "Closing") of the transactions
provided for in Section 2.1 shall take place at 10:00 a.m., local time, at the
offices of APP located at 2301 NationsBank Plaza, 901 Main Street, on the day on
which the transactions contemplated by the Initial Public Offering are
consummated. The date on which the Closing occurs is hereinafter referred to as
the "Closing Date."
ARTICLE III
Representations and Warranties of Sellers and South Texas
As an inducement to APP to enter into this Agreement, each of Seller
and South Texas represents and warrants to APP both as of the date hereof and as
of the Closing Date as set forth below, subject to those exceptions set forth in
the Disclosure Schedules attached hereto and incorporated herein by this
reference, specifically identifying the relevant subparagraph hereof, which
exceptions shall be deemed to be representations and warranties as if made
hereunder.
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Section 3.1 Organization and Good Standing; Qualification. South
Texas is a limited partnership duly organized and validly existing under the
laws of its state of organization, with all requisite power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. South Texas is in good standing in each jurisdiction where
the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except where such failure to be
so qualified or in good standing would not have a Material Adverse Effect on
South Texas. Copies of the Certificate of Limited Partnership and all amendments
thereto of South Texas and the Limited Partnership Agreement of South Texas and
all amendments thereto (the "Partnership Agreement") and copies of the minutes
of South Texas, all of which have been or will be made available to APP for
review, are true and complete as in effect on the date of this Agreement, and in
the case of the minutes, accurately reflect all material proceedings of the
partners of South Texas (and all committees thereof).
Section 3.2 Authorization and Validity. South Texas has all
requisite right, power and authority to execute, deliver and perform this
Agreement and all agreements and other documents executed and delivered by it
pursuant to this Agreement or to be executed and delivered on the Closing Date,
and has taken all action required by law, its Certificate of Limited
Partnership, its Partnership Agreement or otherwise, to authorize the execution,
delivery and performance of this Agreement and such related documents. Seller
has the legal capacity to enter into and perform this Agreement and the other
agreements to be executed and delivered in connection herewith. This Agreement
and all agreements and documents executed and delivered in connection herewith
have been, or will be as of the Closing Date, duly executed and delivered by
Seller and South Texas and constitute or will constitute the legal, valid and
binding obligations of Seller, enforceable against Seller and South Texas in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
by general equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than consents, filings
or notifications required to be made or obtained solely by APP (including,
without limitation, in connection with the Initial Public Offering, Form S-4 or
any Hart-Scott-Rodino filing to be made by APP, if any), the execution, delivery
and performance by Seller and South Texas of this Agreement and the agreements
provided for herein, and the consummation of the transactions contemplated
hereby and thereby by Seller and South Texas requires no action by or in respect
of, or filing with, any governmental body, agency, official or authority.
Section 3.4 Capitalization and Title. The Sellers collectively are,
and will be immediately prior to the Closing Date, the record and beneficial
owners of all the issued and outstanding Partnership Units of South Texas and
Seller is the owner of the Partnership Units currently held in his or her name
on the record books of South Texas, free and clear of all Encumbrances. Each
Partnership Unit held by Seller has been legally and validly issued and is fully
paid and nonassessable, and was issued pursuant to a valid exemption from
registration under (i) the Securities Act and (ii) all applicable state
securities laws.
Section 3.5 Transactions in Partnership Units. There exist no
Partnership Rights. Except for the General Partner Acquisition referenced
herein, South Texas has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its partnership interests or to pay any
dividend or make any distribution in respect thereof. Neither the equity
structure of South Texas nor the relative ownership of partnership interests
among any of its partners has been altered or changed in contemplation of the
Exchange within the two (2) years preceding the date of this Agreement.
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Section 3.6 Continuity of Business Enterprise. There has not been
any sale, distribution or spin-off of significant assets of South Texas or any
of its Affiliates other than in the ordinary course of business within the two
(2) years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. South Texas does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Partnership Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
The execution, delivery and performance by Seller and South Texas of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on South Texas; (ii) will not conflict with or result in
a violation of any provision of South Texas's Certificate of Limited Partnership
or Partnership Agreement; (iii) will not conflict with, result in a violation
of, or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to Seller or South Texas or
by which Seller or South Texas or South Texas's properties are subject or bound;
(iv) will not conflict with, constitute grounds for termination of, result in a
breach of, constitute a default under, require any notice under, or accelerate
or modify, or permit any person to accelerate or modify, any performance
required by the terms of any agreement, instrument, license or permit, to which
South Texas is a party or by which South Texas or any of its properties are
subject or bound except for such conflict, termination, breach or default, the
occurrence of which would not result in a Material Adverse Effect on South
Texas; and (v) except as contemplated by this Agreement, will not create any
Encumbrance or restriction upon the Partnership Units or any of the assets or
properties of South Texas.
Section 3.9 Absence of Changes. Except as permitted or contemplated
by this Agreement, since March 31, 1997, South Texas has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on South Texas;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent
with past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to South Texas, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment policies;
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(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any
of its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable for mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee benefits
for any employee of South Texas, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends or
other distributions to any partner or any other holder of any partnership
interest in South Texas (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.9.
Section 3.10 No Undisclosed Liabilities. To the best knowledge of
Seller and South Texas, South Texas does not have any liabilities or obligations
of any nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected in the Disclosure
Schedules.
Section 3.11 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of Seller and South
Texas, threatened against, or affecting South Texas, any Partnership Subsidiary,
or, to the knowledge of Seller and South Texas, any Seller or any other licensed
professional or other individual affiliated with South Texas affecting or that
would reasonably be likely to affect the Partnership Units or the operations,
business condition (financial or otherwise), or results of operations of South
Texas which (i) if successful, may, individually or in the aggregate, have a
Material Adverse Effect on South Texas or (ii) could adversely affect the
ability of South Texas or any Partnership Subsidiary to effect the transactions
contemplated hereby, and to the knowledge of Seller and South Texas there is no
basis for any such action or any state of facts or occurrence of any event which
would reasonably be likely to give rise to the foregoing. There are no
unsatisfied judgments against Seller, South Texas or any Partnership Subsidiary
or any licensed professional or other individual affiliated with South Texas or
any Partnership Subsidiary relating to services provided on behalf of South
Texas or any Partnership Subsidiary or any consent decrees to which any of the
foregoing is subject. Each of the matters, if any, set forth in this Section
3.11 is fully covered by policies of insurance of South Texas or any Partnership
Subsidiary as in effect on the date hereof.
Section 3.12 No Violation of Law. Neither South Texas nor any
Partnership Subsidiary has been, nor shall be as of the Closing Date (by virtue
of any action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever), in violation of any applicable local,
state or
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federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
South Texas.
Section 3.13 Lease Agreements. The Disclosure Schedules contain a
true, accurate and complete list of all the lease agreements and license
agreements to which South Texas or any Partnership Subsidiary is a party and
pursuant to which South Texas or any Partnership Subsidiary leases (whether as
lessor or lessee) or licenses (whether as licensor or licensee) any real or
personal property related to the operation of its business and which requires
payments in excess of $12,000 per year (the "Lease Agreements"). South Texas has
delivered to APP true and complete copies of all of the Lease Agreements. Each
Lease Agreement is valid, effective and in full force in accordance with its
terms, and there is not under any such lease (i) any existing or claimed
material default by South Texas or any Partnership Subsidiary (as applicable) or
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by South Texas or any Partnership Subsidiary
(as applicable) and, individually or in the aggregate, may reasonably result in
a Material Adverse Effect on South Texas, or, (ii) to the knowledge of Seller
and South Texas, any existing material default by any other party under any of
the Lease Agreements or any event of material default or event which with notice
or lapse of time, or both, would constitute a material default by any such
party. To the knowledge of Seller and South Texas, there is no pending or
threatened reassessment of any property covered by the Lease Agreements. To the
extent necessary to accomplish the intent of the Agreement, South Texas or any
Partnership Subsidiary shall use reasonable good faith efforts, and Seller shall
use reasonable good faith efforts to cause South Texas, to obtain prior to the
Closing Date the consent of each landlord or lessor whose consent is required to
the assignment of the Lease Agreements and will use reasonable good faith
efforts to deliver to APP in writing such consents as are necessary to effect a
valid and binding transfer or assignment of South Texas's or any Partnership
Subsidiary's rights thereunder. South Texas has a good, clear, valid and
enforceable leasehold interest under each of the Lease Agreements. The Lease
Agreements comply with the exceptions to ownership interests and compensation
arrangements set out in 42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952,
and any similar applicable state law safe harbor or other exemption provisions.
Section 3.14 Real and Personal Property.
(a) Neither South Texas nor each Partnership Subsidiary owns
any interest (other than the Lease Agreements) in real property.
(b) South Texas and each Partnership Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein which it purports to own;
and (ii) owns such rights, interests, assets and property free and clear of all
Encumbrances, title defects or objections (except for taxes not yet due and
payable). The personal property presently used in connection with the operation
of the business of South Texas and each Partnership Subsidiary constitutes the
necessary personal property assets to continue operation of South Texas and each
Partnership Subsidiary.
Section 3.15 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, South Texas does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
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Section 3.16 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and South Texas has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring South Texas to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.22 or Lease Agreements
identified in Section 3.13) to which South Texas is a party or by which it or
any of its properties or assets are bound including, without limitation, (i) all
agreements between South Texas, on the one hand, and any government entity,
provider, hospital, health maintenance organization, other managed care
organization or other third-party provider, on the other hand, then in effect
relating to the provision of medical, diagnostic imaging or consulting services,
treatments, patient referrals or other similar activities, (ii) all indentures,
mortgages, notes, loan or credit agreements and other agreements and obligations
relating to the borrowing of money or to the direct or indirect guarantee or
assumption of obligations of third parties requiring South Texas to make, or
setting forth conditions under which South Texas would be required to make,
aggregate future payments in excess of $10,000 in any fiscal year or $25,000 in
the aggregate, (iii) all agreements for capital improvements or acquisitions
involving an amount of $75,000 in any fiscal year or $75,000 in the aggregate,
(iv) all agreements containing a covenant limiting the freedom of South Texas
(or any provider employee of South Texas) to compete in any line of business
with any person or entity or in any geographic area or (v) all written contracts
and commitments providing for future payments by South Texas in excess of
$10,000 in any fiscal year or $25,000 in the aggregate and that are not
cancelable by providing notice of sixty (60) days or less. All such contracts,
agreements or other instruments are in full force and effect, there has been no
threatened cancellation thereof, there are no outstanding disputes thereunder,
each is with unrelated third parties and was entered into on an arms-length
basis in the ordinary course of business and, assuming the receipt of the
appropriate consents, all will continue to be binding in accordance with their
terms after consummation of the transaction contemplated herein; there are no
contracts, agreements or other instruments to which South Texas is a party or is
bound (other than physician employment contracts and insurance policies) which
could either singularly or in the aggregate have a Material Adverse Effect on
the value to APP of the assets and properties to be acquired by APP from South
Texas, or which could inhibit or prevent South Texas from transferring to or
vesting in APP good and sufficient title to the assets and properties to be
acquired by APP except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, on or
before the Closing Date South Texas shall use reasonable good faith efforts, and
Seller shall use reasonable good faith efforts to cause South Texas, to obtain
and deliver to APP in writing, effective as of the Closing Date, such consents
as are necessary to enable APP to enjoy all of the rights now enjoyed by South
Texas under such contracts. Any and all such consents shall be in a form
reasonably acceptable to APP and shall contain an acknowledgment by the
consenting party that South Texas has fully complied with and is not in default
under any provision of the particular contract or agreement.
(b) (i) Neither South Texas nor Seller has received notice
of any plan or intention of any other party to exercise any right to cancel or
terminate any contract, agreement or instrument, and to the knowledge of South
Texas and Seller there are no facts that would justify the exercise of such a
right; and (ii) neither South Texas nor Seller currently contemplates, or has
reason to believe any other Person currently contemplates, any amendment or
change to any such contract, agreement or instrument.
Section 3.17 Employee Matters. South Texas does not have any
employees and is not currently a party to any employment contract (except for
oral employment agreements which are terminable at will), consulting or
collective bargaining contracts, deferred compensation, pension plan (as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended, and all rules and regulations from time to time promulgated thereunder
("ERISA")), profit sharing, bonus or other nonqualified benefit or compensation
commitments, benefit plans, arrangements or plans (whether written
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or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to South Texas and any of its present or former employees, or any
predecessors in interest.
Section 3.18 Labor Relations. Intentionally omitted.
Section 3.19 Employee Benefit Plans. Intentionally omitted.
Section 3.20 Environmental Matters.
(a) Neither South Texas nor any Partnership Subsidiary has,
within the five (5) years preceding the date hereof, through the Closing Date,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of Seller and South Texas no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by South Texas of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by South Texas to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by South Texas.
(b) Neither South Texas nor any Partnership Subsidiary has
used, transported, disposed of or arranged for the disposal of (as those terms
are defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance that would be reasonably
likely to give rise to any Environmental Liabilities for South Texas under any
applicable Environmental Law that had, or would reasonably be likely to have, a
Material Adverse Effect on South Texas. Neither South Texas nor any Partnership
Subsidiary has engaged in any activity or failed to undertake any activity which
action or failure to act has given, or would reasonably be likely to give, rise
to any Environmental Liabilities or enforcement action by any federal, state or
local regulatory agency or authority, or has resulted, or would reasonably be
likely to result, in any fine or penalty imposed pursuant to any Environmental
Law. The Disclosure Schedules disclose any known presence of asbestos in or on
South Texas's or any Partnership Subsidiary's owned or leased premises. To the
knowledge of Seller and South Texas, there is no friable asbestos in or on South
Texas's or any Partnership Subsidiary's owned or leased premises.
(c) To the knowledge of Seller and South Texas, no soil or
water in or under any assets currently or formerly held for use or sale by South
Texas or any Partnership Subsidiary is or has been contaminated by any Hazardous
Substance while such assets or premises were owned, leased, operated or managed,
directly or indirectly by South Texas or any Partnership Subsidiary, where such
contamination had, or would be reasonably likely to have, a Material Adverse
Effect on South Texas.
(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of Seller
and South Texas, concerning South Texas or any Partnership Subsidiary within the
five (5) years preceding the date hereof through the Closing Date with respect
to any real property now or previously owned or leased by South Texas, any
Partnership Subsidiary or any of its predecessors, true and complete copies of
which have been provided to APP.
(e) For the purposes of this Section 3.20(e), the following
terms have the following meanings:
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"Environmental Laws" shall mean any federal, state or
local laws, ordinances, codes, regulations, rules, policies and
orders (including without limitation, Medical Waste Laws) that are
intended to assure the protection of the environment, or that
classify, regulate, call for the remediation of, require reporting
with respect to, or list or define air, water, groundwater, solid
waste, hazardous, toxic, or radioactive substances, materials,
wastes, pollutants or contaminants, or which are intended to assure
the safety of employees, workers or other persons, including the
public in each case as in effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities
of the Company or any Company Subsidiary, whether contingent or
fixed, which (i) have arisen, or would reasonably be likely to
arise, under Environmental Laws and (ii) relate to actions occurring
or conditions existing on or prior to the date hereof or the Closing
Date.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation,
treatment, storage, recycling, transportation, disposal or release
of any Hazardous Substances.
Section 3.21 Filing Reports. All returns, reports, plans and filings
of any kind or nature necessary to be filed by South Texas with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on South Texas.
Section 3.22 Insurance Policies. The Disclosure Schedules list and
briefly describe South Texas's policies of insurance to which South Texas or any
Partnership Subsidiary is a party or under which South Texas or any Partnership
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of South Texas or any Partnership Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by South
Texas or any Partnership Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
South Texas and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as South Texas
and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which South Texas or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies of all Insurance Policies have been provided to APP. Neither
South Texas nor any Partnership Subsidiary nor any officer or partner thereof
has received any notice or other written communication from any issuer of any
Current Policy cancelling such policy, materially increasing any deductibles or
retained amounts thereunder, or materially increasing the annual or other
premiums payable thereunder and, to the knowledge of Seller and South Texas, no
such cancellation or increase of deductibles, retainages or premiums is
threatened. There are no outstanding claims, settlements or premiums owed
against any Insurance Policy, and all required notices have been given and all
known potential or actual claims under any Insurance Policy have been presented
in due and timely fashion. Within the five (5) years preceding the Agreement,
neither South Texas nor any Partnership Subsidiary has filed a written
application for any
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professional liability insurance coverage which has been denied by an insurance
agency or carrier. The Disclosure Schedules also set forth a list of all claims
under any Insurance Policy in excess of $10,000 per occurrence filed by South
Texas or any Partnership Subsidiary during the immediately preceding three-year
period.
Section 3.23 Accounts Receivable. The Disclosure Schedules set forth
a list and aging of all accounts receivable of South Texas as of March 31, 1997,
which list is complete, true and accurate in all material respects. All such
accounts receivable arose in the ordinary course of business and have not been
previously written off as bad debts and, are, to the extent still uncollected,
to the knowledge of Seller and South Texas collectible in the ordinary course of
business, net of reserves for doubtful and uncollectible accounts shown on the
accounting records of South Texas (which reserves are adequate and calculated
consistent with past practice).
Section 3.24 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete
(i) list of the accounts payable of South Texas as of March 31, 1997, and (ii)
list of each individual indebtedness owned by South Texas of $5,000 or more,
setting forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to South Texas (including, without limitation all providers
of care to patients) which accounted for a dollar volume of purchases paid for
by South Texas in excess of $25,000 for the fiscal year ended [DECEMBER 31,
1996], or which is reasonably expected to account for a dollar volume of
purchases paid for by South Texas in excess of $25,000 for the fiscal year to
end [DECEMBER 31, 1997].
Section 3.25 Inventory. All items of inventory on hand on the date
of this Agreement consist, and all such items on hand on the Closing Date will
consist, net of all applicable reserves with respect thereto (calculated
consistent with past practice), of items of a quality and a quantity usable and
saleable in the ordinary course of South Texas's business and conform to
generally accepted standards in the industry of which South Texas is a part.
Purchase commitments of South Texas for inventory are not materially in excess
of normal requirements, and none of such purchase commitments are at prices in
excess of prevailing market prices at the time of such purchase commitment.
Section 3.26 Licenses, Authorization and Provider Programs.
(a) South Texas and each other licensed employee or
contractor of South Texas (i) is the holder of all valid licenses, approvals,
orders, consents, permits, registrations, qualifications and other rights and
authorizations required by law, ordinance, regulation or ruling of any
governmental regulatory authority necessary to operate his/her/its business and
(ii) is eligible to participate in and to receive reimbursement under Titles
XVIII and XIX of the Social Security Act (the "Medicare and Medicaid Programs")
and any other programs funded in whole or in part by federal, state or local
entities for which South Texas is eligible ("Governmental Programs"). Each of
South Texas and Seller has a current provider number for such Governmental
Programs and with such private non-governmental programs (including without
limitation any private insurance program) under which South Texas is presently
receiving payments directly or indirectly from any Payor for technical imaging
services provided by any licensed technician or contractor of South Texas (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act) and provider
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agreements is set forth in the Disclosure Schedules, true, complete and correct
copies of which have been provided to APP. No violation, default, order or
deficiency exists with respect to any of the items listed in the Disclosure
Schedules except for such violations, defaults, orders or deficiencies which
would not be reasonably likely to have a Material Adverse Effect on South Texas,
and there is no action pending or to the knowledge of Seller and South Texas
recommended by any state or federal agencies having jurisdiction over the items
listed in the Disclosure Schedules, either to revoke, withdraw or suspend any
material license or to terminate the participation of South Texas in any
Governmental Program or Private Program, and no event has occurred which, with
or without notice or lapse of time, or both, would constitute grounds for a
violation, order or deficiency with respect to any of the items listed in the
Disclosure Schedules to revoke, withdraw or suspend any material license to
operate its business as is presently being conducted by it. To the knowledge of
Seller and South Texas, there has been no decision not to renew any existing
agreement with any provider or Payor relating to South Texas's business as
presently being conducted by it. South Texas (i) has not had its professional
license, Drug Enforcement Agency number, Medicare/Medicaid provider status or
staff privileges at any hospital or diagnostic imaging center suspended,
relinquished, terminated or revoked (including orders that have been entered by
any such entities but stayed), (ii) has not been reprimanded in writing,
sentenced, or disciplined by any licensing board, state agency, regulatory body
or authority, hospital, Payor or specialty board (including orders that have
been entered by any such entities but stayed), (iii) is not the subject of an
initial or final determination by any federal or state authority that could
result in any demand or reimbursement under the Medicare, Medicaid or Government
Programs or any exclusion or which monetary penalty under federal or state law
or (iv) has had a final judgment or settlement entered against it in connection
with a malpractice or similar action.
(b) South Texas is not required, or for the 72-month period
prior to the Closing Date was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.27 Inspections and Investigations. Neither the right of
South Texas, nor the right of any licensed professional or other individual
affiliated with South Texas to receive reimbursements pursuant to any
Governmental Program or Private Program has been terminated or otherwise
materially and adversely affected as a result of any investigation or action
whether by any federal or state governmental regulatory authority or other third
party. No licensed professional or other individual affiliated with the business
has, during the past three (3) years prior to the Closing Date, had their
professional license or staff privileges limited, suspended or revoked by any
governmental regulatory authority or agency, hospital, integrated delivery
system, trade association, professional review organization, accrediting
organization or certifying agency (including orders that have been entered by
any such entities but stayed). True, correct and complete copies of all reports,
correspondence, notices and other documents relating to any matter described or
referenced in this Section 3.27 have been provided to APP.
Section 3.28 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by South Texas or any
Partnership Subsidiary, (ii) all patents and applications therefor and
inventions and discoveries that may be patentable currently owned, in whole or
in part, or used by South Texas or any Partnership Subsidiary, (iii) all
licenses, royalties, and assignments thereof to which South Texas or any
Partnership Subsidiary are a party (iv) all copyrights (for published and
unpublished works) currently owned in whole or part, or used by South Texas or
any
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Partnership Subsidiary and (v) other similar agreements relating to the
foregoing to which South Texas or any Partnership Subsidiary is a party
(including expiration date if applicable) (collectively, the "Proprietary
Rights").
(b) The Disclosure Schedules contain a complete and accurate
list and summary description of all agreements relating to technology, trade
secrets, know-how or processes that South Texas is licensed or authorized to use
by others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the knowledge of Seller and South Texas, any threatened
disputes or disagreements with respect to any such agreement.
(c) South Texas owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of Seller and South
Texas, no claim has been asserted by any person to the ownership of or for
infringement by South Texas of any Proprietary Right of any other Person, and
neither South Texas nor Seller is aware of any valid basis for any such claim.
To the best knowledge of Seller and South Texas, no proceedings have been
threatened which challenge the Proprietary Rights of South Texas. South Texas
has the right to use, free and clear of any adverse claims or rights of others,
all trade secrets, customer lists and proprietary information required for the
performance and marketing of all medical services.
Section 3.29 Taxes.
(a) Filing of Tax Returns. South Texas has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of South Texas for the periods covered thereby.
(b) All Withholding Requirements Satisfied. All monies
required to be withheld by South Texas and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(c) Safe Harbor Lease. None of the properties or assets of
South Texas constitutes property that South Texas, APP, or any Affiliate of APP,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
(d) Tax Exempt Entity. None of the assets or properties of
South Texas are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
(e) Boycotts. South Texas has not at any time participated
in or cooperated with any international boycott as defined in Section 999 of the
Code.
Section 3.30 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, partner or other Affiliate of South Texas in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to South
Texas's
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business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to South Texas's
business. There is no commitment to, and no income that has been derived from,
an Affiliate, and following the Closing South Texas shall not have any
obligation of any kind or designation to any such Affiliate.
Section 3.31 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that South Texas has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.) and
the Person or Persons authorized in respect thereof.
Section 3.32 Fraud and Abuse and Self Referral. Neither South Texas
nor any Partnership Subsidiary has engaged and, to the knowledge of Seller and
South Texas, neither South Texas's officers and partners nor other Persons and
entities providing professional services for or on behalf of South Texas have
engaged, in any activities which are prohibited under 42 U.S.C. Sections
1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the exceptions or safe
harbor provisions set forth in such legislation), or the regulations promulgated
thereunder or pursuant to similar state or local statutes or regulations, or
which are prohibited by applicable rules of professional conduct or 18 U.S.C.
Sections 24, 287, 371, 664, 669, 1001, 1027, 1035, 1341, 1343, 1347, 1518,
1954, 1956(c)(7)(F) and 3486.
Section 3.33 Restrictions on Business Activities. There is no
material agreement, judgment, injunction, order or decree binding upon South
Texas, any Partnership Subsidiary or officer, partner or key employee of South
Texas or Partnership Subsidiary, which has or reasonably could be expected to
have the effect of prohibiting or materially impairing any acquisition of
property by South Texas or any Partnership Subsidiary or the conduct of business
by South Texas or any Partnership Subsidiary.
Section 3.34 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of Seller and South Texas,
threatened bankruptcy, insolvency or similar proceeding with respect to any
other party to such agreements, and no event has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default thereunder by South Texas or any other party thereto.
Section 3.35 Statements True and Correct. No representation or
warranty made herein by South Texas or Seller, nor any statement, certificate,
information, exhibit or instrument to be furnished by South Texas or Seller to
APP or any of its representatives pursuant to this Agreement, contains or will
contain as of the Closing Date any untrue statement of material fact or omits or
will omit to state a material fact necessary to make the statements contained
herein and therein not misleading.
Section 3.36 Schedules. The Disclosure Schedules required by Article
III hereof and attached hereto are true, correct and complete in all material
respects as of the date of this Agreement.
Section 3.37 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of
Seller or South Texas who is entitled to any fee or commission upon consummation
of the transactions contemplated by this Agreement or referred to herein.
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ARTICLE IV
Representations and Warranties of APP
As inducement to each Seller and South Texas to enter into this
Agreement, APP represents and warrants to each Seller and South Texas both as of
the date hereof and as of the Closing Date as set forth below, subject to those
exceptions set forth in the Disclosure Schedules attached hereto and
incorporated herein by this reference, specifically identifying the relevant
subparagraphs hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder.
Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the
transactions contemplated hereby, all of which have been or will be made
available to Sellers and South Texas for review, are true, correct and complete
as in effect on the date of this Agreement and accurately reflect all material
proceedings of the stockholders and directors of APP (and all committees
thereof) regarding the transactions contemplated hereby. The stock record books
of APP, which have been or will be made available to Sellers and South Texas for
review, contain true, complete and accurate records of the stock ownership of
APP and the transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by APP
of this Agreement, the agreements provided for herein and the Other Agreements,
and the consummation by APP of the transactions contemplated hereby and thereby
are within APP's corporate powers and have been duly authorized by all necessary
action on the part of APP's Board of Directors. This Agreement and the Other
Agreements have been duly executed by APP. This Agreement and all other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which APP is a party constitute, or upon
execution will constitute, valid and binding agreements of APP, enforceable
against it in accordance with their respective terms, except as may be limited
by bankruptcy or other laws affecting creditors' rights generally, or by general
equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than consents, filings
or notifications required to be made or obtained solely by South Texas, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the transactions contemplated
hereby and thereby by APP requires no action by or in respect of, or filing
with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares are
issued and outstanding and 10,000,000 shares of APP Preferred Stock, none of
which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act,
and (ii) all applicable state securities laws. No shares of capital stock are
owned by APP in treasury. No shares of capital stock of APP have been
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issued or disposed of in violation of the preemptive rights, rights of first
refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own, directly
or indirectly, any capital stock or other equity, ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture or
other entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents.
The execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's Certificate of
Incorporation or Bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated
by this Agreement, since March 31, 1997, there has not been (i) any change in
the working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the
Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.
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Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as
of the Closing Date (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever), in violation of
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business or
its advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4,
APP does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted
an extension to any taxing authority of the limitation period during which any
tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
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(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated
to be made by APP will be characterized as an "excess parachute payment" within
the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed
as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. The Disclosure Schedules or
Form S-4 sets forth a description of any interest held, directly or indirectly,
by any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to a Seller or South Texas pursuant
to this Agreement, contains or will contain as of the Closing Date any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Schedules. All Disclosure Schedules required by Article
IV hereof and attached hereto are true, correct and complete in all material
respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
ARTICLE V
Covenants of Seller and South Texas
Each of Seller and South Texas makes the covenants and agreements as
set forth in this Article V, which shall apply with respect to the period from
the date hereof to the Closing Date and, to the extent contemplated herein,
thereafter and agree that:
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Section 5.1 Required Conduct of Seller and South Texas. From the
date hereof until the Closing Date, South Texas shall, and Seller shall use
his/her/its best efforts to cause South Texas to, in all material respects,
conduct the business of South Texas in the ordinary and usual course consistent
with past practices and shall use reasonable efforts to:
(a) preserve intact South Texas's business and its
relationships with referral sources, customers, suppliers, patients, employees
and others having business relations with it;
(b) maintain and keep South Texas's properties and assets in
good repair and condition consistent with past practice as is material to the
conduct of the business of South Texas;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof.
Section 5.2 Prohibited Conduct of Seller and South Texas. Without
the written consent of APP, South Texas shall not, and Seller shall use
his/her/its best efforts to cause South Texas not to:
(a) amend South Texas's Certificate of Limited Partnership
or Partnership Agreement or other charter documents;
(b) issue, sell or authorize for issuance or sale, any
partnership interests of South Texas (except for the General Partner
Acquisition) or any subscriptions, options, warrants, rights or convertible
securities, or enter into any agreements or commitments of any character
obligating it to issue or sell any such interests;
(c) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or any option, warrant or other
right to purchase or acquire any such shares;
(d) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its partnership
interest (except as expressly contemplated herein);
(e) voluntarily sell, transfer, surrender, abandon or
dispose of any of South Texas's assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the ordinary course of
business consistent with past practices;
(f) grant or make any mortgage or pledge or subject South
Texas or any of South Texas's properties or assets to any lien, charge or
encumbrance of any kind, except liens for taxes not currently due and except for
liens which arise by operation of law;
(g) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary course of
business or which is reasonably necessary for the conduct of South Texas's
business;
(h) make or commit to make any capital expenditures which
are not reasonably necessary for the conduct of South Texas's business;
(i) grant any increase in the compensation payable or to
become payable to partners, officers, consultants or employees other than merit
increases to employees of South Texas who are not partners or officers of South
Texas, except in the ordinary course of business and consistent with past
practices;
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(j) change in any manner any accounting principles or
methods other than changes which are consistent with generally accepted
accounting principles;
(k) enter into any material commitment or transaction other
than in the ordinary course of business;
(l) take any action which could reasonably be expected to
have a Material Adverse Effect on South Texas;
(m) apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any Affiliate of South Texas, other than in
the ordinary course and consistent with past practices;
(n) agree, whether in writing or otherwise, to do any of the
foregoing; and
(o) take any action to in any way amend, revise or otherwise
affect South Texas's prior approval and effectiveness of this Agreement or any
of the agreements attached as exhibits hereto, other than as required to
discharge their fiduciary duties.
Section 5.3 Title to Assets; Indebtedness. As of the Closing Date,
South Texas shall (i) except for sales of assets held as inventory, if any, in
the ordinary course of business prior to the Closing Date and except as
otherwise specifically described in the Schedules to this Agreement, have good
and valid title to all of its assets free and clear of all Encumbrances of any
nature whatsoever, except for current year ad valorem taxes and liens which
arise by operation of law, and (ii) have no direct or indirect indebtedness
except for indebtedness disclosed in the Disclosure Schedules hereto or for
normal and recurring accrued obligations of South Texas arising in connection
with its business operations in the ordinary course of business and which arise
from the purchase of merchandise, supplies, inventory and services used in
connection with the provision of services.
Section 5.4 Access. At all times prior to the Closing Date, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of South Texas,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, Partnership Unit registers, accounts, tax
returns, financial statements and all other data that, in the reasonable opinion
of APP, are required for APP to make such investigation as it may desire of the
properties and business of South Texas. APP shall also be allowed full access
upon reasonable prior notice and during regular business hours (and at such
other times as the parties may reasonably agree) to consult with the officers,
employees (after announcement by South Texas or Seller of the Exchange to the
employees of South Texas which shall occur no later than three (3) days
subsequent to execution hereof by South Texas), accountants, counsel and agents
of South Texas in connection with such investigation of the properties and
business of South Texas. No investigation by APP shall diminish or otherwise
affect any of the representations, warranties, covenants or agreements of South
Texas under this Agreement. Any access or investigation referred to in this
Section 5.4 shall be conducted in such a manner as to minimize the disruption to
South Texas's ongoing business operations.
Section 5.5 Acquisition Proposals. Except for the General Partner
Acquisition, Seller shall not, and shall use his/her/its best efforts to cause
South Texas not to, and South Texas shall not, and shall cause each of its
partners, officers, employees or agents not to, directly or indirectly:
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(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or partnership interests of
South Texas, whether by merger, consolidation, share exchange, business
combination, purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of South Texas, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of South Texas. If South Texas receives any
offer or proposal after the date hereof, written or otherwise, of the type
referred to above, South Texas shall promptly inform APP of such offer or
proposal, decline such offer and furnish APP with a copy thereof if such offer
or proposal is in writing.
Section 5.6 Compliance With Obligations. Prior to the Closing Date,
South Texas shall, and Seller shall use his/her/its best efforts to cause South
Texas to, comply in all material respects with (i) all applicable federal,
state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its Partnership Agreement, by which it or
its properties or its assets (real, personal or mixed, tangible or intangible)
may be bound; and (iii) all decrees, orders, writs, injunctions, judgments,
statutes, rules and regulations applicable to South Texas, and its respective
properties or assets.
Section 5.7 Notice of Certain Events. Each of Seller and South Texas
shall, and Seller shall use his/her/its best efforts to cause South Texas to,
promptly notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by South
Texas who is expected to receive annualized compensation of at least $50,000 in
1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of South
Texas;
(d) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting South Texas which, if pending on the date of this Agreement,
would have been required to have been disclosed to APP hereunder or which relate
to the consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of South
Texas, including but not limited to any licensure or certification deficiencies,
or violations; limitations on a license or a provider agreement; freeze or
reduction in Medicare or Medicaid rates, notice of overpayment; being the
subject of any investigation relating to patient abuse, fraud, kickbacks, false
claims or other alleged illegal payment practices under the Fraud and Abuse
Statutes; and
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(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
South Texas and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 5.8 Partners' Consent. Seller hereby consents to this
Agreement and the transactions contemplated hereby, including, without
limitation, the Exchange, on the terms and conditions set forth herein and in
the agreements and documents contemplated hereby, and hereby waives all other
rights of first offer, rights of first refusal and similar rights that Seller
may have with respect to a transfer of Partnership Units by him/her/it or any
other Seller.
Section 5.9 Obligations of Seller and South Texas. Subject to
Section 5.8 hereof, each of Seller and South Texas shall, and Seller shall use
his/her/its best efforts to cause South Texas to, perform its obligations under
this Agreement and all related agreements, and each of Seller and South Texas
shall, and Seller shall use his/her/its best efforts to cause South Texas to,
consummate the transactions contemplated hereby and thereby on the terms and
conditions set forth in this Agreement and such agreements.
Section 5.10 Intentionally omitted.
Section 5.11 Accounting and Tax Matters. South Texas will not, and
Seller shall use his/her/its best efforts to cause South Texas not to, change in
any material respect the accounting methods or practices followed by South Texas
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. South Texas will not, and
Seller shall use his/her/its best efforts to cause South Texas not to, make any
material tax election except in the ordinary course of business consistent with
past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. South
Texas will, and Seller shall use his/her/its best efforts to cause South Texas
to, duly, accurately and timely (without regard to any extensions of time) file
all returns, information statements and other documents relating to taxes of
South Texas required to be filed by it, and South Texas shall, and Seller shall
use his/her/its best efforts to cause South Texas to, pay all taxes required to
be paid by South Texas, on or before the Closing Date.
Section 5.12 Lock-Up Provisions. Seller irrevocably agrees that
he/she/it will not, directly or indirectly, sell, offer, contract for sale, make
any short sale, pledge or otherwise transfer or dispose of any of the APP Common
Stock without the prior written consent of APP (which consent may be
unreasonably withheld in APP's absolute and sole discretion) during the two-year
period commencing on the Effective Date. Notwithstanding the preceding, the
restrictions contained in the prior sentence shall no longer apply (i) as to
twenty-five percent (25%) of the Shares of APP Common Stock received by a Seller
pursuant to the Exchange following expiration of a one-year period following the
Effective Date, (ii) as to an additional twenty-five percent (25%) of the Shares
of APP Common Stock received by a Seller pursuant to the Exchange following
expiration of an eighteen-month period following the Effective Date, and (iii)
as to the remaining fifty percent (50%) of the Shares of APP Common Stock
received by Seller pursuant to the Exchange following expiration of a
twenty-four-month period following the Effective Date. Seller understands and
acknowledges that the restrictions contained in this Section 5.12 (the "Lock-Up
Provisions") are irrevocable and shall be binding upon Seller's heirs, legal
representatives, successors and assigns.
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ARTICLE VI
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 6.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Exchange; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
Section 6.2 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit South Texas and its authorized
representatives reasonable access to, and make available for inspection, all of
the assets and business of APP, including its executive officers, and permit
South Texas and its authorized representatives to inspect and, at South Texas's
sole expense, make copies of all documents, records and information with respect
to the affairs of APP as South Texas and its representatives may reasonably
request, all for the sole purpose of permitting South Texas to become familiar
with the business and assets and liabilities of APP. No investigation by South
Texas or Seller shall diminish or otherwise affect any of the representations,
warranties, covenants or agreements of APP under this Agreement.
Section 6.3 Notification of Certain Matters. APP shall promptly
inform South Texas in writing of (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by APP subsequent to the date of this Agreement
and prior to the Closing Date under any contract, agreement or investment
material to APP's condition (financial or otherwise), operations, assets,
liabilities or business and to which it is subject; (b) any material adverse
change in APP's condition (financial or otherwise), operations, assets,
liabilities or business or (c) defaults or disputes regarding Other Agreements.
ARTICLE VII
Covenants of APP, Seller and South Texas
APP, Seller and South Texas agree as follows:
Section 7.1 Filings; Other Action.
(a) South Texas shall cooperate with APP to promptly prepare and
file with the SEC the Registration Statements on Form S-1 and Form S-4 (or other
appropriate Forms) to be filed by APP in connection with its Initial Public
Offering and offering of the shares of APP Common Stock to the Target Interest
Holders pursuant to the transactions contemplated by this Agreement and the
Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. Seller and South Texas shall cooperate with APP
in the preparation of the Registration Statements and shall furnish all
information concerning South Texas as may be reasonably requested in connection
with any such action in a timely manner.
(b) Seller, South Texas and APP and each separately represent and
warrant that (i) in the case of Seller and South Texas, none of the written
information or documents supplied or to be supplied by
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Seller and South Texas specifically for inclusion in the Registration
Statements, by exhibit or otherwise and (ii) in the case of APP, will, at the
time the Registration Statements and each amendment and supplement thereto, if
any, becomes effective under the Securities Act, none of them contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Seller and South Texas
shall be entitled to review the Registration Statements and each of the
amendments thereto, if any, prior to the time each becomes effective under the
Securities Act. Seller and South Texas shall have no responsibility for
information contained in the Registration Statements except for information
provided by Seller or South Texas specifically for inclusion therein. Seller's
and South Texas's review of the Registration Statements shall not diminish or
otherwise affect the representations, covenants and warranties of APP contained
in this Agreement.
(c) Seller and South Texas shall, upon request, furnish APP with all
information concerning South Texas, its subsidiaries, partners and officers, and
such other matters as may be reasonably requested by APP in connection with the
preparation of the Registration Statements and each of the amendments or
supplements thereto, or any other statement, filing, notice or application made
by or on behalf of each such party or any of its subsidiaries to any
governmental entity in connection with the transactions contemplated by this
Agreement.
Section 7.2 Amendments of Schedules. Each party hereto agrees that,
with respect to the representations and warranties of such party contained in
this Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly the Schedules with respect to any matter
that would have been or would be required to be set forth or described in the
Schedules in order to not materially breach any representation, warranty or
covenant of such party contained herein; provided that no amendment or
supplement to a Schedule that constitutes or reflects a Material Adverse Effect
on South Texas may be made unless APP consents to such amendment or supplement,
and no amendment or supplement to a Schedule that constitutes or reflects a
Material Adverse Effect on APP may be made unless Sellers and South Texas
consent to such amendment or supplement. For purposes of this Agreement,
including without limitation for purposes of determining whether the conditions
set forth in Sections 8.1 and 9.1 have been fulfilled, the Disclosure Schedules
hereto shall be deemed to be the Disclosure Schedules as amended or supplemented
pursuant to this Section 7.2. In the event that Sellers or South Texas seek to
amend or supplement a Disclosure Schedule pursuant to this Section 7.2 and APP
does not consent to such amendment or supplement, or APP seeks to amend or
supplement a Disclosure Schedule pursuant to this Section 7.2, and Seller and
South Texas do not consent, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 13.1(a) hereof.
Section 7.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Closing Date, take any action that would
prevent the Exchange from qualifying as a tax-free exchange within the meaning
of Section 351 of the Code.
Section 7.4 Public Announcements. The parties hereto will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and,
except as may be required by applicable law, will not issue any such press
release or make any such public statement prior to such consultation, although
the foregoing shall not apply to any disclosure by APP in any filing with the
DOJ, FTC or SEC.
Section 7.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and
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expenses incurred by Seller and South Texas shall be paid by Seller in full
immediately prior to the Closing.
Section 7.6 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state "Blue Sky" or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the transactions contemplated
hereby.
ARTICLE VIII
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Closing Date of each
of the following conditions:
Section 8.1 Representations and Warranties. The representations and
warranties of the Sellers and South Texas contained herein shall have been true
and correct in all material respects when initially made and shall be true and
correct in all material respects as of the Closing Date.
Section 8.2 Covenants. Each Seller and South Texas shall have
performed and complied in all material respects with all covenants required by
this Agreement to be performed and complied with by each Seller and South Texas,
respectively, prior to the Closing Date.
Section 8.3 Legal Opinion. Counsel to Sellers and South Texas shall
have delivered to APP their opinion, dated as of the Closing Date, in form and
substance substantially in the form set forth in Exhibit C.
Section 8.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 8.5 No Material Adverse Effect. No Material Adverse Effect
on South Texas shall have occurred since March 31, 1997, whether or not such
change shall have been caused by the deliberate act or omission of any Seller or
South Texas.
Section 8.6 Government Approvals and Required Consents. Seller,
South Texas and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents required under any law,
statements, rule, regulation or ordinance to consummate the transactions
contemplated by this Agreement.
Section 8.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Closing Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
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Section 8.8 Closing Deliveries. APP shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 10.1.
Section 8.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 8.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 8.11 Closing of General Partner Acquisition. The General
Partner Acquisition shall have closed.
Section 8.12 Execution by Each Seller and South Texas. Each Seller
and South Texas shall have executed this Agreement and its respective
Partnership Units shall have been transferred to APP.
ARTICLE IX
Conditions Precedent of Seller and South Texas
Except as may be waived in writing by Seller and South Texas, the
obligations of Seller and South Texas hereunder are subject to fulfillment at or
prior to the Closing Date of each of the following conditions:
Section 9.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Closing Date.
Section 9.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Closing Date.
Section 9.3 Legal Opinions. Counsel to APP shall have delivered to
Seller and South Texas their opinion, dated as of the Closing Date, in form and
substance substantially in the form set forth in Exhibit D.
Section 9.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 9.5 Government Approvals and Required Consents. Sellers,
South Texas and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents (including consent of
Sellers required by applicable state law or the Partnership Agreement dated as
of the date of this Agreement) required under any law, contracts or any statute,
rule, regulation or ordinances to consummate the transactions contemplated by
this Agreement.
Section 9.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statements shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Closing Date, APP shall have received
all state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. At or
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prior to the Closing Date, the APP Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
Section 9.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 9.8 Closing Deliveries. Seller and South Texas shall have
received all Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to Sellers and South Texas referred to
in Section 10.2.
Section 9.9 No Material Adverse Effect. No Material Adverse Effect
on APP shall have occurred since [__________], 1997, whether or not such change
shall have been caused by the deliberate act or omission of APP.
ARTICLE X
Closing Deliveries
Section 10.1 Deliveries of Seller and South Texas. At or prior to
the Closing Date, Seller and South Texas shall deliver to APP the following, all
of which shall be in a form reasonably satisfactory to APP:
(a) bill of sale representing the Partnership Units held by
each Seller, duly endorsed in blank by such Seller or accompanied by duly
executed powers in blank, which certificates together shall represent all of the
issued and outstanding Partnership Units of South Texas;
(b) a copy of resolutions of the partners of South Texas or
of Seller, if applicable, authorizing the execution, delivery and performance of
this Agreement and all related documents and agreements and consummation of the
transactions contemplated hereby, each certified by an officer as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(c) a certificate of each of Seller and an officer of South
Texas dated the Closing Date, as to the truth and correctness of the
representations and warranties of Seller and South Texas, respectively,
contained herein on and as of the Closing Date;
(d) a certificate of each of Seller and an officer of South
Texas dated the Closing Date, (i) as to the performance of and compliance in all
material respects by South Texas and Seller, respectively, with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent required by Seller and South Texas, respectively, to be
satisfied shall have been satisfied;
(e) a certificate of an officer of South Texas certifying as
to the incumbency and as to the signatures of each of the officers of South
Texas who have executed documents delivered at the Closing on behalf of South
Texas;
(f) certificates, dated within ten (10) days prior to the
Closing Date, of the Secretary of State of Texas for South Texas establishing
that South Texas is in existence in the state of Texas;
(g) certificates, dated within ten (10) days prior to the
Closing Date, of the Secretaries of State of the states in which South Texas is
qualified to do business, to the effect that South
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Texas is qualified to do business and, if applicable, is in good standing as a
foreign entity in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of officers of South Texas as requested
by APP;
(j) a nonforeign affidavit, as such affidavit is referred to
in Section 1445(b)(2) of the Code, of Seller, signed under a penalty of perjury
and dated as of the Closing Date, to the effect that Seller is a United States
citizen or a resident alien (and thus not a foreign person) and providing
Seller's United States taxpayer identification number;
(k) an executed Seller Release by Seller in substantially
the form attached hereto as Exhibit E (the "Seller Release"); and
(l) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of this
Agreement.
Section 10.2 Deliveries of APP. At or prior to the Closing Date, APP
shall deliver to each Seller and South Texas the following, all of which shall
be in a form reasonably satisfactory to Seller and South Texas:
(a) the Exchange Consideration;
(b) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(c) a certificate of the President of APP dated the Closing
Date as to the truth and correctness of the representations and warranties of
APP contained herein on and as of the Closing Date;
(d) a certificate of the President of APP dated the Closing
Date, (i) as to the performance and compliance by APP with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent required to be satisfied by APP have been satisfied;
(e) a certificate of the Secretary of APP certifying as to
the incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the
Closing Date, of the Secretary of State of Delaware establishing that APP is in
existence, has paid all franchise or similar taxes, if any, and otherwise is in
good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten
(10) days prior to the Closing Date, of the Secretaries of State of the states
in which either APP is qualified to do business, to the effect that APP is
qualified to do business and is in good standing as a foreign corporation in
such state;
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(h) such other instrument or instruments of transfer
prepared by Seller or South Texas as shall be necessary or appropriate, as
Seller or South Texas or his/her/its respective counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
ARTICLE XI
Post Closing Matters
Section 11.1 Further Instruments of Transfer. Following the Closing,
at the request of APP and at APP's sole cost and expense, Seller and South Texas
shall deliver any further instruments of transfer and take all reasonable action
as may be necessary or appropriate to carry out the purpose and intent of this
Agreement.
Section 11.2 Exchange Tax Covenant.
(a) The parties intend that the Exchange will qualify as a
tax-free transaction within the meaning of Section 351 of the Code in which the
Company will not recognize gain or loss, and pursuant to which any gain
recognized by Seller as a result of the Exchange will not exceed the amount of
any cash received by a Seller in the Exchange (a "Reorganization").
(b) Both prior to and after the Closing Date, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Exchange being treated as a
Reorganization. These obligations are excused as to a party required to maintain
the books or file a Tax Return if such party has provided to the other parties a
written opinion of competent tax counsel to the effect that there is not
substantial authority, within the meaning of Section 6662(d)(2)(B)(i) of the
Code, to report the Exchange as a Reorganization and such opinion either is
furnished prior to the Closing Date or is based on facts or events not known at
the Closing Date. Each party shall provide to each other party such tax
information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Exchange as a
Reorganization.
(c) APP shall cause the requirements of Rule 144(c) under
the Securities Act to be met with respect to APP for so long as those
requirements must be met to enable sales by the Sellers who are affiliates of
South Texas to meet the requirements of Rule 145(d) under the Securities Act.
ARTICLE XII
Remedies
Section 12.1 Indemnification by Sellers. Subject to the terms,
limitations and conditions of this Agreement, Sellers (each an "Indemnifying
Party" and collectively, the "Indemnifying Parties"), severally, agree to
indemnify, defend and hold APP and its directors, officers, employees, agents,
attorneys, consultants and Affiliates (each an "Indemnified Party" and
collectively, the "Indemnified Parties"), harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, reasonable attorneys' fees and expenses (including, without limitation,
all costs of experts and all costs incidental to or in connection with any
appellate process) (collectively, "Damages") asserted against or incurred by an
Indemnified Party arising out of or resulting from:
(a) a breach of any representation, warranty or covenant of
any Seller or South Texas contained in this Agreement (without giving effect to
any Material Adverse Effect qualifier contained as
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part of any such representation or warranty or covenant contained in this
Agreement or in any Schedule or certificate delivered hereunder);
(b) any violation (or alleged violation) by any Seller or
South Texas and/or any of its past or present directors, officers, partners,
employees, agents, attorneys, consultants and Affiliates of any state or federal
law governing health care fraud and abuse or prohibition on referral of patients
to Persons in which a licensed professional has a financial or other form of
interest (including, but not limited to, fraud and abuse in the Medicare and
Medicaid Programs) occurring on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act
or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statement
of a material fact in any Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto relating to South
Texas (including any Partnership Subsidiary) or (ii) failure to state
information necessary to make the statements required to be stated therein not
misleading arising (in the case of either (i) or (ii)) solely from information
provided in writing to APP or its counsel by South Texas or any Seller or their
agents specifically for inclusion in any such Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto (including, without limitation, schedules, exhibits and certifications
delivered by South Texas or any of its agents in connection with this
Agreement).
Notwithstanding anything herein to the contrary, nothing contained
in this Agreement shall relieve any Seller or South Texas of any liability or
limit any liability that he, she or it may have in the case of fraud in
connection with the transactions contemplated by this Agreement.
Section 12.2 Indemnification by APP. Subject to the terms,
limitations and conditions of this Agreement, APP (an "Indemnifying Party")
hereby agrees to indemnify, defend and hold the Sellers, and, as applicable,
their respective directors, partners, officers, stockholders, employees, agents,
attorneys, consultants and Affiliates (each an "Indemnified Party") and
collectively, the "Indemnified Parties") harmless from and against all Damages
asserted against or incurred by such individuals and/or entities arising out of
or resulting from:
(a) a breach by APP of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of APP contained in
this Agreement or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act
or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statements
of a material fact in any Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto or (ii) failure to
state information necessary to make the statements required to be stated therein
not misleading (except for any liability based upon any actual or alleged untrue
statement of material fact or an omission to state a material fact relating to
South Texas or any Seller which was derived from any information provided in
writing by the Company or a Company Subsidiary or any of their agents contained
in the representations and warranties set forth in this Agreement or any
certificate, exhibit, schedule or instrument required to be delivered under this
Agreement.)
Notwithstanding anything herein to the contrary, nothing contained
in this Agreement shall relieve APP of any liability or limit any liability that
it may have in the case of fraud in connection with the transactions
contemplated by this Agreement.
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Section 12.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) The Indemnified Party shall promptly (and, in any event,
at least ten (10) days prior to the due date for any responsive pleadings,
filings or other documents) (i) notify each Indemnifying Party of any
third-party claim or claims asserted against the Indemnified Party ("Third Party
Claim") that could give rise to a right of indemnification under this Agreement
and (ii) transmit to the Indemnifying Parties a written notice ("Claim Notice")
describing in reasonable detail the nature of the Third Party Claim, a copy of
all papers served with respect to such claim (if any), an estimate of the amount
of Damages attributable to the Third Party Claim and the basis of the
Indemnified Party's request for indemnification under this Agreement. The
failure to promptly deliver a Claim Notice shall not relieve any Indemnifying
Party of its obligations to any Indemnified Party with respect to the related
Third Party Claim except to the extent that the resulting delay is materially
prejudicial to the defense of such claim. Within thirty (30) days after receipt
of any Claim Notice (the "Election Period"), the Indemnifying Parties shall
notify the Indemnified Party (x) whether the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement with respect
to such Third Party Claim and (y) whether the Indemnifying Parties desire, at
the sole cost and expense of each Indemnifying Party, to defend the Indemnified
Party against such Third Party Claim.
(b) If the Indemnifying Parties notify the Indemnified Party
within the Election Period that the Indemnifying Parties elect to assume the
defense of the Third Party Claim, then the Indemnifying Parties shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party or Indemnified Parties, such Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted
diligently by the Indemnifying Parties to a final conclusion or settled at the
discretion of the Indemnifying Parties in accordance with this Section 12.3(b).
Except as set forth in Section 12.3(f) below, the Indemnifying Parties shall
have full control of such defense and proceedings, including any compromise or
settlement thereof. The Indemnified Party is hereby authorized, at the sole cost
and expense of the Indemnifying Parties (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period, any
motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Parties and not prejudicial to the Indemnifying Parties. If requested by the
Indemnifying Parties, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Parties, to cooperate with the Indemnifying Parties and
their counsel in contesting any Third Party Claim that the Indemnifying Parties
elect to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Parties pursuant to this Section 12.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Parties and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Parties, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Parties, and upon written
notification thereof, the Indemnifying Parties shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Parties shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Parties shall be prohibited from confessing or settling any
criminal
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allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Parties fail to notify the
Indemnified Party within the Election Period that the Indemnifying Parties elect
to defend the Indemnified Party pursuant to Section 12.3(b), or if the
Indemnifying Parties elect to defend the Indemnified Party pursuant to Section
12.3(b) but fail diligently and promptly to prosecute or settle the Third Party
Claim, then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Parties (if the Indemnified Party is
entitled to indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Parties to a final conclusion or settled. The Indemnified
Parties shall have full control of such defense and proceedings, provided,
however, that the Indemnified Parties may not enter into, without the
Indemnifying Parties' consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Parties have delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement and if such
dispute is resolved in favor of the Indemnifying Parties, the Indemnifying
Parties shall not be required to bear the costs and expenses of the Indemnified
Parties' defense pursuant to this paragraph or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Parties in full for all costs and
expenses of such litigation. The Indemnifying Parties may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section 12.3(c), and the Indemnifying Parties shall bear their
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnifying Parties have been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnified Party, then the Indemnifying Parties may employ
separate counsel and upon written notification thereof, the Indemnified Party
shall not have the right to assume the defense of such action on behalf of the
Indemnifying Parties.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Parties hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Parties a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification under
this Agreement. If the Indemnifying Parties do not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Parties dispute such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Parties hereunder. If the Indemnifying Parties have timely disputed such claim,
as provided above, such dispute shall be resolved by the procedures set forth in
Section 12.7.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Agreement relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of such Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication of
such Third Party Claim, or (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Parties liability to the Indemnified
Party under this Agreement. Payments of all amounts owing by the Indemnifying
Parties pursuant to Section 12.3(d) shall be made within thirty (30) days after
the later of (i) the expiration of the 60-day Indemnity Notice period or (ii)
the expiration of the period for appeal of a final adjudication of the
Indemnifying Parties liability to the Indemnified Party under this Agreement.
During the two-year period following the Closing Date, each Seller shall be
entitled to satisfy payments owed to APP by transfer of APP Common Stock from
such Seller to APP. For all
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purposes of this Agreement, the value of each share of APP Common Stock
transferred to APP pursuant to this Agreement shall be calculated by averaging
the daily closing prices for a share of APP Common Stock for the twenty (20)
consecutive trading days on which such shares are actually traded on the Nasdaq
National Market preceding the date of the Claim Notice. The number of shares of
APP Common Stock permitted to be transferred under this Section 12.3(e) shall be
diminished proportionately in accordance with the percentage of APP Common Stock
released under the Lock-Up Provisions set forth herein. The rights of any Seller
to transfer shares of APP Common Stock in satisfaction of payments owed to APP
pursuant to this Agreement shall terminate upon the earlier of (x) the
termination of the Lock-Up Provisions set forth herein or (y) at the end of the
two-year period following the Closing Date.
(f) The Indemnifying Parties shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or compromise
a Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Parties notify the Indemnified Party in writing that the Indemnifying Parties
agree to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Parties to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Parties desired to accept such settlement.
(g) Notwithstanding anything contained in this Agreement to
the contrary, Indemnifying Parties in the aggregate (i) shall have no obligation
hereunder to provide indemnification for the first [$_______] of Damages
(without counting Immaterial Claims as defined below), and (ii) in no event
shall the Indemnifying Parties have any liability hereunder with respect to any
singular incident or a fact involving a breach or inaccuracy of South Texas if
the Damages from such claim are equal to or less than [$_______] ("Immaterial
Claims"). Notwithstanding anything to the contrary contained herein, the
obligations of each Seller hereunder shall not exceed the value of the Exchange
Consideration paid to such Seller pursuant to the Related Acquisition, if any,
on the Closing Date.
Section 12.4 Remedies Exclusive. The remedies provided in this
Agreement are the exclusive remedies available to one party against the other,
either at law or in equity, except in the case of fraud.
Section 12.5 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 12.6 Tax Benefits; Insurance Proceeds. The total amount of
any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
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Section 12.7 Dispute Resolution.
(a) Arbitration. The parties hereto agree that any claim,
controversy, dispute or disagreement between or among any of the parties arising
out of or relating to this Agreement shall be governed exclusively by the terms
and provisions of this Section 12.7; provided, however, that within ten (10)
days from the date which any claim, controversy, dispute or disagreement cannot
be resolved and prior to commencing an arbitration procedure pursuant to this
Section 12.7, the parties shall meet to discuss and consider other alternative
dispute resolution procedures other than arbitration including, but not limited
to, Judicial Arbitration & Mediation Services, Inc., if applicable. If at any
time prior to the rendering of the decision by the arbitrator (or pursuant to
such other alternative dispute resolution procedure) as contemplated in this
Section 12.7 to the extent a party makes a written offer to the other party
proposing a settlement of the matter(s) at issue and such offer is rejected,
then the party rejecting such offer shall be obligated to pay the costs and
expenses (excluding the amount of the award granted under the decision) of the
party that offered the settlement from the date such offer was received by such
other party if the decision is for a dollar amount that is less than the amount
of such offer to settle. Notwithstanding the foregoing, the terms and provisions
of this Section 12.7 shall not preclude any party hereto from seeking, or a
court of competent jurisdiction from granting, a temporary restraining order,
temporary injunction or other equitable relief for any breach of (i) any
noncompetition or confidentiality covenant or (ii) any duty, obligation,
covenant, representation or warranty, the breach of which may cause irreparable
harm or damage.
(b) Arbitrators. In the event there is a claim, controversy,
dispute or disagreement among the parties hereto arising out of or relating to
this Agreement (including any claim based on or arising from an alleged tort)
and the parties hereto have not reached agreement regarding an alternative to
arbitration, the parties agree to select within thirty (30) days of notice by a
party to the other of its desire to seek arbitration under this Section 12.7 one
(1) arbitrator mutually acceptable to APP and the Sellers to hear and decide all
such claims under this Section 12.7. Each of the arbitrators proposed shall be
impartial and independent of all parties. If the parties cannot agree on the
selection of an arbitrator within said 30-day period, then any party may in
writing request the judge of the United States District Court for the Western
District of Texas senior in term of service to appoint the arbitrator and,
subject to this Section 12.7, such arbitrator shall hear all arbitration matters
arising under this Section 12.7.
(c) Applicable Rules.
(1) Each arbitration hearing shall be held at a place in
Boxar County, Texas acceptable to the arbitrator. The arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association to the extent such rules do not conflict with the terms
hereof; provided, however, that if the parties hereto agree to an alternative to
arbitration they may agree to an alternative set of rules, including as to rules
of evidence and procedure. The decision of the arbitrator shall be reduced to
writing and shall be binding on the parties and such decision shall contain a
concise statement of the reasons in support of such decision. Judgment upon the
award(s) rendered by the arbitrator may be entered and execution had in any
court of competent jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement. The charges and
expenses of the arbitrator shall be shared equally by the parties to the
hearing.
(2) The arbitration shall commence within ten (10) days
after the arbitrator is selected in accordance with the provisions of this
Section 12.7. In fulfilling his duties with respect to determining the amount of
any loss, the arbitrator may consider such matters as, in the opinion of the
arbitrator, are necessary or helpful to make a proper valuation. The arbitrator
may consult with and
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engage disinterested third parties to advise the arbitrator. The arbitrator
shall not add any interest factor reflecting the time value of money to the
amount of any loss and shall not award any punitive damages.
(3) If the arbitrator selected hereunder should die,
resign or be unable to perform his or her duties hereunder, the parties, or such
senior judge (or such judge's successor) in the event the parties cannot agree,
shall select a replacement arbitrator. The procedure set forth in this Section
12.7 for selecting the arbitrator shall be followed from time to time as
necessary.
(4) As to any determination of the amount of any loss,
or as to the resolution of any other claim, controversy, dispute or
disagreement, that under the terms hereof is made subject to arbitration, no
lawsuit based on such claimed loss or such resolution shall be instituted by the
parties hereto, other than to compel arbitration proceedings or enforce the
award of the arbitrator, except as otherwise provided in Section 12.7(b).
(5) All privileges under Texas and federal law,
including attorney-client and work-product privileges, shall be preserved and
protected to the same extent that such privileges would be protected in a
federal court proceeding applying Texas law.
ARTICLE XIII
Termination
Section 13.1 Termination. This Agreement may be terminated and the
Exchange may be abandoned:
(a) at any time prior to the Closing Date by mutual
agreement of all parties;
(b) at any time prior to the Closing Date by APP if any
material representation or warranty of any Seller or South Texas contained in
this Agreement or in any certificate or other document executed and delivered by
any Seller or South Texas pursuant to this Agreement is or becomes untrue or
breached in any material respect or if any Seller or South Texas fails to comply
in any material respect with any material covenant or agreement contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within thirty (30) days after receipt of written notice
thereof;
(c) at any time prior to the Closing Date by Seller as to
Seller if any representation or warranty of APP contained in this Agreement or
in any certificate or other document executed and delivered by APP pursuant to
this Agreement is or becomes untrue in any material respect of if APP fails to
comply in any material respect with any covenant or agreement contained herein,
and any such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
(d) at any time prior to the Closing Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or Seller as to Seller if the Exchange shall not
have been consummated by September 30, 1997.
Section 13.2 Effect of Termination. Except as set forth in Section
14.3, in the event this Agreement is terminated pursuant to this Article XIV,
this Agreement shall forthwith become void.
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ARTICLE XIV
Nondisclosure of Confidential Information
Section 14.1 Non-Disclosure Covenant. Seller and South Texas
recognize and acknowledge that each has in the past, currently has, and in the
future may possibly have, access to certain Confidential Information of APP that
is valuable, special and a unique asset of such entity's business. APP
acknowledges that it had in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of South Texas that is
valuable, special and a unique asset of each such business. Seller, South Texas
and APP, severally, agree that they will not disclose such Confidential
Information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
APP, Seller and South Texas and (b) to counsel and other advisers to APP,
Sellers and South Texas provided that such advisers (other than counsel) agree
to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes available to or known by the public generally through no
fault of South Texas, Seller or APP, as the case may be, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause (ii)
South Texas, Seller or APP, as the case may be, shall, if possible, give prior
written notice thereof to South Texas, Seller or APP and provide South Texas,
Seller or APP with the opportunity to contest such disclosure, (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, or (iv)
the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Exchange or otherwise. In the event of a breach
or threatened breach by Seller or South Texas, on the one hand, and APP, on the
other hand, of the provisions of this Section, APP, Seller and South Texas shall
be entitled to an injunction restraining the other party, as the case may be,
from disclosing, in whole or in part, such Confidential Information. Nothing
herein shall be construed as prohibiting any of such parties from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages.
Section 14.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, Seller and South Texas agree
that, in the event of a breach by either of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
Section 14.3 Survival. The obligations of the parties under this
Article XIV shall survive the termination of this Agreement.
ARTICLE XV
Miscellaneous
Section 15.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
Section 15.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any
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party hereto, except by APP to a wholly owned subsidiary of APP; provided that
any such assignment shall not relieve APP of its obligations hereunder.
Section 15.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Except as
otherwise provided herein, neither this Agreement nor any other agreement
contemplated hereby shall be deemed to confer upon any person not a party hereto
or thereto any rights or remedies hereunder or thereunder.
Section 15.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 15.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 15.6 Survival of Representations, Warranties and Covenants.
The representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of South Texas, Seller or APP pursuant to
this Agreement shall be deemed to have been representations and warranties made
by South Texas, Seller and APP, respectively. Notwithstanding any provision in
this Agreement to the contrary, the representations and warranties contained
herein shall survive the Closing until the second anniversary of the Closing
Date except that (a) the representations and warranties set forth in Section
3.20 with respect to environmental matters shall survive for a period of ten
(10) years, (b) the representations and warranties set forth in Section 3.29
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.26 and Section 3.32 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 12.1(c) and Section 12.2(b), and solely to
the extent that any party to be indemnified pursuant to such provisions actually
incurs liability under the Securities Act, the Exchange Act or any other federal
or state securities law, the representations and warranties set forth therein
shall survive until the expiration of any applicable limitations period.
Section 15.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF TEXAS.
Section 15.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
Section 15.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and neuter
and the number of all words shall include the singular and plural.
A-455
<PAGE> 817
Section 15.10 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Target Companies; provided that APP shall reasonably promptly
provide notice of any release. In the event that the transactions contemplated
hereby are not consummated for any reason whatsoever, the parties hereto agree
not to disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 15.11 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to South Texas or Seller: South Texas No. 1 MRI Limited Partnership
730 N. Main, Suite B-109
San Antonio, TX 78299
Attn: Managing Partner
with a copy to : Oppenheimer, Blend, Harrison & Tate, Inc.
Sixth Floor
711 Navarro
San Antonio, TX 78205-1796
Attn: Jerome B. Cohen
A-456
<PAGE> 818
Section 15.12 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 16.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. Except as set forth herein,
no remedy set forth in this Agreement or otherwise conferred upon or reserved to
any party shall be considered exclusive of any other remedy available to any
party, but the same shall be distinct, separate and cumulative and may be
exercised from time to time as often as occasion may arise or as may be deemed
expedient.
Section 15.13 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Section 15.14 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, and the Schedules attached hereto with their
initial letter capitalized and not otherwise defined therein shall have the
meanings as assigned to such terms in this Agreement.
A-457
<PAGE> 819
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
---------------------------------
Gregory L. Solomon, President
SOUTH TEXAS:
SOUTH TEXAS NO. 1 MRI LIMITED
PARTNERSHIP
By:
------------------------------
Its:
-----------------------------
SELLERS:
---------------------------------
Neil Bowie
---------------------------------
Joseph F. Carabin
---------------------------------
Gregory C. Godwin
---------------------------------
Michael D. Howard
---------------------------------
Philip S. Kline
A-458
<PAGE> 820
---------------------------------
Julio C. Otazo
---------------------------------
R.K. Daniel Peterson
---------------------------------
Randall S. Preissig
---------------------------------
Rise P. Ross
---------------------------------
Jose A. Saldana
---------------------------------
Robert L. Thompson
---------------------------------
W. Gregory Wojcik
A-459
<PAGE> 821
EXHIBIT A
LIST OF SELLERS AND EXCHANGE CONSIDERATION
A-460
<PAGE> 822
EXHIBIT B
TARGET COMPANIES
A-461
<PAGE> 823
EXHIBIT C
LEGAL OPINION OF SELLERS' COUNSEL
A-462
<PAGE> 824
EXHIBIT D
LEGAL OPINION OF APP'S COUNSEL
A-463
<PAGE> 825
EXHIBIT E
SELLER RELEASE
A-464
<PAGE> 826
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF EXCHANGE
DATED AS OF [_____________], 1997
The following Disclosure Schedules and the disclosures set forth
therein are delivered in connection with that certain Agreement and Plan of
Exchange dated [____________], 1997, by and between American Physician Partners,
Inc., South Texas No. 1 MRI Limited Partnership and Sellers (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made pursuant
to one section number can reasonably be interpreted by other parties to be a
disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
A-465
<PAGE> 827
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF EXCHANGE
This Amendment No. 1 to the Agreement and Plan of Exchange (this
"Amendment No. 1"), dated as of September 30, 1997, is by and among AMERICAN
PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and SOUTH TEXAS NO. 1
MRI LIMITED PARTNERSHIP, a Texas limited partnership (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Exchange dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 13.1(e). APP and the Company hereby agree to
amend Section 13.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
SOUTH TEXAS NO. 1 MRI LIMITED PARTNERSHIP
By:_________________________________
Its:________________________________
A-466
<PAGE> 828
==============================================================================
AGREEMENT AND PLAN OF EXCHANGE
dated as of
June 27, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),
SAN ANTONIO MRI PARTNERSHIP NO. 2, LTD.
(a Texas limited partnership)
and
THE SELLERS LISTED ON THE SIGNATURE PAGES HEREOF
==============================================================================
A-467
<PAGE> 829
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Rules Of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III Representations and Warranties of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.4 Capitalization and Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.5 Transactions in Partnership Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.6 Continuity of Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.7 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.8 Absence of Conflicting Agreements or Required Consents . . . . . . . . . . . . . . . . . . . 8
Section 3.9 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.10 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.11 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.12 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.13 Lease Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.14 Real and Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.15 Indebtedness for Borrowed Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.16 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.17 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.18 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.19 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.21 Filing Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.22 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.23 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.24 Accounts Payable; Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.25 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.26 Licenses, Authorization and Provider Programs . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.27 Inspections and Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.28 Proprietary Rights and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.29 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.30 Related Party Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.31 Banking Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.32 Fraud and Abuse and Self Referral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.33 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.34 Agreements in Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.35 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.36 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.37 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV Representations and Warranties of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.2 Authorization and Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
A-468
<PAGE> 830
<TABLE>
<S> <C>
Section 4.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.5 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.6 Absence of Conflicting Agreements or Required Consents . . . . . . . . . . . . . . . . . . . 19
Section 4.7 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.8 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.9 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.10 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.11 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.13 Related Party Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.14 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.15 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.16 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V Covenants of Seller and San Antonio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.1 Required Conduct of Seller and San Antonio . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.2 Prohibited Conduct of Seller and San Antonio . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.3 Title to Assets; Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.4 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.5 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.6 Compliance With Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.7 Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.8 Partners' Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.9 Obligations of Seller and . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.10 Intentionally omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.11 Accounting and Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VI Covenants of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.1 Consummation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.3 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VII Covenants of APP, Seller and San Antonio . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.1 Filings; Other Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.2 Amendments of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.3 Actions Contrary to Stated Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.4 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.6 Registration Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VIII Conditions Precedent of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.3 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.5 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.6 Government Approvals and Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.7 Securities Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.9 Closing of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.10 Closing of Related Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.11 Closing of General Partner Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.12 Execution by Each Seller and San Antonio . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
A-469
<PAGE> 831
<TABLE>
<S> <C>
ARTICLE IX Conditions Precedent of Seller and San Antonio . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.3 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.5 Government Approvals and Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.6 "Blue Sky" Approvals; Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.7 Closing of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.9 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE X Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.1 Deliveries of Seller and San Antonio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.2 Deliveries of APP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XI Post Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.1 Further Instruments of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.2 Exchange Tax Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XII Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 12.1 Indemnification by Sellers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 12.2 Indemnification by APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 12.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 12.4 Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.5 Costs, Expenses and Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.6 Tax Benefits; Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.7 Dispute Resolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XIII Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XIV Nondisclosure of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.1 Non-Disclosure Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 14.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XV Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 15.1 Amendment; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 15.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 15.3 Parties in Interest; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . 39
Section 15.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 15.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 15.6 Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . 40
Section 15.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 15.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 15.9 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 15.10 Confidentiality; Publicity and Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 15.11 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 15.12 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 15.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 15.14 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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<PAGE> 832
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A - List of Sellers and Exchange Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Target Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Legal Opinion of Sellers' Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D - Legal Opinion of APP's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E - Seller Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
</TABLE>
A-471
<PAGE> 833
AGREEMENT AND PLAN OF EXCHANGE
This Agreement and Plan of Exchange ("Agreement") dated June ___, 1997
is by and among American Physician Partners, Inc., a Delaware corporation,
("APP"), San Antonio MRI Partnership No. 2, LTD., a Texas limited partnership
("San Antonio") and each of the individuals whose names appear on Exhibit A
hereto (each individually, a "Seller" and collectively "Sellers").
RECITALS
A. Each Seller is a limited partner of San Antonio and the
Sellers together own an aggregate of ninety-nine percent (99%) of the total
interests of the partners in San Antonio.
B. San Antonio owns a sixty percent (60%) interest in Lexington
MR, Ltd. which owns and operates diagnostic imaging centers.
C. APP is engaged in the business of owning, operating and
acquiring the assets of, and managing the non-medical aspects of, radiology
practices and diagnostic imaging centers.
D. Sellers desire to convey to APP and APP desires to acquire
from Sellers, ninety-nine percent (99%) of the total interests of the partners
in San Antonio (the "Partnership Units") in consideration for cash and shares
of common stock, par value $.0001 per share, of APP (the "APP Common Stock") as
set forth herein (the "Exchange").
E. The General Partner of San Antonio, San Antonio MR, Inc., a
Texas corporation, owns a one percent (1%) interest in San Antonio, which
interest is being acquired indirectly by APP (the "General Partner
Acquisition").
F. APP and subsidiaries of APP have entered into, or intend to
enter into, an Agreement and Plan of Reorganization and Merger or other
acquisition agreements (collectively, the "Other Agreements") similar to this
Agreement with interest holders (together with the Sellers, the "Target
Interest Holders") of each of the entities listed on Exhibit B (together with
San Antonio, the "Target Companies").
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
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<PAGE> 834
"Acquisition" shall have the meaning set forth in Section 2.1.
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the partners
set forth in Exhibit A, stockholder or director, as the case may be, or
executive officer of such entity after reasonable investigation and inquiry by
the executive officers of such entity; provided, however, that to the extent
any of the representations, warranties and statements of Seller and San Antonio
made specifically in Section 3.20 is expressly qualified to the knowledge or
best knowledge of Sellers and San Antonio, it shall mean the knowledge of any
of the Sellers set forth in Exhibit A, partner or executive officer of San
Antonio actually possesses without the necessity of any special inquiry as to
the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 12.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person,
including, but not limited to, information derived from reports, processes,
data, know-how, software programs, improvements, inventions, strategies,
compensation structures, reports, investigations, research, work in progress,
codes, marketing and sales programs and plans, financial projections, cost
summaries, formulae, contract analyses, financial information, forecasts,
confidential filings with any state or federal agency, and all other
confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
"Current Policies" shall have the meaning set forth in Section 3.22.
"Damages" shall have the meaning set forth in Section 12.1.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Form S-1 Registration
Statement is declared effective by the SEC.
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<PAGE> 835
"Election Period" shall have the meaning set forth in Section 12.3(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.20(e).
"Environmental Liabilities" shall have the meaning set forth in
Section 3.20(e).
"ERISA" shall have the meaning set forth in Section 3.17.
"Exchange" shall have the meaning set forth in the recitals.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agreement" shall have the meaning set forth in the recitals
to this Agreement.
"Exchange Consideration" shall have the meaning set forth in Section
2.1.
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering
of APP Common Stock as consideration under the Exchange and other mergers or
acquisitions contemplated by the Other Agreements.
"FTC" shall mean the United States Federal Trade Commission.
"General Partner Acquisition" shall have the meaning set forth in the
recitals.
"Governmental Programs" shall have the meaning set forth in Section
3.26(a).
"Hazardous Substance" shall have the meaning set forth in Section
3.20(e).
"Indemnified Party" shall have the meaning set forth in Section 12.1.
"Indemnifying Party" shall have the meaning set forth in Section 12.1.
"Indemnity Notice" shall have the meaning set forth in Section
12.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Insurance Policies" shall have the meaning set forth in Section 3.22.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.13.
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<PAGE> 836
"Lock-Up Provisions" shall have the meaning set forth in Section 5.12.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred
to, taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste,
(xi) any substance, pollutant, material, or contaminant listed or regulated
under any Medical Waste Law, and (xii) other biological waste and discarded
materials contaminated with or exposed to blood, excretion, or secretions from
human beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Section Section 2501 et seq., (iii) the
Marine Protection, Research, and Sanctuaries Act of 1972, 33 USCA Section
Section 1401 et seq., (iv) The Occupational Safety and Health Act, 29 USCA
Section Section 651 et seq., (v) the United States Department of Health and
Human Services, National Institute for Occupational Safety and Health,
Infectious Waste Disposal Guidelines, Publication No. 88-119, and (vi) any
other federal, state, regional, county, municipal, or other local laws,
regulations, and ordinances insofar as they are applicable to any of San
Antonio's assets or operations and purport to regulate Medical Waste or impose
requirements related to Medical Waste.
"Medicare and Medicaid Programs" shall have the meaning set forth in
Section 3.26(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Section Section 6992, et seq.
"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Partnership Agreement" shall have the meaning set forth in Section
3.1 hereto.
"Partnership Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, partnership
interests of San Antonio, or by which San Antonio is or may be bound to issue
additional Partnership Units or other Partnership Rights.
"Partnership Subsidiary" shall have the meaning set forth in Section
3.7.
"Partnership Units" shall have the meaning set forth in the recitals
to this Agreement.
"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.
"Private Programs" shall have the meaning set forth in Section
3.26(a).
A-475
<PAGE> 837
"Proprietary Right" shall have the meaning set forth in Section
3.28(a).
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.20(e).
"Related Acquisitions" shall mean, collectively, the mergers and
acquisitions of each Founding Company and its related entities and assets
contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 11.2.
"San Antonio" shall have the meaning set forth in the preamble to this
Agreement.
"Schedules" shall mean the schedules attached hereto as of the date
hereof or otherwise delivered by any party hereto pursuant to the terms hereof,
as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller Release" shall have the meaning set forth in Section 11.1(l).
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
12.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth
in Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in
which such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed
to be a reference to the designated Article number or Section number of this
Agreement.
A-476
<PAGE> 838
ARTICLE II
Exchange
Section 2.1 Exchange of Partnership Units for Cash and APP Common
Stock.
(a) Subject to and upon the terms and conditions
contained herein, on the Closing Date Sellers shall convey, transfer deliver
and assign to APP ninety-nine percent (99%) of the total interests of the
partners in San Antonio, free and clear of all obligations, security interests,
claims, liens and encumbrances whatsoever (the "Acquisition"). Subject to and
upon the terms and conditions contained herein, as consideration for such
Partnership Units on the Closing Date each Seller shall receive (i) cash and
(ii) validly issued, fully paid and nonassessable shares of APP Common Stock,
all as determined in accordance with the provisions of Exhibit A attached
hereto (the "Exchange Consideration").
(b) Each Seller shall deliver to APP at the Closing a
Bill of Sale representing the Partnership Units owned by him, her or it. Each
Seller agrees to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Partnership
Units or with respect to the powers accompanying any Partnership Unit. Upon
such delivery, each Seller shall receive in exchange therefor the Exchange
Consideration pursuant to Exhibit A.
Section 2.2 Legends. All APP Common Stock certificates issued to
the Sellers shall bear one or more of the following restrictive legends:
(a) Any legend required to put third-parties on notice of
the existence of the Lock-Up Provisions.
(b) Any legend relating to affiliates of the Company as
required pursuant to the Securities and Exchange Act of 1934.
Section 2.3 Closing. The closing (the "Closing") of the
transactions provided for in Section 2.1 shall take place at 10:00 a.m., local
time, at the offices of APP located at 2301 NationsBank Plaza, 901 Main Street,
on the day on which the transactions contemplated by the Initial Public
Offering are consummated. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date."
ARTICLE III
Representations and Warranties of Sellers and San Antonio
As an inducement to APP to enter into this Agreement, each of Seller
and San Antonio represents and warrants to APP both as of the date hereof and
as of the Closing Date as set forth below, subject to those exceptions set
forth in the Disclosure Schedules attached hereto and incorporated herein by
this reference, specifically identifying the relevant subparagraph hereof,
which exceptions shall be deemed to be representations and warranties as if
made hereunder.
Section 3.1 Organization and Good Standing; Qualification. San
Antonio is a limited partnership duly organized and validly existing under the
laws of its state of organization, with all requisite power and authority to
own, operate and lease its assets and properties and to carry on its business
as currently conducted. San Antonio is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary,
A-477
<PAGE> 839
except where such failure to be so qualified or in good standing would not have
a Material Adverse Effect on San Antonio. Copies of the Certificate of Limited
Partnership and all amendments thereto of San Antonio and the Limited
Partnership Agreement of San Antonio and all amendments thereto (the
"Partnership Agreement") and copies of the minutes of San Antonio, all of which
have been or will be made available to APP for review, are true and complete as
in effect on the date of this Agreement, and in the case of the minutes,
accurately reflect all material proceedings of the partners of San Antonio (and
all committees thereof).
Section 3.2 Authorization and Validity. San Antonio has all
requisite right, power and authority to execute, deliver and perform this
Agreement and all agreements and other documents executed and delivered by it
pursuant to this Agreement or to be executed and delivered on the Closing Date,
and has taken all action required by law, its Certificate of Limited
Partnership, its Partnership Agreement or otherwise, to authorize the
execution, delivery and performance of this Agreement and such related
documents. Seller has the legal capacity to enter into and perform this
Agreement and the other agreements to be executed and delivered in connection
herewith. This Agreement and all agreements and documents executed and
delivered in connection herewith have been, or will be as of the Closing Date,
duly executed and delivered by Seller and San Antonio and constitute or will
constitute the legal, valid and binding obligations of Seller, enforceable
against Seller and San Antonio in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or by general equity principles, or by
public policy.
Section 3.3 Governmental Authorization. Other than consents,
filings or notifications required to be made or obtained solely by APP
(including, without limitation, in connection with the Initial Public Offering,
Form S-4 or any Hart-Scott-Rodino filing to be made by APP, if any), the
execution, delivery and performance by Seller and San Antonio of this Agreement
and the agreements provided for herein, and the consummation of the
transactions contemplated hereby and thereby by Seller and San Antonio requires
no action by or in respect of, or filing with, any governmental body, agency,
official or authority.
Section 3.4 Capitalization and Title. The Sellers collectively
are, and will be immediately prior to the Closing Date, the record and
beneficial owners of all the issued and outstanding Partnership Units of San
Antonio and Seller is the owner of the Partnership Units currently held in his
or her name on the record books of San Antonio, free and clear of all
Encumbrances. Each Partnership Unit held by Seller has been legally and
validly issued and is fully paid and nonassessable, and was issued pursuant to
a valid exemption from registration under (i) the Securities Act and (ii) all
applicable state securities laws.
Section 3.5 Transactions in Partnership Units. There exist no
Partnership Rights. Except for the General Partner Acquisition referenced
herein, San Antonio has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its partnership interests or to pay any
dividend or make any distribution in respect thereof. Neither the equity
structure of San Antonio nor the relative ownership of partnership interests
among any of its partners has been altered or changed in contemplation of the
Exchange within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not
been any sale, distribution or spin-off of significant assets of San Antonio or
any of its Affiliates other than in the ordinary course of business within the
two (2) years preceding the date of this Agreement.
A-478
<PAGE> 840
Section 3.7 Subsidiaries and Investments. San Antonio does not
own, directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Partnership Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance by Seller and San Antonio of
this Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent
of any governmental or regulatory body or authority or any other third party
except for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on San Antonio; (ii) will not conflict with or result
in a violation of any provision of San Antonio's Certificate of Limited
Partnership or Partnership Agreement; (iii) will not conflict with, result in a
violation of, or constitute a default under any law, rule, ordinance,
regulation or any ruling, decree, determination, award, judgment, order or
injunction of any court or governmental instrumentality which is applicable to
Seller or San Antonio or by which Seller or San Antonio or San Antonio's
properties are subject or bound; (iv) will not conflict with, constitute
grounds for termination of, result in a breach of, constitute a default under,
require any notice under, or accelerate or modify, or permit any person to
accelerate or modify, any performance required by the terms of any agreement,
instrument, license or permit, to which San Antonio is a party or by which San
Antonio or any of its properties are subject or bound except for such conflict,
termination, breach or default, the occurrence of which would not result in a
Material Adverse Effect on San Antonio; and (v) except as contemplated by this
Agreement, will not create any Encumbrance or restriction upon the Partnership
Units or any of the assets or properties of San Antonio.
Section 3.9 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, San Antonio has conducted
its business only in the ordinary course and has not:
(a) suffered any change or changes in its working
capital, condition (financial or otherwise), assets, liabilities, reserves,
business or operations (whether or not covered by insurance) that individually
or in the aggregate has had or could reasonably be expected to have a Material
Adverse Effect on San Antonio;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business;
(c) written off as uncollectible any receivable, except
for write-offs in the ordinary course of business;
(d) except in the ordinary course of business and
consistent with past practice, cancelled or compromised any debts or waived or
permitted to lapse any claims or rights or sold, transferred or otherwise
disposed of any of its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to San Antonio, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment
policies;
(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;
A-479
<PAGE> 841
(h) mortgaged, pledged, subjected or agreed to subject,
any of its assets, tangible or intangible, to any claim or Encumbrance, except
for liens for current personal property taxes not yet due and payable for
mechanics, landlords, materialmen, and other statutory liens, purchase money
security interests, sale-leaseback interests granted and all other Encumbrances
granted in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee
benefits for any employee of San Antonio, except in the ordinary course of
business and consistent with past practice;
(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends
or other distributions to any partner or any other holder of any partnership
interest in San Antonio (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.9.
Section 3.10 No Undisclosed Liabilities. To the best knowledge of
Seller and San Antonio, San Antonio does not have any liabilities or
obligations of any nature, whether accrued, absolute, contingent or otherwise,
asserted or unasserted except for liabilities or obligations reflected in the
Disclosure Schedules.
Section 3.11 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of Seller
and San Antonio, threatened against, or affecting San Antonio, any Partnership
Subsidiary, or, to the knowledge of Seller and San Antonio, any Seller or any
other licensed professional or other individual affiliated with San Antonio
affecting or that would reasonably be likely to affect the Partnership Units or
the operations, business condition (financial or otherwise), or results of
operations of San Antonio which (i) if successful, may, individually or in the
aggregate, have a Material Adverse Effect on San Antonio or (ii) could
adversely affect the ability of San Antonio or any Partnership Subsidiary to
effect the transactions contemplated hereby, and to the knowledge of Seller and
San Antonio there is no basis for any such action or any state of facts or
occurrence of any event which would reasonably be likely to give rise to the
foregoing. There are no unsatisfied judgments against Seller, San Antonio or
any Partnership Subsidiary or any licensed professional or other individual
affiliated with San Antonio or any Partnership Subsidiary relating to services
provided on behalf of San Antonio or any Partnership Subsidiary or any consent
decrees to which any of the foregoing is subject. Each of the matters, if any,
set forth in this Section 3.11 is fully covered by policies of insurance of San
Antonio or any Partnership Subsidiary as in effect on the date hereof.
Section 3.12 No Violation of Law. Neither San Antonio nor any
Partnership Subsidiary has been, nor shall be as of the Closing Date (by virtue
of any action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever), in violation of any applicable local,
state or federal law, ordinance, regulation, order, injunction or decree, or
any other requirement of any governmental body, agency, authority or court
binding on it, or relating to its properties, assets or business or its
advertising, sales or pricing practices, except for violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on San Antonio.
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<PAGE> 842
Section 3.13 Lease Agreements. The Disclosure Schedules contain a
true, accurate and complete list of all the lease agreements and license
agreements to which San Antonio or any Partnership Subsidiary is a party and
pursuant to which San Antonio or any Partnership Subsidiary leases (whether as
lessor or lessee) or licenses (whether as licensor or licensee) any real or
personal property related to the operation of its business and which requires
payments in excess of $12,000 per year (the "Lease Agreements"). San Antonio
has delivered to APP true and complete copies of all of the Lease Agreements.
Each Lease Agreement is valid, effective and in full force in accordance with
its terms, and there is not under any such lease (i) any existing or claimed
material default by San Antonio or any Partnership Subsidiary (as applicable)
or event of material default or event which with notice or lapse of time, or
both, would constitute a material default by San Antonio or any Partnership
Subsidiary (as applicable) and, individually or in the aggregate, may
reasonably result in a Material Adverse Effect on San Antonio, or, (ii) to the
knowledge of Seller and San Antonio, any existing material default by any other
party under any of the Lease Agreements or any event of material default or
event which with notice or lapse of time, or both, would constitute a material
default by any such party. To the knowledge of Seller and San Antonio, there
is no pending or threatened reassessment of any property covered by the Lease
Agreements. To the extent necessary to accomplish the intent of the Agreement,
San Antonio or any Partnership Subsidiary shall use reasonable good faith
efforts, and Seller shall use reasonable good faith efforts to cause San
Antonio, to obtain prior to the Closing Date the consent of each landlord or
lessor whose consent is required to the assignment of the Lease Agreements and
will use reasonable good faith efforts to deliver to APP in writing such
consents as are necessary to effect a valid and binding transfer or assignment
of San Antonio's or any Partnership Subsidiary's rights thereunder. San
Antonio has a good, clear, valid and enforceable leasehold interest under each
of the Lease Agreements. The Lease Agreements comply with the exceptions to
ownership interests and compensation arrangements set out in 42 U.S.C. Section
1395nn, 42 C.F.R. Section 1001.952, and any similar applicable state law safe
harbor or other exemption provisions.
Section 3.14 Real and Personal Property.
(a) Neither San Antonio nor each Partnership Subsidiary
owns any interest (other than the Lease Agreements) in real property.
(b) San Antonio and each Partnership Subsidiary (i) has
good title to all of its properties and assets (real, personal and mixed,
tangible and intangible) and any rights or interests therein which it purports
to own; and (ii) owns such rights, interests, assets and property free and
clear of all Encumbrances, title defects or objections (except for taxes not
yet due and payable). The personal property presently used in connection with
the operation of the business of San Antonio and each Partnership Subsidiary
constitutes the necessary personal property assets to continue operation of San
Antonio and each Partnership Subsidiary.
Section 3.15 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, San Antonio does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in
any manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
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Section 3.16 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and San Antonio has delivered to APP true and complete copies,
of each contract, agreement and other instrument requiring San Antonio to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate
(other than insurance contracts identified in Section 3.22 or Lease Agreements
identified in Section 3.13) to which San Antonio is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
all agreements between San Antonio, on the one hand, and any government entity,
provider, hospital, health maintenance organization, other managed care
organization or other third-party provider, on the other hand, then in effect
relating to the provision of medical, diagnostic imaging or consulting
services, treatments, patient referrals or other similar activities, (ii) all
indentures, mortgages, notes, loan or credit agreements and other agreements
and obligations relating to the borrowing of money or to the direct or indirect
guarantee or assumption of obligations of third parties requiring San Antonio
to make, or setting forth conditions under which San Antonio would be required
to make, aggregate future payments in excess of $10,000 in any fiscal year or
$25,000 in the aggregate, (iii) all agreements for capital improvements or
acquisitions involving an amount of $75,000 in any fiscal year or $75,000 in
the aggregate, (iv) all agreements containing a covenant limiting the freedom
of San Antonio (or any provider employee of San Antonio) to compete in any line
of business with any person or entity or in any geographic area or (v) all
written contracts and commitments providing for future payments by San Antonio
in excess of $10,000 in any fiscal year or $25,000 in the aggregate and that
are not cancelable by providing notice of sixty (60) days or less. All such
contracts, agreements or other instruments are in full force and effect, there
has been no threatened cancellation thereof, there are no outstanding disputes
thereunder, each is with unrelated third parties and was entered into on an
arms-length basis in the ordinary course of business and, assuming the receipt
of the appropriate consents, all will continue to be binding in accordance with
their terms after consummation of the transaction contemplated herein; there
are no contracts, agreements or other instruments to which San Antonio is a
party or is bound (other than physician employment contracts and insurance
policies) which could either singularly or in the aggregate have a Material
Adverse Effect on the value to APP of the assets and properties to be acquired
by APP from San Antonio, or which could inhibit or prevent San Antonio from
transferring to or vesting in APP good and sufficient title to the assets and
properties to be acquired by APP except where the failure to transfer would not
have a Material Adverse Effect on APP. In every instance where consent is
necessary, on or before the Closing Date San Antonio shall use reasonable good
faith efforts, and Seller shall use reasonable good faith efforts to cause San
Antonio, to obtain and deliver to APP in writing, effective as of the Closing
Date, such consents as are necessary to enable APP to enjoy all of the rights
now enjoyed by San Antonio under such contracts. Any and all such consents
shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that San Antonio has fully complied with
and is not in default under any provision of the particular contract or
agreement.
(b) (i) Neither San Antonio nor Seller has received
notice of any plan or intention of any other party to exercise any right to
cancel or terminate any contract, agreement or instrument, and to the knowledge
of San Antonio and Seller there are no facts that would justify the exercise of
such a right; and (ii) neither San Antonio nor Seller currently contemplates,
or has reason to believe any other Person currently contemplates, any amendment
or change to any such contract, agreement or instrument.
Section 3.17 Employee Matters. San Antonio does not have
employees and is not currently a party to any employment contract (except for
oral employment agreements which are terminable at will), consulting or
collective bargaining contracts, deferred compensation, pension plan (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended, and all rules and regulations from time to time promulgated
thereunder ("ERISA")), profit sharing, bonus or other
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nonqualified benefit or compensation commitments, benefit plans, arrangements
or plans (whether written or oral), including all welfare plans (as defined in
Section 3(1) of ERISA) of or pertaining to San Antonio and any of its present
or former employees, or any predecessors in interest.
Section 3.18 Labor Relations. Intentionally omitted.
Section 3.19 Employee Benefit Plans. Intentionally omitted.
Section 3.20 Environmental Matters.
(a) Neither San Antonio nor any Partnership Subsidiary
has, within the five (5) years preceding the date hereof, through the Closing
Date, received from any federal, state or local governmental body, agency,
authority or entity, or any other Person, any written notice, demand, citation,
summons, complaint or order or any notice of any penalty, lien or assessment,
and to the knowledge of Seller and San Antonio no investigation or review is
pending by any governmental entity, with respect to any (i) alleged violation
by San Antonio of any Environmental Law (as defined in subsection (e) below)
(ii) alleged failure by San Antonio to have any environmental permit,
certificate, license, approval, registration or authorization required pursuant
to any Environmental Law in connection with the conduct of its business; or
(iii) alleged illegal Regulated Activity (as defined in subsection (e) below)
by San Antonio.
(b) Neither San Antonio nor any Partnership Subsidiary
has used, transported, disposed of or arranged for the disposal of (as those
terms are defined in and construed under the Comprehensive Environmental
Response, Compensation and Liability Act) any Hazardous Substance that would be
reasonably likely to give rise to any Environmental Liabilities for San Antonio
under any applicable Environmental Law that had, or would reasonably be likely
to have, a Material Adverse Effect on San Antonio. Neither San Antonio nor any
Partnership Subsidiary has engaged in any activity or failed to undertake any
activity which action or failure to act has given, or would reasonably be
likely to give, rise to any Environmental Liabilities or enforcement action by
any federal, state or local regulatory agency or authority, or has resulted, or
would reasonably be likely to result, in any fine or penalty imposed pursuant
to any Environmental Law. The Disclosure Schedules disclose any known presence
of asbestos in or on San Antonio's or any Partnership Subsidiary's owned or
leased premises. To the knowledge of Seller and San Antonio, there is no
friable asbestos in or on San Antonio's or any Partnership Subsidiary's owned
or leased premises.
(c) To the knowledge of Seller and San Antonio, no soil
or water in or under any assets currently or formerly held for use or sale by
San Antonio or any Partnership Subsidiary is or has been contaminated by any
Hazardous Substance while such assets or premises were owned, leased, operated
or managed, directly or indirectly by San Antonio or any Partnership
Subsidiary, where such contamination had, or would be reasonably likely to
have, a Material Adverse Effect on San Antonio.
(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of Seller
and San Antonio, concerning San Antonio or any Partnership Subsidiary within
the five (5) years preceding the date hereof through the Closing Date with
respect to any real property now or previously owned or leased by San Antonio,
any Partnership Subsidiary or any of its predecessors, true and complete copies
of which have been provided to APP.
(e) For the purposes of this Section 3.20(e), the
following terms have the following meanings:
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"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended
to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect
to, or list or define air, water, groundwater, solid waste, hazardous,
toxic, or radioactive substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public in each case as in
effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Closing Date.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
Section 3.21 Filing Reports. All returns, reports, plans and
filings of any kind or nature necessary to be filed by San Antonio with any
governmental agency or authority have been properly completed and timely filed
in compliance with all applicable requirements, except where failure to so file
would not have a Material Adverse Effect on San Antonio.
Section 3.22 Insurance Policies. The Disclosure Schedules list
and briefly describe San Antonio's policies of insurance to which San Antonio
or any Partnership Subsidiary is a party or under which San Antonio or any
Partnership Subsidiary, officer or director thereof is or has been covered at
any time during the last five (5) years preceding the date of this Agreement
relating to the business of San Antonio or any Partnership Subsidiary (the
"Insurance Policies"). All of the Insurance Policies are valid, outstanding
and enforceable policies, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies and all premiums with respect thereto which
are due and payable are currently paid. All Insurance Policies currently
maintained by San Antonio or any Partnership Subsidiary ("Current Policies")
taken together, (i) provide adequate insurance coverage for the assets,
properties and operations of San Antonio and its Affiliates for all risks
normally insured against by a Person carrying on a substantially similar
business or businesses as San Antonio and its Affiliates, (ii) are sufficient
for compliance with legal and contractual requirements to which San Antonio or
any of its Affiliates is a party or by which any of them may be bound, and
(iii) shall be maintained in force (including the payment of all premiums and
compliance with their terms) without interruption up to and including the
Closing Date. True, complete and correct copies of all Insurance Policies have
been provided to APP. Neither San Antonio nor any Partnership Subsidiary nor
any officer or partner thereof has received any notice or other written
communication from any issuer of any Current Policy cancelling such policy,
materially increasing any deductibles or retained amounts thereunder, or
materially increasing the annual or other premiums payable thereunder and, to
the knowledge of Seller and San Antonio, no such cancellation or increase of
deductibles, retainages or premiums is threatened. There are no outstanding
claims, settlements or premiums owed against any Insurance Policy, and all
required notices have been given and all known potential or actual claims under
any Insurance Policy have been presented in due and timely fashion. Within the
five (5) years preceding the Agreement, neither San Antonio nor any Partnership
Subsidiary has filed a written application for any
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professional liability insurance coverage which has been denied by an insurance
agency or carrier. The Disclosure Schedules also set forth a list of all
claims under any Insurance Policy in excess of $10,000 per occurrence filed by
San Antonio or any Partnership Subsidiary during the immediately preceding
three-year period.
Section 3.23 Accounts Receivable. The Disclosure Schedules set
forth a list and aging of all accounts receivable of San Antonio as of March
31, 1997, which list is complete, true and accurate in all material respects.
All such accounts receivable arose in the ordinary course of business and have
not been previously written off as bad debts and, are, to the extent still
uncollected, to the knowledge of Seller and San Antonio collectible in the
ordinary course of business, net of reserves for doubtful and uncollectible
accounts shown on the accounting records of San Antonio (which reserves are
adequate and calculated consistent with past practice).
Section 3.24 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and
complete (i) list of the accounts payable of San Antonio as of March 31, 1997,
and (ii) list of each individual indebtedness owned by San Antonio of $5,000 or
more, setting forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct
and complete list of the names and addresses of each of the providers/suppliers
of products or services to San Antonio (including, without limitation all
providers of care to patients) which accounted for a dollar volume of purchases
paid for by San Antonio in excess of $25,000 for the fiscal year ended
[DECEMBER 31, 1996], or which is reasonably expected to account for a dollar
volume of purchases paid for by San Antonio in excess of $25,000 for the fiscal
year to end [DECEMBER 31, 1997].
Section 3.25 Inventory. All items of inventory on hand on the
date of this Agreement consist, and all such items on hand on the Closing Date
will consist, net of all applicable reserves with respect thereto (calculated
consistent with past practice), of items of a quality and a quantity usable and
saleable in the ordinary course of San Antonio's business and conform to
generally accepted standards in the industry of which San Antonio is a part.
Purchase commitments of San Antonio for inventory are not materially in excess
of normal requirements, and none of such purchase commitments are at prices in
excess of prevailing market prices at the time of such purchase commitment.
Section 3.26 Licenses, Authorization and Provider Programs.
(a) San Antonio and each other licensed employee or
contractor of San Antonio (i) is the holder of all valid licenses, approvals,
orders, consents, permits, registrations, qualifications and other rights and
authorizations required by law, ordinance, regulation or ruling of any
governmental regulatory authority necessary to operate his/her/its business and
(ii) is eligible to participate in and to receive reimbursement under Titles
XVIII and XIX of the Social Security Act (the "Medicare and Medicaid Programs")
and any other programs funded in whole or in part by federal, state or local
entities for which San Antonio is eligible ("Governmental Programs"). Each of
San Antonio and Seller has a current provider number for such Governmental
Programs and with such private non-governmental programs (including without
limitation any private insurance program) under which San Antonio is presently
receiving payments directly or indirectly from any Payor for technical imaging
services provided by any licensed technician or contractor of San Antonio (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act) and provider
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agreements is set forth in the Disclosure Schedules, true, complete and correct
copies of which have been provided to APP. No violation, default, order or
deficiency exists with respect to any of the items listed in the Disclosure
Schedules except for such violations, defaults, orders or deficiencies which
would not be reasonably likely to have a Material Adverse Effect on San
Antonio, and there is no action pending or to the knowledge of Seller and San
Antonio recommended by any state or federal agencies having jurisdiction over
the items listed in the Disclosure Schedules, either to revoke, withdraw or
suspend any material license or to terminate the participation of San Antonio
in any Governmental Program or Private Program, and no event has occurred
which, with or without notice or lapse of time, or both, would constitute
grounds for a violation, order or deficiency with respect to any of the items
listed in the Disclosure Schedules to revoke, withdraw or suspend any material
license to operate its business as is presently being conducted by it. To the
knowledge of Seller and San Antonio, there has been no decision not to renew
any existing agreement with any provider or Payor relating to San Antonio's
business as presently being conducted by it. San Antonio (i) has not had its
professional license, Drug Enforcement Agency number, Medicare/Medicaid
provider status or staff privileges at any hospital or diagnostic imaging
center suspended, relinquished, terminated or revoked (including orders that
have been entered by any such entities but stayed), (ii) has not been
reprimanded in writing, sentenced, or disciplined by any licensing board, state
agency, regulatory body or authority, hospital, Payor or specialty board
(including orders that have been entered by any such entities but stayed),
(iii) is not the subject of an initial or final determination by any federal or
state authority that could result in any demand or reimbursement under the
Medicare, Medicaid or Government Programs or any exclusion or which monetary
penalty under federal or state law or (iv) has had a final judgment or
settlement entered against it in connection with a malpractice or similar
action.
(b) San Antonio is not required, or for the 72-month
period prior to the Closing Date was not required, to file any cost reports or
other reports with any Governmental Program or Private Program.
Section 3.27 Inspections and Investigations. Neither the right of
San Antonio, nor the right of any licensed professional or other individual
affiliated with San Antonio to receive reimbursements pursuant to any
Governmental Program or Private Program has been terminated or otherwise
materially and adversely affected as a result of any investigation or action
whether by any federal or state governmental regulatory authority or other
third party. No licensed professional or other individual affiliated with the
business has, during the past three (3) years prior to the Closing Date, had
their professional license or staff privileges limited, suspended or revoked by
any governmental regulatory authority or agency, hospital, integrated delivery
system, trade association, professional review organization, accrediting
organization or certifying agency (including orders that have been entered by
any such entities but stayed). True, correct and complete copies of all
reports, correspondence, notices and other documents relating to any matter
described or referenced in this Section 3.27 have been provided to APP.
Section 3.28 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete
and accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by San Antonio or any
Partnership Subsidiary, (ii) all patents and applications therefor and
inventions and discoveries that may be patentable currently owned, in whole or
in part, or used by San Antonio or any Partnership Subsidiary, (iii) all
licenses, royalties, and assignments thereof to which San Antonio or any
Partnership Subsidiary are a party (iv) all copyrights (for published and
unpublished works) currently owned in whole or part, or used by San Antonio or
any
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Partnership Subsidiary and (v) other similar agreements relating to the
foregoing to which San Antonio or any Partnership Subsidiary is a party
(including expiration date if applicable) (collectively, the "Proprietary
Rights").
(b) The Disclosure Schedules contain a complete and
accurate list and summary description of all agreements relating to technology,
trade secrets, know-how or processes that San Antonio is licensed or authorized
to use by others (other than technology, know-how or processes generally
available to other health care providers) or which it licenses or authorizes
others to use, true, correct and complete copies of which have been provided to
APP. There are no outstanding and, to the knowledge of Seller and San Antonio,
any threatened disputes or disagreements with respect to any such agreement.
(c) San Antonio owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and
the Proprietary Rights are freely transferable. To the knowledge of Seller and
San Antonio, no claim has been asserted by any person to the ownership of or
for infringement by San Antonio of any Proprietary Right of any other Person,
and neither San Antonio nor Seller is aware of any valid basis for any such
claim. To the best knowledge of Seller and San Antonio, no proceedings have
been threatened which challenge the Proprietary Rights of San Antonio. San
Antonio has the right to use, free and clear of any adverse claims or rights of
others, all trade secrets, customer lists and proprietary information required
for the performance and marketing of all medical services.
Section 3.29 Taxes.
(a) Filing of Tax Returns. San Antonio has duly and
timely filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All
such Tax Returns or reports are complete and accurate in all material respects
and properly reflect the taxes of San Antonio for the periods covered thereby.
(b) All Withholding Requirements Satisfied. All monies
required to be withheld by San Antonio and paid to governmental agencies for
all income, social security, unemployment insurance, sales, excise, use, and
other taxes have been collected or withheld and paid to the respective
governmental agencies.
(c) Safe Harbor Lease. None of the properties or assets
of San Antonio constitutes property that San Antonio, APP, or any Affiliate of
APP, will be required to treat as being owned by another person pursuant to the
"Safe Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal
by the Tax Equity and Fiscal Responsibility Act of 1982.
(d) Tax Exempt Entity. None of the assets or properties
of San Antonio are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
(e) Boycotts. San Antonio has not at any time
participated in or cooperated with any international boycott as defined in
Section 999 of the Code.
Section 3.30 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, partner or other Affiliate of San Antonio in
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any property, real or personal or mixed, tangible or intangible, used in or
pertaining to San Antonio's business and any arrangement or agreement with any
such person concerning the provision of goods or services or other matters
pertaining to San Antonio's business. There is no commitment to, and no income
that has been derived from, an Affiliate, and following the Closing San Antonio
shall not have any obligation of any kind or designation to any such Affiliate.
Section 3.31 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that San Antonio has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.) and
the Person or Persons authorized in respect thereof.
Section 3.32 Fraud and Abuse and Self Referral. Neither San
Antonio nor any Partnership Subsidiary has engaged and, to the knowledge of
Seller and San Antonio, neither San Antonio's officers and partners nor other
Persons and entities providing professional services for or on behalf of San
Antonio have engaged, in any activities which are prohibited under 42 U.S.C.
Section Section 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Section Section 24, 287, 371, 664, 669,
1001, 1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.33 Restrictions on Business Activities. There is no
material agreement, judgment, injunction, order or decree binding upon San
Antonio, any Partnership Subsidiary or officer, partner or key employee of San
Antonio or Partnership Subsidiary, which has or reasonably could be expected to
have the effect of prohibiting or materially impairing any acquisition of
property by San Antonio or any Partnership Subsidiary or the conduct of
business by San Antonio or any Partnership Subsidiary.
Section 3.34 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of Seller and San Antonio,
threatened bankruptcy, insolvency or similar proceeding with respect to any
other party to such agreements, and no event has occurred which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder by San Antonio or any other party
thereto.
Section 3.35 Statements True and Correct. No representation or
warranty made herein by San Antonio or Seller, nor any statement, certificate,
information, exhibit or instrument to be furnished by San Antonio or Seller to
APP or any of its representatives pursuant to this Agreement, contains or will
contain as of the Closing Date any untrue statement of material fact or omits
or will omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
Section 3.36 Schedules. The Disclosure Schedules required by
Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.37 Finders' Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
Seller or San Antonio who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
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ARTICLE IV
Representations and Warranties of APP
As inducement to each Seller and San Antonio to enter into this
Agreement, APP represents and warrants to each Seller and San Antonio both as
of the date hereof and as of the Closing Date as set forth below, subject to
those exceptions set forth in the Disclosure Schedules attached hereto and
incorporated herein by this reference, specifically identifying the relevant
subparagraphs hereof, which exceptions shall be deemed to be representations
and warranties as if made hereunder.
Section 4.1 Organization and Good Standing; Qualification. APP
is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. APP is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where such failure to be so
qualified or in good standing would not have a Material Adverse Effect on APP.
Copies of the certificate of incorporation and all amendments thereto of APP
and the bylaws of APP, as amended, and copies of the corporate minutes of APP
regarding the transactions contemplated hereby, all of which have been or will
be made available to Sellers and San Antonio for review, are true, correct and
complete as in effect on the date of this Agreement and accurately reflect all
material proceedings of the stockholders and directors of APP (and all
committees thereof) regarding the transactions contemplated hereby. The stock
record books of APP, which have been or will be made available to Sellers and
San Antonio for review, contain true, complete and accurate records of the
stock ownership of APP and the transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
APP of this Agreement, the agreements provided for herein and the Other
Agreements, and the consummation by APP of the transactions contemplated hereby
and thereby are within APP's corporate powers and have been duly authorized by
all necessary action on the part of APP's Board of Directors. This Agreement
and the Other Agreements have been duly executed by APP. This Agreement and
all other agreements and obligations entered into and undertaken in connection
with the transactions contemplated hereby to which APP is a party constitute,
or upon execution will constitute, valid and binding agreements of APP,
enforceable against it in accordance with their respective terms, except as may
be limited by bankruptcy or other laws affecting creditors' rights generally,
or by general equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than consents,
filings or notifications required to be made or obtained solely by San Antonio,
the execution, delivery and performance by APP of this Agreement and the
agreements provided for herein, and the consummation of the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares
are issued and outstanding and 10,000,000 shares of APP Preferred Stock, none
of which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act,
and (ii) all applicable state securities laws. No shares of capital stock are
owned by APP in treasury. No shares of capital stock of APP have been
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issued or disposed of in violation of the preemptive rights, rights of first
refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance of this Agreement by APP and
any other documents contemplated hereby (with or without the giving of notice,
the lapse of time, or both): (i) does not require the consent of any
governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on APP; (ii) will not conflict with any provision of
APP's Certificate of Incorporation or Bylaws; (iii) will not conflict with,
result in a violation of, or constitute a default under any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or governmental
instrumentality to which APP is a party or by which APP or its properties are
subject or bound; (iv) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, require any
notice under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit, material
to this transaction, to which APP is a party or by which APP or any of its
properties are bound except for such conflict, termination, breach or default,
the occurrence of which would not result in a Material Adverse Effect on APP;
and (v) will not create any Encumbrance or restriction upon APP Common Stock or
any of the assets or properties of APP. The financial statements of APP
contained in the Registration Statements (a) have been prepared in accordance
with generally accepted accounting principles consistently applied (except as
may be indicated therein or in the notes thereto), (b) present fairly the
financial position of APP and APP Subsidiaries as of the dates indicated and
present fairly the results of APP's and APP Subsidiaries' operations for the
periods then ended, and (c) are in accordance with the books and records of APP
and APP Subsidiaries, which have been properly maintained and are complete and
correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, there has not been (i)
any change in the working capital, condition (financial or otherwise), assets,
liabilities, reserves, business or operations of APP that has had or is
reasonably likely to have a Material Adverse Effect on APP; or (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in
the Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.
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Section 4.9 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of APP,
threatened against, or affecting APP. There are no unsatisfied judgments
against APP or any consent decrees to which APP is subject. Each of the
matters, if any, set forth in the Disclosure Schedules are fully covered by
policies of insurance of APP as in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be
as of the Closing Date (by virtue of any action, omission to act, contract to
which it is a party or any occurrence or state of facts whatsoever), in
violation of any applicable local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any governmental body,
agency or authority or court binding on it, or relating to its property or
business or its advertising, sales or pricing practices, except for violations
which are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form
S-4, APP does not have any material arrangements, agreements or plans with any
person with respect to the employment by APP of such person or whereby such
person is to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any
Tax Returns that it has filed and has properly accrued on its books and records
for all of the same that have not yet become due and (ii) APP is not delinquent
in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. APP has not received any notice that any tax deficiency or
delinquency has been asserted against APP. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of APP that could be asserted by any taxing authority. There is
no taxing authority audit of APP pending, or to the knowledge of APP,
threatened, and the results of any completed audits are properly reflected in
the financial statements of APP. APP has not violated any federal, state,
local or foreign tax law.
(d) No Extension of Limitation Period. APP has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
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(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Code.
(j) Parachute Payments. No payment required or
contemplated to be made by APP will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. The Disclosure Schedules
or Form S-4 sets forth a description of any interest held, directly or
indirectly, by any officer, director or other Affiliate of APP in any property,
real or personal or mixed, tangible or intangible, used in or pertaining to
APP's business and any arrangement or agreement with any such person concerning
the provision of goods or services or other matters pertaining to APP's
business.
Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to a Seller or San Antonio
pursuant to this Agreement, contains or will contain as of the Closing Date any
untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
Section 4.15 Schedules. All Disclosure Schedules required by
Article IV hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
APP who is entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement or referred to herein.
ARTICLE V
Covenants of Seller and San Antonio
Each of Seller and San Antonio makes the covenants and agreements as
set forth in this Article V, which shall apply with respect to the period from
the date hereof to the Closing Date and, to the extent contemplated herein,
thereafter and agree that:
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Section 5.1 Required Conduct of Seller and San Antonio. From the
date hereof until the Closing Date, San Antonio shall, and Seller shall use
his/her/its best efforts to cause San Antonio to, in all material respects,
conduct the business of San Antonio in the ordinary and usual course consistent
with past practices and shall use reasonable efforts to:
(a) preserve intact San Antonio's business and its
relationships with referral sources, customers, suppliers, patients, employees
and others having business relations with it;
(b) maintain and keep San Antonio's properties and assets
in good repair and condition consistent with past practice as is material to
the conduct of the business of San Antonio;
(c) continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof.
Section 5.2 Prohibited Conduct of Seller and San Antonio.
Without the written consent of APP, San Antonio shall not, and Seller shall use
his/her/its best efforts to cause San Antonio not to:
(a) amend San Antonio's Certificate of Limited
Partnership or Partnership Agreement or other charter documents;
(b) issue, sell or authorize for issuance or sale, any
partnership interests of San Antonio (except for the General Partner
Acquisition) or any subscriptions, options, warrants, rights or convertible
securities, or enter into any agreements or commitments of any character
obligating it to issue or sell any such interests;
(c) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or any option, warrant or other
right to purchase or acquire any such shares;
(d) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its partnership
interest (except as expressly contemplated herein);
(e) voluntarily sell, transfer, surrender, abandon or
dispose of any of San Antonio's assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the ordinary course of
business consistent with past practices;
(f) grant or make any mortgage or pledge or subject San
Antonio or any of San Antonio's properties or assets to any lien, charge or
encumbrance of any kind, except liens for taxes not currently due and except
for liens which arise by operation of law;
(g) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary course of
business or which is reasonably necessary for the conduct of San Antonio's
business;
(h) make or commit to make any capital expenditures which
are not reasonably necessary for the conduct of San Antonio's business;
(i) grant any increase in the compensation payable or to
become payable to partners, officers, consultants or employees other than merit
increases to employees of San Antonio who are not partners or officers of San
Antonio, except in the ordinary course of business and consistent with past
practices;
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(j) change in any manner any accounting principles or
methods other than changes which are consistent with generally accepted
accounting principles;
(k) enter into any material commitment or transaction
other than in the ordinary course of business;
(l) take any action which could reasonably be expected to
have a Material Adverse Effect on San Antonio;
(m) apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any Affiliate of San Antonio, other than in
the ordinary course and consistent with past practices;
(n) agree, whether in writing or otherwise, to do any of
the foregoing; and
(o) take any action to in any way amend, revise or
otherwise affect San Antonio's prior approval and effectiveness of this
Agreement or any of the agreements attached as exhibits hereto, other than as
required to discharge their fiduciary duties.
Section 5.3 Title to Assets; Indebtedness. As of the Closing
Date, San Antonio shall (i) except for sales of assets held as inventory, if
any, in the ordinary course of business prior to the Closing Date and except as
otherwise specifically described in the Schedules to this Agreement, have good
and valid title to all of its assets free and clear of all Encumbrances of any
nature whatsoever, except for current year ad valorem taxes and liens which
arise by operation of law, and (ii) have no direct or indirect indebtedness
except for indebtedness disclosed in the Disclosure Schedules hereto or for
normal and recurring accrued obligations of San Antonio arising in connection
with its business operations in the ordinary course of business and which arise
from the purchase of merchandise, supplies, inventory and services used in
connection with the provision of services.
Section 5.4 Access. At all times prior to the Closing Date,
APP's employees, attorneys, accountants, agents and other authorized and
designated representatives will be allowed full access upon reasonable prior
notice and during regular business hours (and at such other times as the
parties may reasonably agree) to the properties, books and records of San
Antonio, including, without limitation, deeds, title documents, leases, patient
lists, insurance policies, minute books, Partnership Unit registers, accounts,
tax returns, financial statements and all other data that, in the reasonable
opinion of APP, are required for APP to make such investigation as it may
desire of the properties and business of San Antonio. APP shall also be
allowed full access upon reasonable prior notice and during regular business
hours (and at such other times as the parties may reasonably agree) to consult
with the officers, employees (after announcement by San Antonio or Seller of
the Exchange to the employees of San Antonio which shall occur no later than
three (3) days subsequent to execution hereof by San Antonio), accountants,
counsel and agents of San Antonio in connection with such investigation of the
properties and business of San Antonio. No investigation by APP shall diminish
or otherwise affect any of the representations, warranties, covenants or
agreements of San Antonio under this Agreement. Any access or investigation
referred to in this Section 5.4 shall be conducted in such a manner as to
minimize the disruption to San Antonio's ongoing business operations.
Section 5.5 Acquisition Proposals. Except for the General
Partner Acquisition, Seller shall not, and shall use his/her/its best efforts
to cause San Antonio not to, and San Antonio shall not, and shall cause each of
its partners, officers, employees or agents not to, directly or indirectly:
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(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire
all or a substantial portion of the business, properties or partnership
interests of San Antonio, whether by merger, consolidation, share exchange,
business combination, purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of San Antonio, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of San Antonio. If San Antonio receives any
offer or proposal after the date hereof, written or otherwise, of the type
referred to above, San Antonio shall promptly inform APP of such offer or
proposal, decline such offer and furnish APP with a copy thereof if such offer
or proposal is in writing.
Section 5.6 Compliance With Obligations. Prior to the Closing
Date, San Antonio shall, and Seller shall use his/her/its best efforts to cause
San Antonio to, comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all
material agreements and obligations, including its Partnership Agreement, by
which it or its properties or its assets (real, personal or mixed, tangible or
intangible) may be bound; and (iii) all decrees, orders, writs, injunctions,
judgments, statutes, rules and regulations applicable to San Antonio, and its
respective properties or assets.
Section 5.7 Notice of Certain Events. Each of Seller and San
Antonio shall, and Seller shall use his/her/its best efforts to cause San
Antonio to, promptly notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by San
Antonio who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to
terminate employment received from, any salaried or non-hourly, skilled
employee of San Antonio;
(d) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting San Antonio which, if pending on the date of this
Agreement, would have been required to have been disclosed to APP hereunder or
which relate to the consummation of the transactions contemplated by this
Agreement;
(f) any material adverse change in the operation of San
Antonio, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in Medicare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
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(g) any notice or other communication indicating a
material deterioration in the relationship with any Payor or supplier or key
employee of San Antonio and, if requested by APP, will exert its reasonable
best efforts to restore the relationship.
Section 5.8 Partners' Consent. Seller hereby consents to this
Agreement and the transactions contemplated hereby, including, without
limitation, the Exchange, on the terms and conditions set forth herein and in
the agreements and documents contemplated hereby, and hereby waives all other
rights of first offer, rights of first refusal and similar rights that Seller
may have with respect to a transfer of Partnership Units by him/her/it or any
other Seller.
Section 5.9 Obligations of Seller and San Antonio. Subject to
Section 5.8 hereof, each of Seller and San Antonio shall, and Seller shall use
his/her/its best efforts to cause San Antonio to, perform its obligations under
this Agreement and all related agreements, and each of Seller and San Antonio
shall, and Seller shall use his/her/its best efforts to cause San Antonio to,
consummate the transactions contemplated hereby and thereby on the terms and
conditions set forth in this Agreement and such agreements.
Section 5.10 Intentionally omitted.
Section 5.11 Accounting and Tax Matters. San Antonio will not,
and Seller shall use his/her/its best efforts to cause San Antonio not to,
change in any material respect the accounting methods or practices followed by
San Antonio (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. San Antonio will
not, and Seller shall use his/her/its best efforts to cause San Antonio not to,
make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment or consent to any tax
claim or assessment or any waiver of the statute of limitations for any such
claim or assessment. San Antonio will, and Seller shall use his/her/its best
efforts to cause San Antonio to, duly, accurately and timely (without regard to
any extensions of time) file all returns, information statements and other
documents relating to taxes of San Antonio required to be filed by it, and San
Antonio shall, and Seller shall use his/her/its best efforts to cause San
Antonio to, pay all taxes required to be paid by San Antonio, on or before the
Closing Date.
Section 5.12 Lock-Up Provisions. Seller irrevocably agrees that
he/she/it will not, directly or indirectly, sell, offer, contract for sale,
make any short sale, pledge or otherwise transfer or dispose of any of the APP
Common Stock without the prior written consent of APP (which consent may be
unreasonably withheld in APP's absolute and sole discretion) during the
two-year period commencing on the Effective Date. Notwithstanding the
preceding, the restrictions contained in the prior sentence shall no longer
apply (i) as to twenty-five percent (25%) of the Shares of APP Common Stock
received by a Seller pursuant to the Exchange following expiration of a
one-year period following the Effective Date, (ii) as to an additional
twenty-five percent (25%) of the Shares of APP Common Stock received by a
Seller pursuant to the Exchange following expiration of an eighteen-month
period following the Effective Date, and (iii) as to the remaining fifty
percent (50%) of the Shares of APP Common Stock received by Seller pursuant to
the Exchange following expiration of a twenty-four-month period following the
Effective Date. Seller understands and acknowledges that the restrictions
contained in this Section 5.12 (the "Lock-Up Provisions") are irrevocable and
shall be binding upon Seller's heirs, legal representatives, successors and
assigns.
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ARTICLE VI
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 6.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Exchange; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
Section 6.2 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit San Antonio and its authorized
representatives reasonable access to, and make available for inspection, all of
the assets and business of APP, including its executive officers, and permit
San Antonio and its authorized representatives to inspect and, at San Antonio's
sole expense, make copies of all documents, records and information with
respect to the affairs of APP as San Antonio and its representatives may
reasonably request, all for the sole purpose of permitting San Antonio to
become familiar with the business and assets and liabilities of APP. No
investigation by San Antonio or Seller shall diminish or otherwise affect any
of the representations, warranties, covenants or agreements of APP under this
Agreement.
Section 6.3 Notification of Certain Matters. APP shall promptly
inform San Antonio in writing of (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by APP subsequent to the date of this
Agreement and prior to the Closing Date under any contract, agreement or
investment material to APP's condition (financial or otherwise), operations,
assets, liabilities or business and to which it is subject; (b) any material
adverse change in APP's condition (financial or otherwise), operations, assets,
liabilities or business or (c) defaults or disputes regarding Other Agreements.
ARTICLE VII
Covenants of APP, Seller and San Antonio
APP, Seller and San Antonio agree as follows:
Section 7.1 Filings; Other Action.
(a) San Antonio shall cooperate with APP to promptly prepare and
file with the SEC the Registration Statements on Form S-1 and Form S-4 (or
other appropriate Forms) to be filed by APP in connection with its Initial
Public Offering and offering of the shares of APP Common Stock to the Target
Interest Holders pursuant to the transactions contemplated by this Agreement
and the Other Agreements (including the prospectus constituting parts thereof,
the "Registration Statements"). APP shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. Seller and San Antonio shall
cooperate with APP in the preparation of the Registration Statements and shall
furnish all information concerning San Antonio as may be reasonably requested
in connection with any such action in a timely manner.
(b) Seller, San Antonio and APP and each separately represent and
warrant that (i) in the case of Seller and San Antonio, none of the written
information or documents supplied or to be supplied by
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Seller and San Antonio specifically for inclusion in the Registration
Statements, by exhibit or otherwise and (ii) in the case of APP, will, at the
time the Registration Statements and each amendment and supplement thereto, if
any, becomes effective under the Securities Act, none of them contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Seller and
San Antonio shall be entitled to review the Registration Statements and each of
the amendments thereto, if any, prior to the time each becomes effective under
the Securities Act. Seller and San Antonio shall have no responsibility for
information contained in the Registration Statements except for information
provided by Seller or San Antonio specifically for inclusion therein. Seller's
and San Antonio's review of the Registration Statements shall not diminish or
otherwise affect the representations, covenants and warranties of APP contained
in this Agreement.
(c) Seller and San Antonio shall, upon request, furnish APP with
all information concerning San Antonio, its subsidiaries, partners and
officers, and such other matters as may be reasonably requested by APP in
connection with the preparation of the Registration Statements and each of the
amendments or supplements thereto, or any other statement, filing, notice or
application made by or on behalf of each such party or any of its subsidiaries
to any governmental entity in connection with the transactions contemplated by
this Agreement.
Section 7.2 Amendments of Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to supplement or amend promptly the Schedules with respect to
any matter that would have been or would be required to be set forth or
described in the Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Schedule that constitutes or reflects a
Material Adverse Effect on San Antonio may be made unless APP consents to such
amendment or supplement, and no amendment or supplement to a Schedule that
constitutes or reflects a Material Adverse Effect on APP may be made unless
Sellers and San Antonio consent to such amendment or supplement. For purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled,
the Disclosure Schedules hereto shall be deemed to be the Disclosure Schedules
as amended or supplemented pursuant to this Section 7.2. In the event that
Sellers or San Antonio seek to amend or supplement a Disclosure Schedule
pursuant to this Section 7.2 and APP does not consent to such amendment or
supplement, or APP seeks to amend or supplement a Disclosure Schedule pursuant
to this Section 7.2, and Seller and San Antonio do not consent, this Agreement
shall be deemed terminated by mutual consent as set forth in Section 13.1(a)
hereof.
Section 7.3 Actions Contrary to Stated Intent. No party hereto
will knowingly, either before or after the Closing Date, take any action that
would prevent the Exchange from qualifying as a tax-free exchange within the
meaning of Section 351 of the Code.
Section 7.4 Public Announcements. The parties hereto will
consult with each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable law, will not issue any
such press release or make any such public statement prior to such
consultation, although the foregoing shall not apply to any disclosure by APP
in any filing with the DOJ, FTC or SEC.
Section 7.5 Expenses. Each party to this Agreement shall be
solely responsible for their own fees and expenses with respect to the
transactions contemplated herein including, without limitation, the fees
charged by attorneys, accountants and financial advisors retained by such
parties. The fees and
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expenses incurred by Seller and San Antonio shall be paid by Seller in full
immediately prior to the Closing.
Section 7.6 Registration Statements. APP shall prepare and file
the Registration Statements with the SEC, and shall use its reasonable good
faith efforts to cause the Registration Statements to become effective under
the Securities Act and take any action required to be taken under the
applicable state "Blue Sky" or other securities laws in connection with the
issuance of the shares of APP Common Stock upon consummation of the
transactions contemplated hereby.
ARTICLE VIII
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Closing Date of
each of the following conditions:
Section 8.1 Representations and Warranties. The representations
and warranties of the Sellers and San Antonio contained herein shall have been
true and correct in all material respects when initially made and shall be true
and correct in all material respects as of the Closing Date.
Section 8.2 Covenants. Each Seller and San Antonio shall have
performed and complied in all material respects with all covenants required by
this Agreement to be performed and complied with by each Seller and San
Antonio, respectively, prior to the Closing Date.
Section 8.3 Legal Opinion. Counsel to Sellers and San Antonio
shall have delivered to APP their opinion, dated as of the Closing Date, in
form and substance substantially in the form set forth in Exhibit C.
Section 8.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
Section 8.5 No Material Adverse Effect. No Material Adverse
Effect on San Antonio shall have occurred since March 31, 1997, whether or not
such change shall have been caused by the deliberate act or omission of any
Seller or San Antonio.
Section 8.6 Government Approvals and Required Consents. Seller,
San Antonio and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents required under any law,
statements, rule, regulation or ordinance to consummate the transactions
contemplated by this Agreement.
Section 8.7 Securities Approvals. The Registration Statements
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statements shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Closing Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate
the transactions contemplated hereby. The APP Common Stock shall have been
approved for listing on the Nasdaq National Market, subject only to official
notification of issuance.
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Section 8.8 Closing Deliveries. APP shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered
in form reasonably satisfactory to APP, referred to in Section 10.1.
Section 8.9 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 8.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 8.11 Closing of General Partner Acquisition. The General
Partner Acquisition shall have closed.
Section 8.12 Execution by Each Seller and San Antonio. Each
Seller and San Antonio shall have executed this Agreement and into respective
Partnership Units shall have been transferred to APP.
ARTICLE IX
Conditions Precedent of Seller and San Antonio
Except as may be waived in writing by Seller and San Antonio, the
obligations of Seller and San Antonio hereunder are subject to fulfillment at
or prior to the Closing Date of each of the following conditions:
Section 9.1 Representations and Warranties. The representations
and warranties of APP contained herein shall be true and correct in all
material respects when initially made and shall be true and correct in all
material respects as of the Closing Date.
Section 9.2 Covenants. APP shall have performed and complied in
all material respects with all covenants and conditions required by this
Agreement to be performed and complied with by it prior to the Closing Date.
Section 9.3 Legal Opinions. Counsel to APP shall have delivered
to Seller and San Antonio their opinion, dated as of the Closing Date, in form
and substance substantially in the form set forth in Exhibit D.
Section 9.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 9.5 Government Approvals and Required Consents. Sellers,
San Antonio and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents (including consents of
Sellers required under applicable state law or the Partnership Agreement)
required under any law, contracts or any statute, rule, regulation or
ordinances to consummate the transactions contemplated by this Agreement.
Section 9.6 "Blue Sky" Approvals; Nasdaq Listing. The
Registration Statements shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the Registration Statements
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC. At or prior to the Closing Date, APP shall
have received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. At or
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prior to the Closing Date, the APP Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
Section 9.7 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 9.8 Closing Deliveries. Seller and San Antonio shall
have received all Schedules, documents, assignments and agreements, duly
executed and delivered in form reasonably satisfactory to Sellers and San
Antonio referred to in Section 10.2.
Section 9.9 No Material Adverse Effect. No Material Adverse
Effect on APP shall have occurred since [__________], 1997, whether or not such
change shall have been caused by the deliberate act or omission of APP.
ARTICLE X
Closing Deliveries
Section 10.1 Deliveries of Seller and San Antonio. At or prior to
the Closing Date, Seller and San Antonio shall deliver to APP the following,
all of which shall be in a form reasonably satisfactory to APP:
(a) a bill of sale representing the Partnership Units
held by each Seller which certificates together shall represent all of the
issued and outstanding Partnership Units of San Antonio;
(b) a copy of resolutions of the partners of San Antonio
or of Seller, if applicable, authorizing the execution, delivery and
performance of this Agreement and all related documents and agreements and
consummation of the transactions contemplated hereby, each certified by an
officer as being true and correct copies of the originals thereof subject to no
modifications or amendments;
(c) a certificate of each of Seller and an officer of San
Antonio dated the Closing Date, as to the truth and correctness of the
representations and warranties of Seller and San Antonio, respectively,
contained herein on and as of the Closing Date;
(d) a certificate of each of Seller and an officer of San
Antonio dated the Closing Date, (i) as to the performance of and compliance in
all material respects by San Antonio and Seller, respectively, with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent required by Seller and San Antonio, respectively,
to be satisfied shall have been satisfied;
(e) a certificate of an officer of San Antonio certifying
as to the incumbency and as to the signatures of each of the officers of San
Antonio who have executed documents delivered at the Closing on behalf of San
Antonio;
(f) certificates, dated within ten (10) days prior to
the Closing Date, of the Secretary of State of Texas for San Antonio
establishing that San Antonio is in existence and otherwise is in good standing
to transact business in the state of Texas;
(g) certificates, dated within ten (10) days prior to the
Closing Date, of the Secretaries of State of the states in which San Antonio is
qualified to do business, to the effect that San
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Antonio is qualified to do business and, if applicable, is in good standing as
a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of officers of San Antonio as
requested by APP;
(j) a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Code, of Seller, signed under a penalty of
perjury and dated as of the Closing Date, to the effect that Seller is a United
States citizen or a resident alien (and thus not a foreign person) and
providing Seller's United States taxpayer identification number;
(k) an executed Seller Release by Seller in substantially
the form attached hereto as Exhibit E (the "Seller Release"); and
(l) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of
this Agreement.
Section 10.2 Deliveries of APP. At or prior to the Closing Date,
APP shall deliver to each Seller and San Antonio the following, all of which
shall be in a form reasonably satisfactory to Seller and San Antonio:
(a) the Exchange Consideration;
(b) a copy of resolutions of the Board of Directors of
APP authorizing the execution, delivery and performance of this Agreement and
all related documents and agreements, certified by APP's Secretary as being
true and correct copies of the originals thereof subject to no modifications or
amendments;
(c) a certificate of the President of APP dated the
Closing Date as to the truth and correctness of the representations and
warranties of APP contained herein on and as of the Closing Date;
(d) a certificate of the President of APP dated the
Closing Date, (i) as to the performance and compliance by APP with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent required to be satisfied by APP have been
satisfied;
(e) a certificate of the Secretary of APP certifying as
to the incumbency and to the signatures of the officers of APP who have
executed documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to
the Closing Date, of the Secretary of State of Texas establishing that APP is
in existence in the state of Texas;
(g) intentionally omitted;
(h) such other instrument or instruments of transfer
prepared by Seller or San Antonio as shall be necessary or appropriate, as
Seller or San Antonio or his/her/its respective counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
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ARTICLE XI
Post Closing Matters
Section 11.1 Further Instruments of Transfer. Following the
Closing, at the request of APP and at APP's sole cost and expense, Seller and
San Antonio shall deliver any further instruments of transfer and take all
reasonable action as may be necessary or appropriate to carry out the purpose
and intent of this Agreement.
Section 11.2 Exchange Tax Covenant.
(a) The parties intend that the Exchange will qualify as
a tax-free transaction within the meaning of Section 351 of the Code in which
the Company will not recognize gain or loss, and pursuant to which any gain
recognized by Seller as a result of the Exchange will not exceed the amount of
any cash received by a Seller in the Exchange (a "Reorganization").
(b) Both prior to and after the Closing Date, all books
and records shall be maintained, and all Tax Returns and schedules thereto
shall be filed in a manner consistent with the Exchange being treated as a
Reorganization. These obligations are excused as to a party required to
maintain the books or file a Tax Return if such party has provided to the other
parties a written opinion of competent tax counsel to the effect that there is
not substantial authority, within the meaning of Section 6662(d)(2)(B)(i) of
the Code, to report the Exchange as a Reorganization and such opinion either is
furnished prior to the Closing Date or is based on facts or events not known at
the Closing Date. Each party shall provide to each other party such tax
information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Exchange as a
Reorganization.
(c) APP shall cause the requirements of Rule 144(c) under
the Securities Act to be met with respect to APP for so long as those
requirements must be met to enable sales by the Sellers who are affiliates of
San Antonio to meet the requirements of Rule 145(d) under the Securities Act.
ARTICLE XII
Remedies
Section 12.1 Indemnification by Sellers. Subject to the terms,
limitations and conditions of this Agreement, Sellers (each an "Indemnifying
Party" and collectively, the "Indemnifying Parties"), severally, agree to
indemnify, defend and hold APP and its directors, officers, employees, agents,
attorneys, consultants and Affiliates (each an "Indemnified Party" and
collectively, the "Indemnified Parties"), harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, reasonable attorneys' fees and expenses (including, without
limitation, all costs of experts and all costs incidental to or in connection
with any appellate process) (collectively, "Damages") asserted against or
incurred by an Indemnified Party arising out of or resulting from:
(a) a breach of any representation, warranty or covenant
of any Seller or San Antonio contained in this Agreement (without giving effect
to any Material Adverse Effect qualifier contained as part of any such
representation or warranty or covenant contained in this Agreement or in any
Schedule or certificate delivered hereunder);
(b) any violation (or alleged violation) by any Seller or
San Antonio and/or any of its past or present directors, officers, partners,
employees, agents, attorneys, consultants and Affiliates
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of any state or federal law governing health care fraud and abuse or
prohibition on referral of patients to Persons in which a licensed professional
has a financial or other form of interest (including, but not limited to, fraud
and abuse in the Medicare and Medicaid Programs) occurring on or before the
Closing Date; and
(c) any liability under the Securities Act, the Exchange
Act or any other federal or state "Blue Sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any (i) untrue
statement of a material fact in any Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto relating
to San Antonio (including any Partnership Subsidiary) or (ii) failure to state
information necessary to make the statements required to be stated therein not
misleading arising (in the case of either (i) or (ii)) solely from information
provided in writing to APP or its counsel by San Antonio or any Seller or their
agents specifically for inclusion in any such Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto (including, without limitation, schedules, exhibits and certifications
delivered by San Antonio or any of its agents in connection with this
Agreement).
Notwithstanding anything herein to the contrary, nothing contained in
this Agreement shall relieve any Seller or San Antonio of any liability or
limit any liability that he, she or it may have in the case of fraud in
connection with the transactions contemplated by this Agreement.
Section 12.2 Indemnification by APP. Subject to the terms,
limitations and conditions of this Agreement, APP (an "Indemnifying Party")
hereby agrees to indemnify, defend and hold the Sellers, and, as applicable,
their respective directors, partners, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates (each an "Indemnified Party" and
collectively, the "Indemnified Parties") harmless from and against all Damages
asserted against or incurred by such individuals and/or entities arising out of
or resulting from:
(a) a breach by APP of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of APP contained in
this Agreement or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange
Act or any other federal or state "Blue Sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any (i) untrue
statements of a material fact in any Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or (ii)
failure to state information necessary to make the statements required to be
stated therein not misleading (except for any liability based upon any actual
or alleged untrue statement of material fact or an omission to state a material
fact relating to San Antonio or any Seller which was derived from any
information provided in writing by the Company or a Company Subsidiary or any
of their agents contained in the representations and warranties set forth in
this Agreement or any certificate, exhibit, schedule or instrument required to
be delivered under this Agreement.)
Notwithstanding anything herein to the contrary, nothing contained in
this Agreement shall relieve APP of any liability or limit any liability that
it may have in the case of fraud in connection with the transactions
contemplated by this Agreement.
Section 12.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
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(a) The Indemnified Party shall promptly (and, in any
event, at least ten (10) days prior to the due date for any responsive
pleadings, filings or other documents) (i) notify each Indemnifying Party of
any third-party claim or claims asserted against the Indemnified Party ("Third
Party Claim") that could give rise to a right of indemnification under this
Agreement and (ii) transmit to the Indemnifying Parties a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of Damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve
any Indemnifying Party of its obligations to any Indemnified Party with respect
to the related Third Party Claim except to the extent that the resulting delay
is materially prejudicial to the defense of such claim. Within thirty (30)
days after receipt of any Claim Notice (the "Election Period"), the
Indemnifying Parties shall notify the Indemnified Party (x) whether the
Indemnifying Parties dispute their potential liability to the Indemnified Party
under this Agreement with respect to such Third Party Claim and (y) whether the
Indemnifying Parties desire, at the sole cost and expense of each Indemnifying
Party, to defend the Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Parties notify the Indemnified
Party within the Election Period that the Indemnifying Parties elect to assume
the defense of the Third Party Claim, then the Indemnifying Parties shall have
the right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party or Indemnified Parties, such Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted
diligently by the Indemnifying Parties to a final conclusion or settled at the
discretion of the Indemnifying Parties in accordance with this Section 12.3(b).
Except as set forth in Section 12.3(f) below, the Indemnifying Parties shall
have full control of such defense and proceedings, including any compromise or
settlement thereof. The Indemnified Party is hereby authorized, at the sole
cost and expense of the Indemnifying Parties (but only if the Indemnified Party
is entitled to indemnification hereunder), to file, during the Election Period,
any motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Parties and not prejudicial to the Indemnifying Parties. If requested by the
Indemnifying Parties, the Indemnified Party agrees, at the sole cost and
expense of the Indemnifying Parties, to cooperate with the Indemnifying Parties
and their counsel in contesting any Third Party Claim that the Indemnifying
Parties elect to contest, including, without limitation, the making of any
related counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Parties pursuant to this Section 12.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Parties and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Parties, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Parties, and upon written
notification thereof, the Indemnifying Parties shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Parties shall not, in connection with any one
such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm
of attorneys at any time for the Indemnified Party, which firm shall be
designated in writing by the Indemnified Party. Notwithstanding the foregoing,
the Indemnifying Parties shall be prohibited from confessing or settling any
criminal allegations brought against the Indemnified Party without the express
written consent of the Indemnified Party.
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(c) If the Indemnifying Parties fail to notify the
Indemnified Party within the Election Period that the Indemnifying Parties
elect to defend the Indemnified Party pursuant to Section 12.3(b), or if the
Indemnifying Parties elect to defend the Indemnified Party pursuant to Section
12.3(b) but fail diligently and promptly to prosecute or settle the Third Party
Claim, then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Parties (if the Indemnified Party is
entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Parties to a final conclusion or settled. The
Indemnified Parties shall have full control of such defense and proceedings,
provided, however, that the Indemnified Parties may not enter into, without the
Indemnifying Parties' consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Parties have delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement and if such
dispute is resolved in favor of the Indemnifying Parties, the Indemnifying
Parties shall not be required to bear the costs and expenses of the Indemnified
Parties' defense pursuant to this paragraph or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Parties in full for all costs and
expenses of such litigation. The Indemnifying Parties may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section 12.3(c), and the Indemnifying Parties shall bear their
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnifying Parties have been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnified Party, then the Indemnifying Parties may employ
separate counsel and upon written notification thereof, the Indemnified Party
shall not have the right to assume the defense of such action on behalf of the
Indemnifying Parties.
(d) In the event any Indemnified Party should have a
claim against any Indemnifying Parties hereunder that does not involve a Third
Party Claim, the Indemnified Party shall transmit to the Indemnifying Parties a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Parties do not notify the
Indemnified Party within sixty (60) days from its receipt of the Indemnity
Notice that the Indemnifying Parties dispute such claim, the claim specified by
the Indemnified Party in the Indemnity Notice shall be deemed a liability of
the Indemnifying Parties hereunder. If the Indemnifying Parties have timely
disputed such claim, as provided above, such dispute shall be resolved by the
procedures set forth in Section 12.7.
(e) Payments of all amounts owing by any Indemnifying
Party pursuant to this Agreement relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Parties liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Parties pursuant to Section 12.3(d) shall be made within thirty
(30) days after the later of (i) the expiration of the 60-day Indemnity Notice
period or (ii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Parties liability to the Indemnified Party under this
Agreement. During the two-year period following the Closing Date, each Seller
shall be entitled to satisfy payments owed to APP by transfer of APP Common
Stock from such Seller to APP. For all purposes of this Agreement, the value
of each share of APP Common Stock transferred to APP pursuant to this Agreement
shall be calculated by averaging the daily closing prices for a share of APP
Common Stock for the twenty (20) consecutive trading days on which such shares
are actually traded on the Nasdaq
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National Market preceding the date of the Claim Notice. The number of shares
of APP Common Stock permitted to be transferred under this Section 12.3(e)
shall be diminished proportionately in accordance with the percentage of APP
Common Stock released under the Lock-Up Provisions set forth herein. The
rights of any Seller to transfer shares of APP Common Stock in satisfaction of
payments owed to APP pursuant to this Agreement shall terminate upon the
earlier of (x) the termination of the Lock-Up Provisions set forth herein or
(y) at the end of the two-year period following the Closing Date.
(f) The Indemnifying Parties shall provide the
Indemnified Party with written notice of any firm offer that is made to settle
or compromise a Third Party Claim against an Indemnified Party. If a firm
offer is made to settle such a claim solely by the payment of money damages and
the Indemnifying Parties notify the Indemnified Party in writing that the
Indemnifying Parties agree to such settlement, but the Indemnified Party elects
not to accept and agree to it, the Indemnified Party may continue to contest or
defend such Third Party Claim and, in such event, the total maximum liability
of the Indemnifying Parties to indemnify or otherwise reimburse the Indemnified
Party hereunder with respect to such a claim shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable out-of-pocket costs
and reasonable expenses (including reasonable attorneys' fees and
disbursements) to the date of notice that the Indemnifying Parties desired to
accept such settlement.
(g) Notwithstanding anything contained in this Agreement
to the contrary, Indemnifying Parties in the aggregate (i) shall have no
obligation hereunder to provide indemnification for the first $__________ of
Damages (without counting Immaterial Claims as defined below), and (ii) in no
event shall the Indemnifying Parties have any liability hereunder with respect
to any singular incident or a fact involving a breach or inaccuracy of San
Antonio if the Damages from such claim are equal to or less than $__________
("Immaterial Claims"). Notwithstanding anything to the contrary contained
herein, the obligations of each Seller hereunder shall not exceed the value of
the Exchange Consideration paid to such Seller pursuant to the Related
Acquisition, if any, on the Closing Date.
Section 12.4 Remedies Exclusive. The remedies provided in this
Agreement are the exclusive rights available to one party against the other,
either at law or in equity, except in the case of fraud.
Section 12.5 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 12.6 Tax Benefits; Insurance Proceeds. The total amount
of any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
Section 12.7 Dispute Resolution.
(a) Arbitration. The parties hereto agree that any
claim, controversy, dispute or disagreement between or among any of the parties
arising out of or relating to this Agreement shall be governed exclusively by
the terms and provisions of this Section 12.7; provided, however, that within
ten (10) days from the date which any claim, controversy, dispute or
disagreement cannot be resolved and prior to commencing an arbitration
procedure pursuant to this Section 12.7, the parties shall meet to discuss and
consider other alternative dispute resolution procedures other than arbitration
including,
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but not limited to, Judicial Arbitration & Mediation Services, Inc., if
applicable. If at any time prior to the rendering of the decision by the
arbitrator (or pursuant to such other alternative dispute resolution procedure)
as contemplated in this Section 12.7 to the extent a party makes a written
offer to the other party proposing a settlement of the matter(s) at issue and
such offer is rejected, then the party rejecting such offer shall be obligated
to pay the costs and expenses (excluding the amount of the award granted under
the decision) of the party that offered the settlement from the date such offer
was received by such other party if the decision is for a dollar amount that is
less than the amount of such offer to settle. Notwithstanding the foregoing,
the terms and provisions of this Section 12.7 shall not preclude any party
hereto from seeking, or a court of competent jurisdiction from granting, a
temporary restraining order, temporary injunction or other equitable relief for
any breach of (i) any noncompetition or confidentiality covenant or (ii) any
duty, obligation, covenant, representation or warranty, the breach of which may
cause irreparable harm or damage.
(b) Arbitrators. In the event there is a claim,
controversy, dispute or disagreement among the parties hereto arising out of or
relating to this Agreement (including any claim based on or arising from an
alleged tort) and the parties hereto have not reached agreement regarding an
alternative to arbitration, the parties agree to select within thirty (30) days
of notice by a party to the other of its desire to seek arbitration under this
Section 12.7 one (1) arbitrator mutually acceptable to APP and the Sellers to
hear and decide all such claims under this Section 12.7. Each of the
arbitrators proposed shall be impartial and independent of all parties. If the
parties cannot agree on the selection of an arbitrator within said 30-day
period, then any party may in writing request the judge of the United States
District Court for the Western District of Texas senior in term of service to
appoint the arbitrator and, subject to this Section 12.7, such arbitrator shall
hear all arbitration matters arising under this Section 12.7.
(c) Applicable Rules.
(1) Each arbitration hearing shall be held at a
place in Boxar County, Texas acceptable to the arbitrator. The arbitration
shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association to the extent such rules do not conflict with
the terms hereof; provided, however, that if the parties hereto agree to an
alternative to arbitration they may agree to an alternative set of rules,
including as to rules of evidence and procedure. The decision of the
arbitrator shall be reduced to writing and shall be binding on the parties and
such decision shall contain a concise statement of the reasons in support of
such decision. Judgment upon the award(s) rendered by the arbitrator may be
entered and execution had in any court of competent jurisdiction or application
may be made to such court for a judicial acceptance of the award and an order
of enforcement. The charges and expenses of the arbitrator shall be shared
equally by the parties to the hearing.
(2) The arbitration shall commence within ten
(10) days after the arbitrator is selected in accordance with the provisions of
this Section 12.7. In fulfilling his duties with respect to determining the
amount of any loss, the arbitrator may consider such matters as, in the opinion
of the arbitrator, are necessary or helpful to make a proper valuation. The
arbitrator may consult with and engage disinterested third parties to advise
the arbitrator. The arbitrator shall not add any interest factor reflecting
the time value of money to the amount of any loss and shall not award any
punitive damages.
(3) If the arbitrator selected hereunder should
die, resign or be unable to perform his or her duties hereunder, the parties,
or such senior judge (or such judge's successor) in the event the parties
cannot agree, shall select a replacement arbitrator. The procedure set forth
in this Section 12.7 for selecting the arbitrator shall be followed from time
to time as necessary.
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(4) As to any determination of the amount of any
loss, or as to the resolution of any other claim, controversy, dispute or
disagreement, that under the terms hereof is made subject to arbitration, no
lawsuit based on such claimed loss or such resolution shall be instituted by
the parties hereto, other than to compel arbitration proceedings or enforce the
award of the arbitrator, except as otherwise provided in Section 12.7(b).
(5) All privileges under Texas and federal law,
including attorney-client and work-product privileges, shall be preserved and
protected to the same extent that such privileges would be protected in a
federal court proceeding applying Texas law.
ARTICLE XIII
Termination
Section 13.1 Termination. This Agreement may be terminated and
the Exchange may be abandoned:
(a) at any time prior to the Closing Date by mutual
agreement of all parties;
(b) at any time prior to the Closing Date by APP if any
material representation or warranty of any Seller or San Antonio contained in
this Agreement or in any certificate or other document executed and delivered
by any Seller or San Antonio pursuant to this Agreement is or becomes untrue or
breached in any material respect or if any Seller or San Antonio fails to
comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is
not cured, waived or eliminated within thirty (30) days after receipt of
written notice thereof;
(c) at any time prior to the Closing Date by Seller as to
Seller if any representation or warranty of APP contained in this Agreement or
in any certificate or other document executed and delivered by APP pursuant to
this Agreement is or becomes untrue in any material respect of if APP fails to
comply in any material respect with any covenant or agreement contained herein,
and any such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
(d) at any time prior to the Closing Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures,
APP deems termination to be advisable; or
(e) by APP or Seller as to Seller if the Exchange shall
not have been consummated by September 30, 1997.
Section 13.2 Effect of Termination. Except as set forth in
Section 14.3, in the event this Agreement is terminated pursuant to this
Article XIV, this Agreement shall forthwith become void.
ARTICLE XIV
Nondisclosure of Confidential Information
Section 14.1 Non-Disclosure Covenant. Seller and San Antonio
recognize and acknowledge that each has in the past, currently has, and in the
future may possibly have, access to certain Confidential Information of APP
that is valuable, special and a unique asset of such entity's business. APP
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acknowledges that it had in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of San Antonio that
is valuable, special and a unique asset of each such business. Seller, San
Antonio and APP, severally, agree that they will not disclose such Confidential
Information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
APP, Seller and San Antonio and (b) to counsel and other advisers to APP,
Sellers and San Antonio provided that such advisers (other than counsel) agree
to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes available to or known by the public generally through no
fault of San Antonio, Seller or APP, as the case may be, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause (ii)
San Antonio, Seller or APP, as the case may be, shall, if possible, give prior
written notice thereof to San Antonio, Seller or APP and provide San Antonio,
Seller or APP with the opportunity to contest such disclosure, (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, or (iv)
the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Exchange or otherwise. In the event of a breach
or threatened breach by Seller or San Antonio, on the one hand, and APP, on the
other hand, of the provisions of this Section, APP, Seller and San Antonio
shall be entitled to an injunction restraining the other party, as the case may
be, from disclosing, in whole or in part, such Confidential Information.
Nothing herein shall be construed as prohibiting any of such parties from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
Section 14.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, Seller and San Antonio agree
that, in the event of a breach by either of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
Section 14.3 Survival. The obligations of the parties under this
Article XIV shall survive the termination of this Agreement.
ARTICLE XV
Miscellaneous
Section 15.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
Section 15.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by APP to a wholly owned subsidiary of APP; provided that any such
assignment shall not relieve APP of its obligations hereunder.
Section 15.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Except as
otherwise provided herein, neither this Agreement nor any other agreement
contemplated hereby shall be deemed to confer upon any person not a party
hereto or thereto any rights or remedies hereunder or thereunder.
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Section 15.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
Section 15.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 15.6 Survival of Representations, Warranties and
Covenants. The representations, warranties and covenants contained herein
shall survive the Closing and all statements contained in any certificate,
exhibit or other instrument delivered by or on behalf of San Antonio, Seller or
APP pursuant to this Agreement shall be deemed to have been representations and
warranties made by San Antonio, Seller and APP, respectively. Notwithstanding
any provision in this Agreement to the contrary, the representations and
warranties contained herein shall survive the Closing until the second
anniversary of the Closing Date except that (a) the representations and
warranties set forth in Section 3.20 with respect to environmental matters
shall survive for a period of ten (10) years, (b) the representations and
warranties set forth in Section 3.29 with respect to tax matters shall survive
until such time as the limitations period has run for all tax periods ended
prior to the Closing Date, (c) the representations and warranties contained in
Section 3.26 and Section 3.32 with respect to healthcare matters shall survive
for a period of six (6) years and (d) solely for purposes of Section 12.1(c)
and Section 12.2(b), and solely to the extent that any party to be indemnified
pursuant to such provisions actually incurs liability under the Securities Act,
the Exchange Act or any other federal or state securities law, the
representations and warranties set forth therein shall survive until the
expiration of any applicable limitations period.
Section 15.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF TEXAS.
Section 15.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
Section 15.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
Section 15.10 Confidentiality; Publicity and Disclosures. Each
party shall keep this Agreement and its terms confidential, and shall make no
press release or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge and
consent of the other parties hereto; provided that the foregoing shall not
prohibit any disclosure (a) by press release, filing or otherwise that APP has
determined in its good faith judgment and after advice of legal counsel to be
required by federal securities laws or the rules of the National Association of
Securities Dealers, (b) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the
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conduct of its Initial Public Offering and conducting an examination of the
operations and assets of the Target Companies; provided that APP shall
reasonably promptly provide notice of any release. In the event that the
transactions contemplated hereby are not consummated for any reason whatsoever,
the parties hereto agree not to disclose or use any Confidential Information
they may have concerning the affairs of the other parties, except for
information that is required by law to be disclosed; provided that should the
transactions contemplated hereby not be consummated, nothing contained in this
Section shall be construed to prohibit the parties hereto from operating
businesses in competition with each other.
Section 15.11 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request
or demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by telex,
telegram or courier service, when delivered to the party to whom notice is
sent, (ii) if delivered by facsimile transmission, when so sent and receipt
acknowledged by receipt or (iii) if delivered by mail (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may
designate by written notice to all other parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to San Antonio or Seller: San Antonio MRI Partnership
No. 2 Ltd.
730 North Main, Suite B-109
San Antonio, Texas 78299
Fax No.: (210) 304-2988
Attn: Managing Partner
with a copy to: Oppenheimer, Blend, Harrison &
Tate, Inc.
Sixth Floor
711 Navarro
San Antonio, TX 78205-1796
Attn: Jerome B. Cohen
Section 15.12 No Waiver; Remedies. No party hereto shall by any
act (except by written instrument pursuant to Section 16.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in
this Agreement or
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<PAGE> 874
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
Section 15.13 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Section 15.14 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, and the Schedules attached hereto with their
initial letter capitalized and not otherwise defined therein shall have the
meanings as assigned to such terms in this Agreement.
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<PAGE> 875
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
-----------------------------
Gregory L. Solomon, President
SAN ANTONIO:
SAN ANTONIO MRI PARTNERSHIP NO. 2 LTD.
By:
-----------------------------
Its:
-----------------------------
SELLERS:
--------------------------------------
Neil Bowie
--------------------------------------
Joseph F. Carabin
--------------------------------------
Gregory C. Godwin
--------------------------------------
Michael D. Howard
--------------------------------------
Philip S. Kline
--------------------------------------
Julio C. Otazo
--------------------------------------
R.K. Daniel Peterson
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--------------------------------------
Randall S. Preissig
--------------------------------------
Rise P. Ross
--------------------------------------
Jose A. Saldana
--------------------------------------
Robert L. Thompson
--------------------------------------
Gregory W. Wojcik
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<PAGE> 877
EXHIBIT A
LIST OF SELLERS AND EXCHANGE CONSIDERATION
<TABLE>
<CAPTION>
Name of Seller Partnership Unit %
-------------- ------------------
<S> <C>
</TABLE>
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EXHIBIT B
TARGET COMPANIES
A-517
<PAGE> 879
EXHIBIT C
LEGAL OPINION OF SELLERS' COUNSEL
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<PAGE> 880
EXHIBIT D
LEGAL OPINION OF APP'S COUNSEL
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<PAGE> 881
EXHIBIT E
SELLER RELEASE
A-520
<PAGE> 882
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF EXCHANGE
DATED AS OF [_____________], 1997
The following Disclosure Schedules and the disclosures set forth
therein are delivered in connection with that certain Agreement and Plan of
Exchange dated [____________], 1997, by and between American Physician
Partners, Inc., San Antonio MRI Partnership No. 2 LTD. and Sellers (the
"Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made
pursuant to one section number can reasonably be interpreted by other parties
to be a disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
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<PAGE> 883
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF EXCHANGE
This Amendment No. 1 to the Agreement and Plan of Exchange (this
"Amendment No. 1"), dated as of September 30, 1997, is by and among AMERICAN
PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and SAN ANTONIO MRI
PARTNERSHIP NO. 2, LTD., a Texas limited partnership (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Exchange dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 13.1(e). APP and the Company hereby agree to
amend Section 13.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
SAN ANTONIO MRI PARTNERSHIP NO. 2, LTD.
By:_________________________________
Its:________________________________
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================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),
[AMERICAN PHYSICIAN PARTNERS SUBSIDIARY, INC.]
(a California corporation),
and
PACIFIC IMAGING CONSULTANTS, A MEDICAL GROUP, INC.
(a California professional medical corporation)
================================================================================
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<PAGE> 885
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Rules Of Interpretation . . . . . . . . . . . . . . 6
ARTICLE II The Merger . . . . . . . . . . . . . . . . . . . . 6
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 The Closing . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Effective Time . . . . . . . . . . . . . . . . . . 6
Section 2.4 Certificate of Incorporation of Surviving
Corporation . . . . . . . . . . . . . . . . . . . . 7
Section 2.5 Bylaws of Surviving Corporation . . . . . . . . . . 7
Section 2.6 Directors of the Surviving Corporation . . . . . . 7
Section 2.7 Officers of the Surviving Corporation . . . . . . . 7
Section 2.8 Conversion of Company Common Stock . . . . . . . . 7
Section 2.9 Exchange of Certificates Representing Shares
of the Company Common Stock . . . . . . . . . . . . 7
Section 2.10 Fractional Shares . . . . . . . . . . . . . . . . . 8
ARTICLE III Representations and Warranties of the Company . . . 8
Section 3.1 Organization and Good Standing; Qualification . . . 8
Section 3.2 Authorization and Validity . . . . . . . . . . . . 8
Section 3.3 Governmental Authorization . . . . . . . . . . . . 9
Section 3.4 Capitalization . . . . . . . . . . . . . . . . . . 9
Section 3.5 Transactions in Capital Stock . . . . . . . . . . . 9
Section 3.6 Continuity of Business Enterprise . . . . . . . . . 9
Section 3.7 Subsidiaries and Investments . . . . . . . . . . . 9
Section 3.8 Absence of Conflicting Agreements or
Required Consents . . . . . . . . . . . . . . . . . 9
Section 3.9 Intentionally omitted . . . . . . . . . . . . . . . 10
Section 3.10 Absence of Changes . . . . . . . . . . . . . . . . 10
Section 3.11 No Undisclosed Liabilities . . . . . . . . . . . . 11
Section 3.12 Litigation and Claims . . . . . . . . . . . . . . . 11
Section 3.13 No Violation of Law . . . . . . . . . . . . . . . . 11
Section 3.14 Lease Agreements . . . . . . . . . . . . . . . . . 11
Section 3.15 Real and Personal Property . . . . . . . . . . . . 12
Section 3.16 Indebtedness for Borrowed Money . . . . . . . . . . 12
Section 3.17 Contracts and Commitments . . . . . . . . . . . . . 12
Section 3.18 Employee Matters . . . . . . . . . . . . . . . . . 13
Section 3.19 Labor Relations . . . . . . . . . . . . . . . . . . 13
Section 3.20 Employee Benefit Plans . . . . . . . . . . . . . . 14
Section 3.21 Environmental Matters . . . . . . . . . . . . . . . 15
Section 3.22 Filing Reports . . . . . . . . . . . . . . . . . . 16
Section 3.23 Insurance Policies . . . . . . . . . . . . . . . . 16
Section 3.24 Accounts Receivable; Payors . . . . . . . . . . . . 17
Section 3.25 Accounts Payable; Suppliers . . . . . . . . . . . . 17
Section 3.26 Inventory . . . . . . . . . . . . . . . . . . . . . 18
Section 3.27 Licenses, Authorization and Provider Programs . . . 18
Section 3.28 Inspections and Investigations . . . . . . . . . . 19
Section 3.29 Proprietary Rights and Information . . . . . . . . 19
Section 3.30 Taxes . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.31 Related Party Arrangements . . . . . . . . . . . . 20
Section 3.32 Banking Relations . . . . . . . . . . . . . . . . . 21
Section 3.33 Fraud and Abuse and Self Referral . . . . . . . . . 21
Section 3.34 Restrictions on Business Activities . . . . . . . . 21
</TABLE>
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<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 3.35 Agreements in Full Force and Effect . . . . . . . . 21
Section 3.36 Statements True and Correct . . . . . . . . . . . . 21
Section 3.37 Disclosure Schedules . . . . . . . . . . . . . . . 21
Section 3.38 Finders' Fees . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV Representations and Warranties of APP . . . . . . . 22
Section 4.1 Organization and Good Standing; Qualification . . . 22
Section 4.2 Authorization and Validity. . . . . . . . . . . . . 22
Section 4.3 Governmental Authorization . . . . . . . . . . . . 22
Section 4.4 Capitalization . . . . . . . . . . . . . . . . . . 22
Section 4.5 Subsidiaries and Investments . . . . . . . . . . . 23
Section 4.6 Absence of Conflicting Agreements or
Required Consents . . . . . . . . . . . . . . . . . 23
Section 4.7 Absence of Changes . . . . . . . . . . . . . . . . 23
Section 4.8 No Undisclosed Liabilities . . . . . . . . . . . . 23
Section 4.9 Litigation and Claims . . . . . . . . . . . . . . . 23
Section 4.10 No Violation of Law . . . . . . . . . . . . . . . . 23
Section 4.11 Employee Matters . . . . . . . . . . . . . . . . . 24
Section 4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.13 Related Party Arrangements . . . . . . . . . . . . 25
Section 4.14 Statements True and Correct . . . . . . . . . . . . 25
Section 4.15 Schedules . . . . . . . . . . . . . . . . . . . . . 25
Section 4.16 Finder's Fees . . . . . . . . . . . . . . . . . . . 25
Section 4.17 Agreements in Full Force and Effect . . . . . . . . 25
ARTICLE V Closing Date Representations and Warranties
of the Company . . . . . . . . . . . . . . . . . . 25
Section 5.1 Organization and Good Standing; Qualification . . . 25
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . 25
Section 5.3 Corporate Records . . . . . . . . . . . . . . . . . 26
Section 5.4 Authorization and Validity . . . . . . . . . . . . 26
Section 5.5 No Violation . . . . . . . . . . . . . . . . . . . 26
Section 5.6 No Business, Agreements, Assets or Liabilities . . 26
Section 5.7 Compliance with Laws . . . . . . . . . . . . . . . 26
ARTICLE VI Closing Date Representations and Warranties
Regarding . . . . . . . . . . . . . . . . . . . . 26
Section 6.1 Authorization and Validity. . . . . . . . . . . . . 26
Section 6.2 No Violation . . . . . . . . . . . . . . . . . . . 27
Section 6.3 No Business, Agreements, Assets or Liabilities . . 27
ARTICLE VII Covenants of the Company . . . . . . . . . . . . . 27
Section 7.1 Conduct of The Company . . . . . . . . . . . . . . 27
Section 7.2 Title to Assets; Indebtedness . . . . . . . . . . . 28
Section 7.3 Access . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.4 Acquisition Proposals . . . . . . . . . . . . . . . 29
Section 7.5 Compliance With Obligations . . . . . . . . . . . . 29
Section 7.6 Notice of Certain Events . . . . . . . . . . . . . 29
Section 7.7 Intentionally omitted . . . . . . . . . . . . . . . 30
Section 7.8 Stockholders' Consent . . . . . . . . . . . . . . . 30
Section 7.9 Obligations of Company and Stockholders . . . . . . 30
Section 7.10 Funding of Accrued Employee Benefits . . . . . . . 30
Section 7.11 Accounting and Tax Matters . . . . . . . . . . . . 30
Section 7.12 Spin-Off Transaction . . . . . . . . . . . . . . . 30
ARTICLE VIII Covenants of APP . . . . . . . . . . . . . . . . . 31
Section 8.1 Consummation of Agreement . . . . . . . . . . . . . 31
Section 8.2 Requirements to Effect the Merger and
Acquisitions . . . . . . . . . . . . . . . . . . . 31
</TABLE>
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<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 8.3 Access . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.4 Notification of Certain Matters . . . . . . . . . . 31
Section 8.5 Qualified Retirement Plans. . . . . . . . . . . . . 31
ARTICLE IX Covenants of APP, APP Sub and the Company . . . . . 32
Section 9.1 Filings; Other Action . . . . . . . . . . . . . . . 32
Section 9.2 Amendments of Disclosure Schedules . . . . . . . . 32
Section 9.3 Actions Contrary to Stated Intent . . . . . . . . . 33
Section 9.4 Public Announcements . . . . . . . . . . . . . . . 33
Section 9.5 Expenses . . . . . . . . . . . . . . . . . . . . . 33
Section 9.6 Patient Confidentiality . . . . . . . . . . . . . . 33
Section 9.7 Registration Statements. . . . . . . . . . . . . . 33
ARTICLE X Conditions Precedent of APP . . . . . . . . . . . . 33
Section 10.1 Representations and Warranties . . . . . . . . . . 33
Section 10.2 Covenants . . . . . . . . . . . . . . . . . . . . . 33
Section 10.3 Legal Opinion . . . . . . . . . . . . . . . . . . . 33
Section 10.4 Proceedings . . . . . . . . . . . . . . . . . . . . 33
Section 10.5 No Material Adverse Effect . . . . . . . . . . . . 34
Section 10.6 Government Approvals and Required Consents . . . . 34
Section 10.7 Securities Approvals . . . . . . . . . . . . . . . 34
Section 10.8 Closing Deliveries . . . . . . . . . . . . . . . . 34
Section 10.9 Closing of Initial Public Offering . . . . . . . . 34
Section 10.10 Closing of Related Acquisitions . . . . . . . . . . 34
Section 10.11 Dissenter's Rights . . . . . . . . . . . . . . . . 34
Section 10.12 Stockholder Representation Letter;
Indemnification Agreement . . . . . . . . . . . . . 34
Section 10.13 Transfer of Assets . . . . . . . . . . . . . . . . 34
ARTICLE XI Conditions Precedent of the Company . . . . . . . . 34
Section 11.1 Representations and Warranties . . . . . . . . . . 35
Section 11.2 Covenants . . . . . . . . . . . . . . . . . . . . . 35
Section 11.3 Legal Opinions . . . . . . . . . . . . . . . . . . 35
Section 11.4 Proceedings . . . . . . . . . . . . . . . . . . . . 35
Section 11.5 Government Approvals and Required Consents . . . . 35
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing . . . . . . . 35
Section 11.7 Closing of Initial Public Offering . . . . . . . . 35
Section 11.8 Closing Deliveries . . . . . . . . . . . . . . . . 35
Section 11.9 No Material Adverse Effect . . . . . . . . . . . . 35
Section 11.10 Service Agreement Analysis . . . . . . . . . . . . 35
Section 11.11 Tax Opinion . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XII Closing Deliveries . . . . . . . . . . . . . . . . 35
Section 12.1 Deliveries of the Company . . . . . . . . . . . . . 35
Section 12.2 Deliveries of APP. . . . . . . . . . . . . . . . . 37
ARTICLE XIII Post Closing Matters . . . . . . . . . . . . . . . 38
Section 13.1 Further Instruments of Transfer . . . . . . . . . . 38
Section 13.2 Merger Tax Covenant . . . . . . . . . . . . . . . . 38
Section 13.3 Current Public Information . . . . . . . . . . . . 38
ARTICLE XIV Remedies . . . . . . . . . . . . . . . . . . . . . 38
Section 14.1 Indemnification by the Company . . . . . . . . . . 38
Section 14.2 Indemnification by APP and APP Sub . . . . . . . . 39
Section 14.3 Conditions of Indemnification . . . . . . . . . . . 39
Section 14.4 Costs, Expenses and Legal Fees . . . . . . . . . . 41
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
Section 14.5 Tax Benefits; Insurance Proceeds . . . . . . . . . 42
ARTICLE XV Termination . . . . . . . . . . . . . . . . . . . . 42
Section 15.1 Termination . . . . . . . . . . . . . . . . . . . . 42
Section 15.2 Effect of Termination . . . . . . . . . . . . . . . 42
ARTICLE XVI Nondisclosure of Confidential Information . . . . . 42
Section 16.1 Non-Disclosure Covenant . . . . . . . . . . . . . . 42
Section 16.2 Damages . . . . . . . . . . . . . . . . . . . . . . 43
Section 16.3 Survival . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE XVII Miscellaneous . . . . . . . . . . . . . . . . . . . 43
Section 17.1 Amendment; Waivers . . . . . . . . . . . . . . . . 43
Section 17.2 Assignment . . . . . . . . . . . . . . . . . . . . 43
Section 17.3 Parties in Interest; No Third Party
Beneficiaries . . . . . . . . . . . . . . . . . . . 43
Section 17.4 Entire Agreement . . . . . . . . . . . . . . . . . 43
Section 17.5 Severability . . . . . . . . . . . . . . . . . . . 44
Section 17.6 Survival of Representations, Warranties
and Covenants . . . . . . . . . . . . . . . . . . . 44
Section 17.7 Governing Law . . . . . . . . . . . . . . . . . . . 44
Section 17.8 Captions . . . . . . . . . . . . . . . . . . . . . 44
Section 17.9 Gender and Number . . . . . . . . . . . . . . . . . 44
Section 17.10 Intentionally omitted. . . . . . . . . . . . . . . 44
Section 17.11 Confidentiality; Publicity and Disclosures . . . . 44
Section 17.12 Notice . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.13 No Waiver; Remedies . . . . . . . . . . . . . . . . 45
Section 17.14 Counterparts . . . . . . . . . . . . . . . . . . . 45
Section 17.15 Defined Terms . . . . . . . . . . . . . . . . . . . 45
EXHIBITS
Exhibit A - List of Target Companies . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Merger Consideration . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Stockholder Representation Letter . . . . . . . . . . . . . . . . C-1
Exhibit D - Indemnification Agreement . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E - Physician Employment Agreement . . . . . . . . . . . . . . . . . E-1
Exhibit F - Service Agreement . . . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit G - Stockholder Release . . . . . . . . . . . . . . . . . . . . . . . G-1
Exhibit 1.1 - List of Stockholders
Exhibit 2.6 - List of Directors
Exhibit 2.7 - List of Officers
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
</TABLE>
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<PAGE> 889
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP"), [AMERICAN PHYSICIAN PARTNERS
SUBSIDIARY, INC.], a California corporation and a wholly-owned subsidiary of
APP ("APP Sub"), and PACIFIC IMAGING CONSULTANTS, A MEDICAL GROUP, INC., a
California professional medical corporation (the "Company").
RECITALS
A. The Company owns and operates a professional medical practice
specializing in radiology. All of the shares of the common stock of the
Company (the "Company Common Stock") are owned beneficially and of record by
the Stockholders.
B. APP Sub is engaged in the business of owning, operating and
acquiring the assets of, and managing the non-medical aspects of, radiology
practices and diagnostic imaging centers.
C. Pursuant to this Agreement, APP, APP Sub, and the Company
intend that APP Sub be merged with and into the Company, and that the Company
be the sole surviving corporation (sometimes referred to hereinafter as the
"Surviving Corporation"), and APP Sub be the disappearing corporation
(sometimes referred to hereinafter as the "Disappearing Corporation").
D. APP, APP Sub and the Company have each determined to engage in
the transactions contemplated hereby, pursuant to which (i) APP Sub will merge
with and into the Company upon the terms and conditions set forth herein and in
accordance with the laws of the State of California, (ii) the outstanding
shares of the Company Common Stock shall be converted at such time into cash
and shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein, and (iii) the Company shall become a wholly-owned
subsidiary of APP.
E. Prior to the Merger, the Company intends to transfer certain
of its assets most of which relate solely to the practice of medicine to a
newly formed professional medical corporation ("NewCo") in exchange for all of
the capital stock of NewCo and to thereafter distribute such NewCo stock to the
Stockholders (the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement
with interest holders (together with the Stockholders, the "Target Interest
Holders") of each of the entities listed on Exhibit A (together with the
Company, the "Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder.
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AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, APP Sub, NewCo and each of their
Affiliates.
"APP Sub" shall have the meaning set forth in the preamble to this
Agreement.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed on Exhibit 1.1, director or executive officer of such
entity after reasonable investigation and inquiry by the executive officers of
such entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director
or executive officer of the Company actually possesses without the necessity of
any special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the
recitals to this Agreement.
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<PAGE> 891
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section
3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person,
including, but not limited to, information derived from reports, processes,
data, know-how, software programs, improvements, inventions, strategies,
compensation structures, reports, investigations, research, work in progress,
codes, marketing and sales programs and plans, financial projections, cost
summaries, formulae, contract analyses, financial information, forecasts,
confidential filings with any state or federal agency, and all other
confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section
3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the
terms hereof, as such may be amended or supplemented from time to time pursuant
to the provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement
is declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
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<PAGE> 892
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering
of APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section
14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or
other fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred
to, taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste,
(xi) any substance, pollutant, material, or contaminant listed or regulated
under any Medical Waste Law, and (xii) other biological waste and discarded
materials contaminated with or exposed to blood, excretion, or secretions from
human beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651 et seq.,
(v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
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<PAGE> 893
"Merger" shall have the meaning set forth in Section 2.1.
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock[, $_____ par value
per share,] of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.
"Physician Employee" shall mean each radiologist employed by the
Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Schedules" shall mean the schedules attached hereto as of the date
hereof or otherwise delivered by any party hereto pursuant to the terms hereof,
as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the
recitals to this Agreement.
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"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth
in Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in
which such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed
to be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time, APP Sub shall be merged with and into
the Company in accordance with this Agreement and the separate corporate
existence of the Disappearing Corporation shall thereupon cease (the "Merger").
The Company shall be the Surviving Corporation in the Merger and shall continue
to be governed by the laws of the State of California, and the separate
corporate existence of the Company with all its rights, privileges, powers,
immunities, purposes and franchises shall continue unaffected by the Merger,
except as set forth herein. The Surviving Corporation may, at any time
concurrent with and/or after the Effective Time, take any action in the name of
or on behalf of the Disappearing Corporation in order to effectuate the
transactions contemplated by this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take
place at 10:00 a.m., local time, at the offices of APP located at 2301
NationsBank Plaza, 901 Main Street, Dallas, Texas on the day on which the
transactions contemplated by the Initial Public Offering are consummated. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
Section 2.3 Effective Time. If all the conditions to the Merger
set forth in Articles XI and XII shall have been fulfilled or waived in
accordance herewith and this Agreement shall not have been terminated in
accordance with Article XVI, the parties hereto shall cause to be properly
executed and filed on the Closing Date, Certificates of Merger meeting the
requirements of Section 1103 of the California General Corporation Law. The
Merger shall become effective at the time of the filing of such documents with
the Secretary of State of the State of California, in accordance with such law
or at such later time which the parties hereto have theretofore agreed upon and
designated in such filings as the effective time of the Merger (the "Effective
Time").
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Section 2.4 Certificate of Incorporation of Surviving
Corporation. Effective at the Effective Time, the Article of Incorporation of
the Company in effect immediately prior to the Effective Time shall be amended
and restated in a manner satisfactory to APP. The Article of Incorporation,
as so amended and restated, shall be the Article of Incorporation of the
Surviving Corporation.
Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP
Sub in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation without any amendment or modification as a result of
the Merger, until duly amended in accordance with applicable laws.
Section 2.6 Directors of the Surviving Corporation. The persons
who are directors of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time. The directors of the Surviving Corporation following
the Effective Time shall be set forth in Exhibit 2.6.
Section 2.7 Officers of the Surviving Corporation. The persons
who are officers of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time. The officers of the Surviving Corporation following
the Effective Time shall be set forth in Exhibit 2.7.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on
the part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the
Company's treasury, if any, at the Effective Time, by virtue of the Merger,
shall be cancelled and retired without payment of any consideration therefor
and shall cease to exist.
(c) Each Company Right outstanding at the Effective Time
shall be terminated and cancelled, without payment of any consideration
therefor, and shall cease to exist.
(d) Each share of common stock of APP Sub issued and
outstanding at the Effective Time shall be converted to one share of Company
Common Stock.
(e) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged
and remain outstanding as a validly issued, fully paid and nonassessable share
of APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the
Company Common Stock.
(a) At or after the Effective Time and at the Closing (i)
the Stockholders, as holders of a certificate or certificates representing
shares of the Company's Common Stock, shall upon surrender of each certificate
or certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until
each certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
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<PAGE> 896
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at
the Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing
the certificates representing Company Common Stock owned by him, her or it,
duly endorsed in blank by the Stockholder, or accompanied by duly executed
stock powers in blank, and with all necessary transfer tax and other revenue
stamps, acquired at the Stockholder's expense, affixed and cancelled. Each
Stockholder agrees to cure any deficiencies with respect to the endorsement of
the certificates or other documents of conveyance with respect to such Company
Common Stock or with respect to the stock powers accompanying any Company
Common Stock. Upon such delivery (or completion of appropriate affidavit of
lost certificate and indemnity), each Stockholder shall receive in exchange
therefor the Merger Consideration pursuant to Exhibit B and Section 2.10
hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other
provision herein, no fractional shares of APP Common Stock will be issued and
any Stockholder otherwise entitled to receive a fractional share of APP Common
Stock as part of the Merger Consideration hereunder shall receive a cash
payment in lieu thereof reflecting such Stockholder's proportionate interest in
a share of APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP and APP Sub to enter into this Agreement and
to consummate the Merger and except as set forth in the Disclosure Schedules
attached hereto and incorporated herein by this reference, the Company
represents and warrants to APP and APP Sub both as of the date hereof and as of
the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, with all requisite corporate
power and authority to own, operate and lease its assets and properties and to
carry on its business as currently conducted. The Company and each Company
Subsidiary is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in
good standing would not have a Material Adverse Effect on the Company. Copies
of the articles or certificates of incorporation and all amendments thereto of
the Company and each Company Subsidiary and the bylaws of the Company and each
Company Subsidiary, as amended, and copies of the corporate minutes of the
Company, all of which have been or will be made available to APP for review,
are true and complete as in effect on the date of this Agreement and, in the
case of the corporate minutes, accurately reflect all material proceedings of
the Stockholders and directors of the Company (and all committees thereof).
The stock record books of the Company, which have been or will be made
available to APP for review, contain true, complete and accurate records of the
stock ownership of record of the Company and the transfer record of the shares
of its capital stock.
Section 3.2 Authorization and Validity. The Company has all
requisite corporate power to enter into this Agreement and all other agreements
entered into in connection with the transactions contemplated hereby and to
consummate the transactions contemplated hereby. The execution, delivery and,
subject to approval of this Agreement and the Merger by the Stockholders,
performance by the Company of this Agreement and the agreements contemplated
herein, and the consummation by the Company of the transactions contemplated
hereby and thereby are within the Company's respective corporate powers and
have been duly authorized by all necessary action on the part of the Company's
Board of Directors. Subject to the approval of this Agreement and the Merger
by the Stockholders, this Agreement has been duly executed by the Company, and
this Agreement and all other agreements and
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<PAGE> 897
obligations entered into and undertaken in connection with the transactions
contemplated hereby to which the Company is a party constitute, or upon
execution will constitute, valid and binding agreements of the Company,
enforceable against it in accordance with their respective terms, except as
enforceability may be limited by bankruptcy or other laws affecting the
enforcement of creditors' rights generally, or by general equity principles, or
by public policy.
Section 3.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger (as
contemplated by Section 2.3) and any other required documents related to the
Merger, and other than consents, filings or notifications required to be made
or obtained solely by APP or APP Sub (including, without limitation, in
connection with the Initial Public Offering, Form S-4 or any Hart-Scott-Rodino
filing to be made by APP, if any), the execution, delivery and performance by
the Company of this Agreement and the agreements provided for herein, and the
consummation of the transactions contemplated hereby and thereby by the Company
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority.
Section 3.4 Capitalization. The authorized capital stock of the
Company consists of [_____] shares of the Company Common Stock, of which 11,000
shares are issued and outstanding. The Stockholders collectively are and will
be immediately prior to the Effective Time the record and beneficial owners of
all the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common
Stock are owned by the Company in treasury. No shares of Company Common Stock
have been issued or disposed of in violation of any preemptive rights, rights
of first refusal or similar rights of any of the Stockholders. Other than
Company Common Stock, the Company has no securities, bonds, debentures, notes
or other obligations the holders of which have the right to vote (or are
convertible into or exercisable for securities having the right to vote) with
the Stockholders on any matter.
Section 3.5 Transactions in Capital Stock. There exist no
Company Rights. The Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Company nor the relative
ownership of shares among any of its Stockholders has been altered or changed
in contemplation of the Merger within the two (2) years preceding the date of
this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not
been any sale, distribution or spin-off of significant assets of the Company or
any of its Affiliates other than in the ordinary course of business within the
(2) two years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not
own, directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required
Consents. Subject to approval of this Agreement and the Merger by the
Stockholders of the Company, the execution, delivery and performance by the
Company of this Agreement and any other documents contemplated hereby (with or
without the giving of notice, the lapse of time, or both): (i) do not require
the consent of any governmental or regulatory body or authority or any other
third party except for such consents, for which the failure to obtain would not
result in a Material Adverse Effect on the Company; (ii) will not conflict with
or result in a violation of any provision of the Company's articles or
certificate of incorporation or bylaws, (iii) will not conflict with, result in
a violation of, or constitute a default under any law, rule, ordinance,
regulation or any ruling, decree, determination, award, judgment, order or
injunction of any court or governmental instrumentality which is applicable to
the Company or by which the Company or its properties are subject or bound;
(iv) will not conflict with, constitute grounds for termination of, result
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in a breach of, constitute a default under, require any notice under, or
accelerate or modify, or permit any person to accelerate or modify, any
performance required by the terms of any agreement, instrument, license or
permit, to which the Company is a party or by which the Company or any of its
properties are subject or bound except for such conflict, termination, breach
or default, the occurrence of which would not result in a Material Adverse
Effect on the Company; and (v) except as contemplated by this Agreement, will
not create any Encumbrance or restriction upon the Company Common Stock or any
of the assets or properties of the Company.
Section 3.9 Intentionally omitted.
Section 3.10 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, the Company has conducted
its business only in the ordinary course and has not:
(a) suffered any change or changes in its working
capital, condition (financial or otherwise), assets, liabilities, reserves,
business or operations (whether or not covered by insurance) that individually
or in the aggregate has had or could reasonably be expected to have a Material
Adverse Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business;
(c) written off as uncollectible any receivable, except
for write-offs in the ordinary course of business;
(d) except in the ordinary course of business and
consistent with past practice, cancelled or compromised any debts or waived or
permitted to lapse any claims or rights or sold, transferred or otherwise
disposed of any of its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment
policies;
(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject,
any of its assets, tangible or intangible, to any claim or Encumbrance, except
for liens for current personal property taxes not yet due and payable,
mechanics, landlords, materialmen, and other statutory liens, purchase money
security interests, sale-leaseback interests granted and all other Encumbrances
granted in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee
benefits for any employee of the Company, except in the ordinary course of
business and consistent with past practice;
(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends
or other distributions to any Stockholder or any other holder of capital stock
of the Company (except as expressly contemplated herein); or
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(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its
knowledge, the Company does not have any liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected or reserved against
in the Company's Current Balance Sheet.
Section 3.12 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of the
Company, threatened against, or affecting the Company, any Company Subsidiary,
any Stockholder, the Physician Employees or any other licensed professional or
other individual affiliated with the Company affecting or that would reasonably
be likely to affect the Company Common Stock or the operations, business
condition, (financial or otherwise), or results of operations of the Company
which (i) if successful, may, individually or in the aggregate, have a Material
Adverse Effect on the Company or (ii) could adversely affect the ability of the
Company or any Company Subsidiary to effect the transactions contemplated
hereby, and to the knowledge of the Company there is no basis for any such
action or any state of facts or occurrence of any event which would reasonably
be likely to give rise to the foregoing. There are no unsatisfied judgments
against the Company or any Company Subsidiary or any licensed professional or
other individual affiliated with the Company or any Company Subsidiary relating
to services provided on behalf of the Company or any Company Subsidiary or any
consent decrees to which any of the foregoing is subject. Each of the matters,
if any, set forth in this Section 3.12 is fully covered by policies of
insurance of the Company or any Company Subsidiary as in effect on the date
hereof.
Section 3.13 No Violation of Law. Neither the Company nor any
Company Subsidiary has been, nor shall be as of the Effective Time (by virtue
of any action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever), in violation of any applicable local,
state or federal law, ordinance, regulation, order, injunction or decree, or
any other requirement of any governmental body, agency, authority or court
binding on it, or relating to its properties, assets or business or its
advertising, sales or pricing practices, except for violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a
true, accurate and complete list of all the lease agreements and license
agreements to which the Company or any Company Subsidiary is a party and
pursuant to which the Company or any Company Subsidiary leases (whether as
lessor or lessee) or licenses (whether as licensor or licensee) any real or
personal property related to the operation of its business and which requires
payments in excess of $12,000 per year (the "Lease Agreements"). The Company
has delivered to APP true and complete copies of all of the Lease Agreements.
Each Lease Agreement is valid, effective and in full force in accordance with
its terms, and there is not under any such lease (i) any existing or claimed
material default by the Company or any Company Subsidiary (as applicable) or
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by the Company or any Company Subsidiary
(as applicable) and, individually or in the aggregate, may reasonably result in
a Material Adverse Effect on the Company, or, (ii) to the knowledge of the
Company, any existing material default by any other party under any of the
Lease Agreements or any event of material default or event which with notice or
lapse of time, or both, would constitute a material default by any such party.
To the knowledge of the Company, there is no pending or threatened reassessment
of any property covered by the Lease Agreements. The Company or any Company
Subsidiary will use reasonable good faith efforts to obtain, prior to the
Effective Time, the consent of each landlord or lessor whose consent is
required to the assignment of the Lease Agreements and will use reasonable good
faith efforts to deliver to APP or APP Sub in writing such consents as are
necessary to effect a valid and binding transfer or assignment of the Company's
or any Company Subsidiary's rights thereunder. The Company has a good, clear,
valid and enforceable leasehold interest under each of the Lease Agreements.
The Lease Agreements comply with the exceptions to ownership interests and
compensation arrangements set out in 42 U.S.C. Section 1395nn, 42 C.F.R.
Section 1001.952, and any similar applicable state law safe harbor or other
exemption provisions.
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Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns
any interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein which it purports to own
including, without limitation, all the property and assets reflected in the
Company Current Financial Statements; and (ii) owns such rights, interests,
assets and property free and clear of all Encumbrances, title defects or
objections (except for taxes not yet due and payable). The personal property
presently used in connection with the operation of the business of the Company
and the Company Subsidiaries constitutes the necessary personal property assets
to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, the Company does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in
any manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies,
of each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate
(other than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000
in any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is
with unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP or APP Sub of the
assets and properties to be acquired by APP or APP Sub from the Company, or
which could inhibit or prevent the Company from transferring to or vesting in
APP or APP Sub good and sufficient title to the assets and properties to be
acquired by APP or APP Sub and the Surviving Corporation except where the
failure to transfer would not have a Material Adverse Effect on APP or APP Sub.
In every instance where consent is necessary, the Company shall, on or before
the Closing Date, use reasonable good faith efforts to obtain and deliver to
APP or APP Sub in writing, effective as of the Closing Date, such consents as
are necessary to enable the Surviving Corporation to enjoy all of the rights
now enjoyed by the Company under such contracts. Any and all such consents
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<PAGE> 901
shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to
APP or APP Sub any contracts or agreements relating to the provision of
professional medical services or other such agreements and contracts that APP
consents to in writing to be transferred to NewCo in the Spin-off Transaction.
No contract with a health care provider or Payor has been materially amended or
terminated within the last twelve (12) months.
(b) The Company (i) has not received notice of any plan
or intention of any other party to exercise any right to cancel or terminate
any contract, agreement or instrument required to be disclosed pursuant to
Section 3.17(a), and to the knowledge of the Company there are no fact(s) that
would justify the exercise of such a right; and (ii) does not currently
contemplate, or have reason to believe any other Person currently contemplates,
any amendment or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a
party to any employment contract (except for oral employment agreements which
are terminable at will), consulting or collective bargaining contracts,
deferred compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit
sharing, bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected
to receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
Upon termination of employment of any employee or Physician Employee, no
severance or other payments will become due and the Company has no policy, past
practice or plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair
labor practice, charge or complaint or any other employment- related matter
against or involving the Company pending or threatened before the National
Labor Relations Board or any federal, state or local agency, authority or
court;
(c) To the knowledge of the Company, there are no
charges, investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or
court against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
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<PAGE> 902
(d) The Company is in material compliance with the
Immigration Reform and Control Act of 1986, as amended, and all applicable
regulations promulgated thereunder; and
(e) To the knowledge of the Company, there are no
inquiries, investigations or monitoring activities of any licensed, registered,
or certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided to APP copies of all plan documents (as they may have been
amended to the date hereof), determination letters, pending determination
letter applications, trust instruments, insurance contracts or policies related
to an Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee
Benefit Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any
notice that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach
of any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or
other liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the
Company's knowledge, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or
501(c)(9) of the Code and/or tax-exempt within the meaning of Section 501(a) of
the Code and, to the best knowledge of the Company and each Stockholder, has
been continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation
of any such favorable determination letter or ruling.
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(g) Funding Status. No accumulated funding deficiency
(within the meaning of Section 412 of the Code), whether waived or unwaived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Code) in which the Company is a member (a "Controlled Group"). With respect to
each Employee Benefit Plan subject to Title IV of ERISA, the assets of each
such plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. With respect to each
Employee Benefit Plan described in Section 501(c)(9) of the Code, the assets of
each such plan are at least equal in value to the present value of accrued
benefits, based upon the most recent actuarial valuation as of a date no more
than ninety (90) days prior to the date hereof. The Disclosure Schedules
contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of
a Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any
member of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section
412 of the Code.
(j) PBGC. No facts or circumstances are known to the
Company that would result in the imposition of liability against APP, APP Sub
or any of its Affiliates by the Pension Benefit Guaranty Corporation ("PBGC")
as a result of any act or omission by the Company or any member of a Controlled
Group. No reportable event (within the meaning of Section 4043 of ERISA) for
which the notice requirement has not been waived has occurred with respect to
any Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or
commitment to provide medical, dental or life insurance benefits to or on
behalf of any of its employees who may retire or any of its former employees
who have retired except as may be required pursuant to the continuation of
coverage provisions of Section 4980B of the Code and the applicable provisions
of ERISA.
(l) Other Compensation Arrangements. Neither the Company
nor, to the Company's knowledge, any Stockholder or Physician Employee is a
party to any compensation or debt arrangement with any Person relating to the
provision of health care related services other than arrangements with the
Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has,
within the five (5) years preceding the date hereof, through the Effective
Time, received from any federal, state or local governmental body, agency,
authority or entity, or any other Person, any written notice, demand, citation,
summons, complaint or order or any notice of any penalty, lien or assessment,
and to the knowledge of the Company no investigation or review is pending by
any governmental entity, with respect to any (i) alleged violation by the
Company of any Environmental Law (as defined in subsection (e) below) (ii)
alleged failure by the Company to have any environmental permit, certificate,
license, approval, registration or authorization required pursuant to any
Environmental Law in connection with the conduct of its business; or (iii)
alleged illegal Regulated Activity (as defined in subsection (e) below) by the
Company.
(b) Neither the Company nor any Company Subsidiary has
used, transported, disposed of or arranged for the disposal of (as those terms
are defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein)
that would be reasonably likely to give rise to any Environmental Liabilities
(as defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would
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<PAGE> 904
reasonably be likely to have, a Material Adverse Effect on the Company.
Neither the Company nor any Company Subsidiary has engaged in any activity or
failed to undertake any activity which action or failure to act has given, or
would reasonably be likely to give, rise to any Environmental Liabilities or
enforcement action by any federal, state or local regulatory agency or
authority, or has resulted, or would reasonably be likely to result, in any
fine or penalty imposed pursuant to any Environmental Law. The Disclosure
Schedules disclose any known presence of asbestos in or on the Company's or any
Company Subsidiary's owned or leased premises. To the knowledge of the
Company, there is no friable asbestos in or on the Company's or any Company
Subsidiary's owned or leased premises.
(c) To the knowledge of the Company, no soil or water in
or under any assets currently or formerly held for use or sale by the Company
or any Company Subsidiary is or has been contaminated by any Hazardous
Substance while such assets or premises were owned, leased, operated or
managed, directly or indirectly by the Company or any Company Subsidiary, where
such contamination had, or would be reasonably likely to have, a Material
Adverse Effect on the Company.
(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of the
Company, concerning the Company or any Company Subsidiary within the five (5)
years preceding the date hereof through the Effective Time with respect to any
real property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following
terms have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended
to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect
to, or list or define air, water, groundwater, solid waste, hazardous,
toxic, or radioactive substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public in each case as in
effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
Section 3.22 Filing Reports. All returns, reports, plans and
filings of any kind or nature necessary to be filed by the Company with any
governmental agency or authority have been properly completed and timely filed
in compliance with all applicable requirements, except where failure to so file
would not have a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list
and briefly describe the Company's policies of insurance to which the Company
or any Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and
enforceable policies, except as may be limited by applicable bankruptcy,
insolvency or
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<PAGE> 905
similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by the
Company or any Company Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations
of the Company and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as the
Company and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which the Company or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies of all Insurance Policies have been provided to APP. Neither
the Company nor any Company Subsidiary nor any officer or director thereof has
received any notice or other written communication from any issuer of any
Current Policy cancelling such policy, materially increasing any deductibles or
retained amounts thereunder, or materially increasing the annual or other
premiums payable thereunder and, to the knowledge of the Company, no such
cancellation or increase of deductibles, retainages or premiums is threatened.
There are no outstanding claims, settlements or premiums owed against any
Insurance Policy, and all required notices have been given and all known
potential or actual claims under any Insurance Policy have been presented in
due and timely fashion. Within the five (5) years preceding the Agreement,
neither the Company nor any Company Subsidiary has filed a written application
for any professional liability insurance coverage which has been denied by an
insurance agency or carrier. The Disclosure Schedules also set forth a list of
all claims under any Insurance Policy in excess of $10,000 per occurrence filed
by the Company or any Company Subsidiary during the immediately preceding
three-year period. Each Physician Employee has, at all times while a Physician
Employee, maintained or been covered by professional malpractice insurance in
such types and amounts as are customary for such a physician practicing the
same type of medicine in the same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging
of all accounts receivable of the Company as of March 31, 1997, which list is
complete, true and accurate in all material respects. All such accounts
receivable arose in the ordinary course of business and have not been
previously written off as bad debts and, are, to the extent still uncollected,
to the knowledge of the Company collectible in the ordinary course of business,
net of reserves for doubtful and uncollectible accounts shown in the Company
Financial Statements or on the accounting records of the Company (which
reserves are calculated consistent with generally accepted accounting
principles and past practice).
(b) The Disclosure Schedules set forth (i) a true,
correct and complete list of the names and addresses of each Payor of the
Company as of such date, which accounted for more than 5% of the revenues of
the Company in the fiscal year ended December 31, 1996, or which is reasonably
expected to account for more than 5% of the revenues of the Company for the
fiscal year to end December 31, 1997, and (ii) a single line item listing for
all private-pay patients in the aggregate of the Company. The Company has
satisfactory relations with such Payors set forth in (i) above and none of such
Payors has notified the Company that it intends to discontinue its relationship
with the Company or to deny any payments due from, or any claims for payment
submitted to any such party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and
complete (i) list of the accounts payable of the Company as of March 31, 1997,
and (ii) list of each individual indebtedness owed by the Company of $5,000 or
more, setting forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct
and complete list of the names and addresses of each of the providers/suppliers
of products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
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Section 3.26 Inventory. All items of inventory on the Company
Current Balance Sheet contained in the Company Financial Statements consisted,
and all such items on hand on the date of this Agreement consist, and all such
items on hand at the Effective Time will consist, net of all applicable
reserves with respect thereto (calculated consistent with past practice), of
items of a quality and a quantity usable and saleable in the ordinary course of
the Company's business and conform to generally accepted standards in the
industry of which the Company is a part. The value of the inventories
reflected on the Company Current Balance Sheet contained in the Company
Financial Statements are net of adequate reserves for damaged, excess, and
unusable items. Purchase commitments of the Company for inventory are not
materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or practice his or her specialty and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which the Company is eligible and which are listed in the Disclosure Schedules
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any
private insurance program) under which the Company is presently receiving
payments directly or indirectly from any Payor for patient care provided by
such Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to
APP. No violation, default, order or deficiency exists with respect to any of
the items listed in the Disclosure Schedules except for such violations,
defaults, orders or deficiencies which would not be reasonably likely to have a
Material Adverse Effect on the Company, and there is no action pending or to
the Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program,
and no event has occurred which, with or without notice or lapse of time, or
both, would constitute grounds for a violation, order or deficiency with
respect to any of the items listed in the Disclosure Schedules to revoke,
withdraw or suspend any material license to operate its business as is
presently being conducted by it. To the knowledge of the Company, there has
been no decision not to renew any existing agreement with any provider or Payor
relating to the Company's business as presently being conducted by it. Neither
the Company nor any Physician Employee (i) has had his/her/its professional
license, Drug Enforcement Agency number, Medicare/Medicaid provider status or
staff privileges at any hospital or diagnostic imaging center suspended,
relinquished, terminated or revoked (including orders that have been entered by
any such entities but stayed), (ii) has been reprimanded in writing, sentenced,
or disciplined by any licensing board, state agency, regulatory body or
authority, hospital, Payor or specialty board (including orders that have been
entered by any such entities but stayed), or (iii) is the subject of an initial
or final determination by any federal or state authority that could result in
any demand or reimbursement under the Medicare, Medicaid or Government Programs
or any exclusion or which monetary penalty under federal or state law or (iv)
has had a final judgment or settlement entered against him/her/it in connection
with a malpractice or similar action.
(b) The Company is not required, or for the 72-month
period prior to the Effective Time was not required, to file any cost reports
or other reports with any Governmental Program or Private Program.
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Section 3.28 Inspections and Investigations. Neither the right of
the Company, or any Physician Employee, nor the right of any licensed
professional or other individual affiliated with the Company to receive
reimbursements pursuant to any Governmental Program or Private Program has been
terminated or otherwise materially and adversely affected as a result of any
investigation or action whether by any federal or state governmental regulatory
authority or other third party. No Physician Employee, licensed professional
or other individual affiliated with the business has, during the past three (3)
years prior to the Effective Time, had their professional license or staff
privileges limited, suspended or revoked by any governmental regulatory
authority or agency, hospital, integrated delivery system, trade association,
professional review organization, accrediting organization or certifying agency
(including orders that have been entered by any such entities but stayed).
True, correct and complete copies of all reports, correspondence, notices and
other documents relating to any matter described or referenced in this Section
3.28 have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete
and accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v)
other similar agreements relating to the foregoing to which the Company or any
Company Subsidiary is a party (including expiration date if applicable)
(collectively, the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and
accurate list and summary description of all agreements relating to technology,
trade secrets, know-how or processes that the Company is licensed or authorized
to use by others (other than technology, know-how or processes generally
available to other health care providers) or which it licenses or authorizes
others to use, true, correct and complete copies of which have been provided to
APP. There are no outstanding and, to the Company's knowledge, any threatened
disputes or disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and
the Proprietary Rights are freely transferable. To the knowledge of the
Company, no claim has been asserted by any person to the ownership of or for
infringement by the Company of any Proprietary Right of any other Person, and
neither the Company nor any Stockholder is aware of any valid basis for any
such claim. To the best knowledge of the Company, no proceedings have been
threatened which challenge the Proprietary Rights of the Company. The Company
has the right to use, free and clear of any adverse claims or rights of others,
all trade secrets, customer lists and proprietary information required for the
performance and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and
timely filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All
such Tax Returns or reports are complete and accurate in all material respects
and properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the
Company may be disputing in good faith by proceedings in compliance with
applicable law, which are described in the Disclosure
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Schedules, (i) the Company has paid all taxes, penalties, assessments and
interest that have become due with respect to any Tax Returns that it has filed
and has properly accrued on its books and records in accordance with generally
accepted accounting principles for all of the same that have not yet become due
and payable and (ii) the Company is not delinquent in the payment of any tax,
assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to
be asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated
any applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has
not granted an extension to any taxing authority of the statute of limitation
period during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for
all income, social security, unemployment insurance, sales, excise, use, and
other taxes have been collected or withheld and paid to the respective
governmental agencies.
(f) Foreign Person. Neither the Company nor any
Stockholder is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets
of the Company constitutes property that the Company, APP, APP Sub or any
Affiliate of APP, will be required to treat as being owned by another person
pursuant to the "Safe Harbor Lease" provisions of Section 168(f)(8) of the Code
prior to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties
of the Company are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any
time consented to have the provisions of Section 341(f)(2) of the Code apply to
it.
(j) Boycotts. The Company has not at any time
participated in or cooperated with any international boycott as defined in
Section 999 of the Code.
(k) Parachute Payments. No payment required or
contemplated to be made by the Company will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election
to be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or
has not been a personal holding company within the meaning of Section 542 of
the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's
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business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to the Company's
business. There is no commitment to, and no income reflected in the Company
Financial Statements that has been derived from, an Affiliate, and following
the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.) and
the Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the
Company nor any Company Subsidiary has engaged and, to the knowledge of the
Company, neither the Company's officers and directors nor the Physician
Employees or other Persons and entities providing professional services for or
on behalf of the Company have engaged, in any activities which are prohibited
under 42 U.S.C. Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject
to the exceptions or safe harbor provisions set forth in such legislation), or
the regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Sections 24, 287, 371, 664, 669, 1001, 1027,
1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no
material agreement, judgment, injunction, order or decree binding upon the
Company, any Company Subsidiary or officer, director or key employee of the
Company or Company Subsidiary, which has or reasonably could be expected to
have the effect of prohibiting or materially impairing the current medical
practice of the Company or any Company Subsidiary or the continuation of that
medical practice in the future by NewCo, any acquisition of property by the
Company, any Company Subsidiary or the conduct of business by the Company or
any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are
valid and binding, and are in full force and effect and are enforceable in
accordance with their terms, except to the extent that the validity or
enforceability thereof may be limited by bankruptcy or other laws affecting the
enforcement of creditors' rights generally, or by general equity principles, or
by public policy. There is no pending or, to the knowledge of the Company,
threatened bankruptcy, insolvency or similar proceeding with respect to any
other party to such agreements, and no event has occurred which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder by the Company or any other party
thereto. No contract with a Physician Employee has been terminated in the last
twelve (12) months.
Section 3.36 Statements True and Correct. No representation or
warranty made herein by the Company or any Stockholder, nor any statement,
certificate, information, exhibit or instrument to be furnished by the Company
or any Stockholder to APP, APP Sub or any of their respective representatives
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules
required by Article III hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
any of the Stockholders or the Company who is entitled to any fee or commission
upon consummation of the transactions contemplated by this Agreement or
referred to herein.
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ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
Section 4.1 Organization and Good Standing; Qualification. APP
is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. APP is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where such failure to be so
qualified or in good standing would not have a Material Adverse Effect on APP.
Copies of the certificate of incorporation and all amendments thereto of APP
and the bylaws of APP, as amended, and copies of the corporate minutes of APP
regarding the Merger and the transactions contemplated hereby, all of which
have been or will be made available to the Company for review, are true,
correct and complete as in effect on the date of this Agreement and accurately
reflect all material proceedings of the stockholders and directors of APP (and
all committees thereof) regarding the Merger and the transactions contemplated
hereby. The stock record books of APP, which have been or will be made
available to the Company for review, contain true, complete and accurate
records of the stock ownership of APP and the transfer of the shares of its
capital stock.
Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and the Other Agreements
and to consummate the Merger and the transactions contemplated hereby. The
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, including the Other Agreements and the consummation by APP
of the transactions contemplated hereby and thereby are within APP's corporate
powers and have been duly authorized by all necessary action on the part of
APP's Board of Directors. This Agreement has and the Other Agreements have
been duly executed by APP. This Agreement and all other agreements and
obligations entered into and undertaken in connection with the Merger and the
transactions contemplated hereby to which APP is a party constitute, or upon
execution will constitute, valid and binding agreements of APP, enforceable
against it in accordance with their respective terms, except as may be limited
by bankruptcy or other laws affecting creditors' rights generally, or by
general equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger and any
other required documents related to the Merger, and other than consents,
filings or notifications required to be made or obtained solely by the Company,
the execution, delivery and performance by APP of this Agreement and the
agreements provided for herein, and the consummation of the Merger and the
transactions contemplated hereby and thereby by APP requires no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares
are issued and outstanding and 10,000,000 shares of APP Preferred Stock, none
of which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights
of first refusal or similar rights of any stockholders of APP. APP has no
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or are convertible into or exercisable for securities having the
right to vote) with the stockholders of APP on any matter. There exist no
options, warrants,
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subscriptions, calls, commitments or other rights to purchase, or securities
convertible into or exchangeable for, any of the authorized or outstanding
securities of APP and no option, warrant, subscription, call, or commitment or
commission right of any kind exists which obligates APP to issue any of its
authorized but unissued capital stock. APP has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance of this Agreement by APP and
any other documents contemplated hereby (with or without the giving of notice,
the lapse of time, or both): (i) does not require the consent of any
governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on APP; (ii) will not conflict with any provision of
APP's certificate of incorporation or bylaws; (iii) will not conflict with,
result in a violation of, or constitute a default under any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or governmental
instrumentality to which APP is a party or by which APP or its properties are
subject or bound; (iv) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, require any
notice under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit, material
to this transaction, to which APP is a party or by which APP or any of its
properties are bound except for such conflict, termination, breach or default,
the occurrence of which would not result in a Material Adverse Effect on APP;
and (v) will not create any Encumbrance or restriction upon APP Common Stock or
any of the assets or properties of APP. The financial statements of APP
contained in the Registration Statements (a) have been prepared in accordance
with generally accepted accounting principles consistently applied (except as
may be indicated therein or in the notes thereto), (b) present fairly the
financial position of APP and APP Subsidiaries as of the dates indicated and
present fairly the results of APP's and APP Subsidiaries' operations for the
periods then ended, and (c) are in accordance with the books and records of APP
and APP Subsidiaries, which have been properly maintained and are complete and
correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, there has not been (i)
any change in the working capital, condition (financial or otherwise), assets,
liabilities, reserves, business or operations of APP that has had or is
reasonably likely to have a Material Adverse Effect on APP; or (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in
the Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.
Section 4.9 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of APP,
threatened against, or affecting APP. There are no unsatisfied judgments
against APP or any consent decrees to which APP is subject. Each of the
matters, if any, set forth in the Disclosure Schedules are fully covered by
policies of insurance of APP as in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be
as of the Effective Time (by virtue of any action, omission to act, contract to
which it is a party or any occurrence or state of facts whatsoever), in
violation of any applicable local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any governmental body,
agency or authority or court binding on it, or relating to its property or
business or its advertising, sales or pricing practices, except
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for violations which are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form
S-4, APP does not have any material arrangements, agreements or plans with any
person with respect to the employment by APP of such person or whereby such
person is to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any
Tax Returns that it has filed and has properly accrued on its books and records
for all of the same that have not yet become due and (ii) APP is not delinquent
in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. APP has not received any notice that any tax deficiency or
delinquency has been asserted against APP. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of APP that could be asserted by any taxing authority. There is
no taxing authority audit of APP pending, or to the knowledge of APP,
threatened, and the results of any completed audits are properly reflected in
the financial statements of APP. APP has not violated any federal, state,
local or foreign tax law.
(d) No Extension of Limitation Period. APP has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Code.
(j) Parachute Payments. No payment required or
contemplated to be made by APP will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
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(k) S Corporation. APP has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. The Disclosure Schedules
or Form S-4 sets forth a description of any interest held, directly or
indirectly, by any officer, director or other Affiliate of APP in any property,
real or personal or mixed, tangible or intangible, used in or pertaining to
APP's business and any arrangement or agreement with any such person concerning
the provision of goods or services or other matters pertaining to APP's
business.
Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to the Company or a Stockholder
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
Section 4.15 Schedules. All Schedules required by Article IV
hereof and attached hereto are true, correct and complete in all material
respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
APP who is entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true
and correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo
is a professional corporation duly organized, validly existing and in good
standing under the laws of its state of organization, with all requisite
corporate power and authority to carry on the business in which it intends to
engage, to own the properties it intends to own, and to execute and deliver the
Service Agreement, the Security Agreement and the Physician Employment
Agreements and consummate the transactions and perform the services
contemplated thereby. NewCo is duly qualified and licensed to do business and
is in good standing in all jurisdictions where the nature of its intended
business makes such qualification necessary, which jurisdictions are listed in
the Disclosure Schedules, except where the failure to be so qualified shall not
have a Material Adverse Effect on NewCo.
Section 5.2 Capitalization. The authorized capital stock of
NewCo consists of [_____] shares of NewCo Common Stock, of which [______]
shares are issued and outstanding, and no shares of capital stock of NewCo are
held in treasury. The Stockholders own all of the issued and outstanding
shares of NewCo Common Stock, free and clear of any Encumbrance. Each
outstanding share of NewCo Common
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Stock has been legally and validly issued and is fully paid and nonassessable.
There exist no options, warrants, subscriptions or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of NewCo. No shares of capital stock of NewCo have been
issued or disposed of in violation of the preemptive rights, rights of first
refusal or similar rights of any of NewCo's stockholders.
Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and
complete copies thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery
and performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict
with any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities.
NewCo has not commenced business since its incorporation. Other than its
articles or certificate of incorporation and bylaws, and as of the Closing
Date, the Service Agreement, the Security Agreement, the Physician Employment
Agreements, and the other contracts and agreements assigned to NewCo as part of
the Spin-Off Transaction, NewCo is not a party to or subject to any agreement,
indenture or other instrument. NewCo does not own any assets (tangible or
intangible) other than the consideration received upon the issuance of shares
of its capital stock or pursuant to the Spin-Off Transaction, and NewCo does
not have any liabilities, accrued, contingent or otherwise (known or unknown
and asserted or unasserted) other than those assumed pursuant to the Spin-Off
Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure
to so comply or file would not, individually or in the aggregate, have a
Material Adverse Effect on NewCo.
ARTICLE VI
Closing Date Representations and Warranties Regarding APP Sub
APP and APP Sub, jointly and severally, represent and warrant that the
following will be true and correct on the Closing Date as if made on that date:
Section 6.1 Authorization and Validity. The execution, delivery
and performance by APP Sub of this Agreement and the consummation of the
transactions contemplated thereby, have been duly authorized by APP Sub. This
Agreement will be as of the Closing Date duly executed and delivered by APP Sub
and will constitute the legal, valid and binding obligation of APP Sub
enforceable against APP
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Sub in accordance with its respective terms, except as may be limited by
bankruptcy or other laws affecting creditors' rights generally, or by equity
principles, or by public policy.
Section 6.2 No Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby will conflict with, or result in a violation or breach of
the terms, conditions or provisions of, or constitute a default under, the
certificate of incorporation or bylaws of APP Sub.
Section 6.3 No Business, Agreements, Assets or Liabilities. APP
Sub has not commenced business since its incorporation. APP Sub does not own
any assets (tangible or intangible) other than the consideration received upon
the issuance of shares of its capital stock and APP Sub does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted) other than those assumed pursuant to this Agreement.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant
to the Spin-Off Transaction, from the date hereof until the Effective Time, the
Company shall, in all material respects, conduct its business in the ordinary
and usual course consistent with past practices and shall use reasonable
efforts to:
(a) preserve intact its business and its relationships
with Payors, referral sources, customers, suppliers, patients, employees and
others having business relations with it;
(b) maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the
conduct of the business of the Company;
(c) continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof. In addition, without the written consent of APP, the Company shall
not:
(1) amend its articles or certificate of
incorporation or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or
sale, shares of any class of its securities (including, but
not limited to, by way of stock split, dividend,
recapitalization or other reclassification) or any
subscriptions, options, warrants, rights or convertible
securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such securities;
(3) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such
shares;
(4) declare or pay any dividend or other
distribution (whether in cash, stock or other property) with
respect to its capital stock (except as expressly contemplated
herein);
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(5) voluntarily sell, transfer, surrender,
abandon or dispose of any of its assets or property rights
(tangible or intangible) other than the sale of inventory, if
any, in the ordinary course of business consistent with past
practices;
(6) grant or make any mortgage or pledge or
subject itself or any of its properties or assets to any lien,
charge or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital
expenditures which are not reasonably necessary for the
conduct of its business;
(9) grant any increase in the compensation
payable or to become payable to directors, officers,
consultants or employees other than merit increases to
employees of the Company who are not directors or officers of
the Company, except in the ordinary course of business and
consistent with past practices;
(10) change in any manner any accounting
principles or methods other than changes which are consistent
with generally accepted accounting principles;
(11) enter into any material commitment or
transaction other than in the ordinary course of business;
(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;
(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;
(14) agree, whether in writing or otherwise, to
do any of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective
Time, the Company shall (i) except for sales of assets held as inventory, if
any, in the ordinary course of business prior to the Effective Time and except
as otherwise specifically described in the Disclosure Schedules to this
Agreement, have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or indirect
indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations
in the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.
Section 7.3 Access. At all times prior to the Effective Time,
APP's employees, attorneys, accountants, agents and other authorized and
designated representatives will be allowed full access upon reasonable prior
notice and during regular business hours (and at such other times as the
parties may reasonably agree) to the properties, books and records of the
Company, including, without limitation,
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deeds, title documents, leases, patient lists, insurance policies, minute
books, share certificate books, share registers, accounts, tax returns,
financial statements and all other data that, in the reasonable opinion of APP,
are required for APP to make such investigation as it may desire of the
properties and business of the Company. APP shall also be allowed full access
upon reasonable prior notice and during regular business hours (and at such
other times as the parties may reasonably agree) to consult with the officers,
employees (after announcement by the Company of the Merger to its employees
which shall occur no later than three (3) days subsequent to execution hereof
by the Company), accountants, counsel and agents of the Company in connection
with such investigation of the properties and business of the Company. No
investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall
be conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and
shall cause each of its directors, officers, employees or agents not to
directly or indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire
all or a substantial portion of the business, properties or capital stock of
the Company, whether by merger, consolidation, share exchange, business
combination, purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of the Company, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of the Company. If the Company receives any
offer or proposal after the date hereof, written or otherwise, of the type
referred to above, the Company shall promptly inform APP of such offer or
proposal, decline such offer and furnish APP with a copy thereof if such offer
or proposal is in writing.
Section 7.5 Compliance With Obligations. Prior to the Effective
Time, the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all
material agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly
notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to
terminate employment received from, any salaried or non-hourly, skilled
employee of the Company;
(d) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting the Company which, if pending on the date of this
Agreement, would have been required to have been disclosed to APP hereunder or
which relate to the consummation of the transactions contemplated by this
Agreement;
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(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a
material deterioration in the relationship with any Payor or supplier or key
employee of the Company and, if requested by APP, will exert its reasonable
best efforts to restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its
best efforts to obtain the unanimous approval of its Stockholders to the
Merger. In seeking the approval of its Stockholders, the Company shall provide
each Stockholder with the Form S-4 which shall include information as may be
required by applicable law or as APP shall deem appropriate. The Board of
Directors of the Company shall recommend the approval of the Merger by the
Stockholders of the Company. If the Stockholders' approval is not unanimous,
the Company shall give notice to the nonconsenting Stockholders of the action
taken by the consenting Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to
Section 7.8 hereof, the Company will take all action reasonably necessary to
cause the Company to perform its obligations under this Agreement and all
related agreements and to consummate the Merger and other transactions
contemplated hereby and thereby on the terms and conditions set forth in this
Agreement and such agreements; provided, however, that this covenant shall not
require the Company to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein.
Section 7.10 Funding of Accrued Employee Benefits. The Company
hereby covenants and agrees that it will take whatever steps are necessary to
pay for or fund completely any accrued benefits, where applicable, or vested
accrued benefits for which the Company or any entity might have any liability
whatsoever arising from any tax-qualified plan as required under applicable
law. The Company acknowledges that the purpose and intent of this covenant is
to assure that APP Sub shall have no liability whatsoever at any time after the
Closing Date with respect to any such tax-qualified plan, unless such plan is
merged with a plan sponsored by APP or APP Sub.
Section 7.11 Accounting and Tax Matters. The Company will not
change in any material respect the accounting methods or practices followed by
the Company (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. The Company will
not make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment or consent to any tax
claim or assessment or any waiver of the statute of limitations for any such
claim or assessment. The Company will duly, accurately and timely (without
regard to any extensions of time) file all returns, information statements and
other documents relating to taxes of the Company required to be filed by it,
and pay all taxes required to be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form,
organize and incorporate NewCo in the state of California, and the articles or
certificate of incorporation and bylaws of NewCo shall be in form and substance
reasonably satisfactory to APP. Except for consummating the Spin-Off
Transaction, NewCo shall not commence business until the Closing Date. On or
prior to the Closing, the Company shall take all actions and execute all
documents, agreements or instruments necessary pursuant to and in compliance
with applicable law to effect the Spin-Off Transaction, including without
limitation, the following: Prior to the Closing, the Company shall transfer to
NewCo good, valid and marketable title to all of the Company's right, title and
interest in and to the Employee Benefit Plans, all
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contracts and agreements and other assets listed on the Disclosure Schedules
(to be delivered by the Company prior to Closing, which schedule will be
subject to the approval of APP, which approval shall not be unreasonably
withheld) which by law either cannot be acquired or cannot be used by APP
because they relate to the practice of medicine or radiology, and shall
contribute to NewCo such other consideration and assets of the Company as may
be required under applicable law, in exchange for the issuance by NewCo of
shares of NewCo Common Stock, such shares being all of the issued and
outstanding shares of NewCo Common Stock. The Company shall then distribute
the shares of NewCo Common Stock to the Stockholders in proportion to their
respective ownership interest in the Company.
ARTICLE VIII
Covenants of APP and APP Sub
APP and APP Sub agree that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP and APP Sub will take
all action reasonably necessary to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions and take all
corporate and other action necessary to approve the Merger; provided, however,
that this covenant shall not require APP and APP Sub to make any expenditures
that are not expressly set forth in this Agreement or otherwise contemplated
herein.
Section 8.2 Requirements to Effect the Merger and Acquisitions.
APP and APP Sub will use their best efforts to take, or cause to be taken, all
actions necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
Section 8.3 Access. APP and APP Sub shall, at reasonable times
during normal business hours and on reasonable notice, permit the Company and
its authorized representatives of the Company reasonable access to, and make
available for inspection, all of the assets and business of APP and APP Sub,
including its executive officers, and permit the Company and their authorized
representatives to inspect and, at the Company's sole expense, make copies of
all documents, records and information with respect to the affairs of APP and
APP Sub as the Company and their representatives may reasonably request, all
for the sole purpose of permitting the Company to become familiar with the
business and assets and liabilities of APP and APP Sub. No investigation by
the Company or the Stockholders shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of APP under this
Agreement.
Section 8.4 Notification of Certain Matters. APP and APP Sub
shall promptly inform the Company in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or lapse of
time or both, would become a default, received by APP subsequent to the date of
this Agreement and prior to the Effective Time under any contract, agreement or
investment material to APP's or APP Sub's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; (b) any
material adverse change in APP's condition (financial or otherwise),
operations, assets, liabilities or business or (c) defaults or disputes
regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP and APP Sub shall
use their best efforts to establish a qualified plan and trust for NewCo,
within the meaning of Section 401(a) and 501(a), respectively, of the Code
("New Qualified Plan") that will provide benefits comparable (as determined
under Section 401(a)(4) of the Code) to the benefits provided under the
qualified plans referenced in the Disclosure Schedules, if any, sponsored by
the Company as of March 31, 1997. APP will file for a favorable determination
letter from the IRS on the New Qualified Plan and request a favorable
determination from the IRS that NewCo is not a member of an affiliated service
group (as defined in Section 414(m) of the Code) or a recipient organization of
leased employee services (as defined in Section 414(n) of the Code). Any
benefits provided under the New Qualified Plan shall be conditioned on a
favorable determination letter from the IRS. Costs associated with the
establishment and design of the
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New Qualified Plan shall be paid by APP or APP Sub. NewCo shall be responsible
for funding any contributions to, or any ongoing administrative costs of, the
New Qualified Plan.
ARTICLE IX
Covenants of APP, APP Sub and the Company
APP, APP Sub and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP and APP Sub to promptly
prepare and file with the SEC the Registration Statements on Form S-1 and Form
S-4 (or other appropriate Forms) to be filed by APP in connection with its
Initial Public Offering and offering of the shares of APP Common Stock to the
Target Interest Holders pursuant to the transactions contemplated by this
Agreement and the Other Agreements (including the prospectus constituting parts
thereof, the "Registration Statements"). APP shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. The Company shall cooperate with
APP in the preparation of the Registration Statements and shall furnish all
information concerning the Company and NewCo as may be reasonably requested in
connection with any such action in a timely manner.
(b) The Company, APP and APP Sub and each separately represent and
warrant that (i) in the case of the Company, none of the written information or
documents supplied or to be supplied by it specifically for inclusion in the
Registration Statements, by exhibit or otherwise and (ii) in the case of APP or
APP Sub, will, at the time the Registration Statements and each amendment and
supplement thereto, if any, becomes effective under the Securities Act, none of
them contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Company shall be entitled to review the Registration
Statements and each of the amendments thereto, if any, prior to the time each
becomes effective under the Securities Act. The Company shall have no
responsibility for information contained in the Registration Statements except
for information provided by the Company specifically for inclusion therein.
The Company's review of the Registration Statements shall not diminish or
otherwise affect the representations, covenants and warranties of APP and APP
Sub contained in this Agreement.
(c) The Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners,
Stockholders and NewCo, and such other matters as may be reasonably requested
by APP in connection with the preparation of the Registration Statements and
each of the amendments or supplements thereto, or any other statement, filing,
notice or application made by or on behalf of each such party or any of its
subsidiaries to any governmental entity in connection with the Merger and the
other transactions contemplated by this Agreement.
Section 9.2 Amendments of Disclosure Schedules. Each party
hereto agrees that, with respect to the representations and warranties of such
party contained in this Agreement, such party shall have the continuing
obligation until the Closing to supplement or amend promptly the Disclosure
Schedules with respect to any matter that would have been or would be required
to be set forth or described in the Disclosure Schedules in order to not
materially breach any representation, warranty or covenant of such party
contained herein; provided that no amendment or supplement to a Disclosure
Schedule that constitutes or reflects a Material Adverse Effect on the Company
may be made unless APP consents to such amendment or supplement, and no
amendment or supplement to a Schedule that constitutes or reflects a Material
Adverse Effect on APP may be made unless the Company consents to such amendment
or supplement. For purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections 10.1
and 11.1 have been fulfilled, the Disclosure Schedules hereto shall be deemed
to be the Disclosure Schedules as amended or supplemented pursuant to this
Section 9.2. In the event that the Company seeks to amend or supplement a
Disclosure Schedule pursuant to this Section 9.2 and APP does not consent to
such amendment or supplement, or APP seeks to amend
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or supplement a Disclosure Schedule pursuant to this Section 9.2, and the
Company does not consent, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto
will knowingly, either before or after the Merger, take any action that would
prevent the Merger from qualifying as a tax-free exchange within the meaning of
Section 351 of the Code.
Section 9.4 Public Announcements. The parties hereto will
consult with each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable law, will not issue any
such press release or make any such public statement prior to such
consultation, although the foregoing shall not apply to any disclosure by APP
in any filing with the DOJ, FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be
solely responsible for their own fees and expenses with respect to the
transactions contemplated herein including, without limitation, the fees
charged by attorneys, accountants and financial advisors retained by such
parties. The fees and expenses incurred by the Company and NewCo in connection
with the Merger shall be paid by the Company in full immediately prior to the
Closing and such expenses shall be the sole responsibility of the Stockholders
following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP and APP Sub shall agree
to keep all records and information regarding the patients of the Company and
NewCo confidential in accordance with all applicable laws.
Section 9.7 Registration Statements. APP shall prepare and file
the Registration Statements with the SEC, and shall use its reasonable good
faith efforts to cause the Registration Statements to become effective under
the Securities Act and take any action required to be taken under the
applicable state Blue Sky or other securities laws in connection with the
issuance of the shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP and APP Sub
Except as may be waived in writing by APP, the obligations of APP and
APP Sub hereunder are subject to the fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 10.1 Representations and Warranties. The representations
and warranties of the Company contained herein and each Stockholder contained
in the Stockholders Representation Letter (as delivered pursuant to Section
10.12 hereof) shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects as of the
Effective Date.
Section 10.2 Covenants. The Company shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have
delivered to APP their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
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Section 10.5 No Material Adverse Effect. No Material Adverse
Effect on the Company shall have occurred since March 31, 1997, whether or not
such change shall have been caused by the deliberate act or omission of the
Company or any Stockholder.
Section 10.6 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, statements, rule, regulation or ordinance to
consummate the transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statements shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate
the transactions contemplated hereby. The APP Common Stock shall have been
approved for listing on the Nasdaq National Market, subject only to official
notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 10.11 Dissenter's Rights. The Company shall have satisfied
each of its obligations to its Stockholders regarding dissenters or related
rights under California Corporate Law, and the sum of the amount which may
become due to the Stockholders who have dissented to the Merger and have
indicated their intent to seek appraisal rights plus the cash portion of the
Merger Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder receiving Merger Consideration shall have executed
and delivered to APP the Stockholder Representation Letter in substantially the
form of Exhibit C. Each Stockholder shall have executed and delivered to APP
the Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties
of the Company and its related entities to be transferred to NewCo pursuant to
the Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician
Employee and such other radiologists whose names are set forth on Schedule 10.14
shall have entered into a Physician Employment Agreement between NewCo and each
such Physician Employee in a form reasonably consistent to the form attached as
Exhibit E and satisfactory to APP in its sole discretion (the "Physician
Employment Agreements").
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
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Section 11.1 Representations and Warranties. The representations
and warranties of APP and APP Sub contained herein shall be true and correct in
all material respects when initially made and shall be true and correct in all
material respects as of the Effective Date.
Section 11.2 Covenants. APP and APP Sub shall have performed and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Effective
Date.
Section 11.3 Legal Opinions. Counsel to APP and APP Sub shall
have delivered to the Company their opinion, dated as of the Effective Date, in
form and substance substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo, APP and APP Sub shall have obtained all
licenses, permits and all necessary government and other third-party approvals
and consents required under any law, contracts or any statute, rule, regulation
or ordinances to consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The
Registration Statements shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the Registration Statements
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC. At or prior to the Effective Date, APP
shall have received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. At or prior to the Effective
Date, the APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 11.7 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received
all Disclosure Schedules, documents, assignments and agreements, duly executed
and delivered in form reasonably satisfactory to the Company referred to in
Section 12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse
Effect on APP or APP Sub shall have occurred since __________, 1997, whether or
not such change shall have been caused by the deliberate act or omission of APP
or APP Sub.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its opinion and analysis, in form
satisfactory to the Company, that the terms of the Service Agreement are fair
and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from
Haynes and Boone, L.L.P., a tax opinion,substantially in the form set forth in
Exhibit 11.11.
Section 11.12 Closing of Related Acquisition Involving Total
Medical Imaging, Inc. The Related Acquisition involving Total Medical Imaging,
Inc. shall have closed.
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ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the
Effective Date, the Company shall deliver to APP the following, all of which
shall be in a form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of
the Company authorizing the execution, delivery and performance of this
Agreement and the Service Agreement and all related documents and agreements
and consummation of the Merger, each certified by the Secretary of the Company
as being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of
NewCo authorizing the execution, delivery and performance of the Service
Agreement, the Security Agreement and the Physician Employment Agreements each
certified by the Secretary of NewCo as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(c) a certificate of the President of the Company dated
the Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated
the Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by
the Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and
officers of such corporation and as to the signatures of such directors and
officers who have executed documents delivered at the Closing on behalf of that
corporation;
(f) certificates, dated within ten (10) days prior to
the Effective Date, of the Secretary of State of California for the Company and
NewCo establishing that each such corporation is in existence, has paid all
franchise or similar taxes, if any, and, if applicable, otherwise is in good
standing to transact business in the state of California;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the
form attached hereto as Exhibit F, as revised in accordance with changes
reasonably deemed necessary or advisable by legal counsel retained by APP, the
Company and NewCo in the State of California to address regulatory and
compliance issues (the "Service Agreement");
(k) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
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(l) a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Code, of each Stockholder, signed under a
penalty of perjury and dated as of the Closing Date, to the effect that such
Stockholder is a United States citizen or a resident alien (and thus not a
foreign person) and providing such Stockholder's United States taxpayer
identification number;
(m) an executed Stockholder Release by the Stockholders
in substantially the form attached hereto as Exhibit G (the "Stockholder
Release");
(n) documentation, satisfactory to APP, evidencing the
legal transfer of (1) the real property located at 7369 Sunset Road, Joshua
Tree, California and any related mortgage or indebtedness and (2) the Jeep
vehicle and any related indebtedness; and
(o) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of
this Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective
Date, APP shall deliver to the Company the following, all of which shall be in
a form reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of
APP authorizing the execution, delivery and performance of this Agreement, and
all related documents and agreements, certified by APP's Secretary as being
true and correct copies of the originals thereof subject to no modifications or
amendments;
(b) a copy of resolutions of the Board of Directors of
APP Sub authorizing the execution, delivery and performance of this Agreement,
the Service Agreement and the Security Agreement, each certified by the
Secretary of APP Sub as being true correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of APP and APP Sub
dated the Closing Date as to the truth and correctness of the representations
and warranties of APP and APP Sub contained herein on and as of the Effective
Date;
(d) a certificate of the President of APP and APP Sub
dated the Closing Date, (i) as to the performance and compliance by APP or APP
Sub with all covenants contained herein on and as of the Effective Date and
(ii) certifying that all conditions precedent required to be satisfied by APP
and APP Sub shall have been satisfied;
(e) a certificate of the Secretary of APP and APP Sub
certifying as to the incumbency and to the signatures of the officers of APP or
APP Sub who have executed documents delivered at the Closing on behalf of APP
or APP Sub;
(f) a certificate, dated within ten (10) days prior to
the Effective Date, of the secretary of state of incorporation establishing
that APP and APP Sub are, respectively, in existence, have paid all franchise
or similar taxes, if any, and otherwise are in good standing to transact
business in the state of Delaware and California;
(g) certificates (or photocopies thereof), dated within
ten (10) days prior to the Effective Date, of the Secretaries of State of the
states in which either APP and APP Sub is qualified to do business, to the
effect that APP and APP Sub is qualified to do business and is in good standing
as a foreign corporation in such state;
(h) the executed Service Agreement as revised in
accordance with the changes specified in Section 12.1(j);
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(i) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article
II and Exhibit B hereof; and
(k) such other instrument or instruments of transfer
prepared by the Company as shall be necessary or appropriate, as the Company or
its counsel shall reasonably request, to carry out and effect the purpose and
intent of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the
Closing, at the request of APP or the Surviving Corporation and at APP's sole
cost and expense, the Stockholders and the Company shall deliver any further
instruments of transfer and take all reasonable action as may be necessary or
appropriate to carry out the purpose and intent of this Agreement. Following
the Closing, at the request of NewCo and at NewCo's sole cost and expense, APP
or the Surviving Corporation shall deliver any further instruments of transfer
and take all reasonable action as may be necessary and appropriate to carry out
the purpose and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Code, to
report the Merger as a Reorganization and such opinion either is furnished
prior to the Effective Time or is based on facts or events not known at the
Effective Time. Each party shall provide to each other party such tax
information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Merger as a
Reorganization.
(c) The parties agree that no Stockholder shall be liable for any
taxes incurred by the Company and for which APP has successor liability
therefor which arise solely as a result of the Merger or the consummation of
the transactions contemplated hereby; provided that the foregoing shall not
limit or otherwise be deemed a waiver of any right of indemnification under
Section 14.1 for a breach of any representation, warranty or covenant of the
Company or any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms
and conditions of this Article XIV, the Company agrees to indemnify, defend and
hold APP and the Surviving Corporation and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and
Affiliates
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harmless from and against all losses, claims, obligations, demands,
assessments, penalties, liabilities, costs, damages, reasonable attorneys' fees
and expenses (including, without limitation, all costs of experts and all costs
incidental to or in connection with any appellate process) (collectively,
"Damages") asserted against or incurred by such individuals and/or entities
arising out of or resulting from:
(a) a breach by the Company of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of the
Company contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company
and/or any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons
in which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any (i) untrue
statement of a material fact in any Registration Statement or any prospectus
forming or part thereof, or any amendment thereof or supplement thereto
relating to the Company (including any Company Subsidiary) or NewCo required to
be stated therein or (ii) failure to state information necessary to make the
statements therein not misleading, which untrue statement or failure to state
information arises or results solely from information provided in writing to
APP or its counsel by the Company or any Stockholder or their agents
specifically for inclusion in any such Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP and APP Sub. Subject to the
terms and conditions of this Article XIV, APP and APP Sub jointly and severally
hereby agree to indemnify, defend and hold the Stockholders, the Company and
NewCo and their respective directors, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates harmless from and against all
Damages asserted against or incurred by such individuals and/or entities
arising out of or resulting from:
(a) a breach by APP or APP Sub of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of APP or
APP Sub contained in this Agreement or in any schedule or certificate delivered
hereunder; and
(b) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any untrue statements
of material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or required to be
stated therein or failure to state information necessary to make the statements
therein not misleading (except for any liability based upon any actual or
alleged untrue statement of material fact or an omission to state a material
fact relating to NewCo, the Company or any Stockholder to the extent derived
from any information provided in writing by the Company or a Company Subsidiary
or any of their agents contained in the representations and warranties set
forth in this Agreement or any certificate, exhibit, schedule or instrument
required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
any of the parties hereto of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
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Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the
Agreement (an "Indemnified Party") shall promptly (and, in the event, at least
ten (10) days prior to the due date for any responsive pleadings, filings or
other documents) (i) notify the party for whom indemnification is sought (the
"Indemnifying Party) of any third-party claim or claims asserted against the
Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying
Party a written notice ("Claim Notice") describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), an estimate of the amount of Damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. The failure to promptly deliver a Claim
Notice shall not relieve any Indemnifying Party of its obligations to any
Indemnified Party with respect to the related Third Party Claim except to the
extent that the resulting delay is materially prejudicial to the defense of
such claim. Within thirty (30) days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(x) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article XIV with respect to such Third Party Claim
and (y) whether the Indemnifying Party desires, at the sole cost and expense of
such Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim.
(b) If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall have
the right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set
forth in Section 14.3(f) below, the Indemnifying Party shall have full control
of such defense and proceedings, including any compromise or settlement
thereof. The Indemnified Party is hereby authorized, at the sole cost and
expense of the Indemnifying Party (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period,
any motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party and not prejudicial to the Indemnifying Party. If requested by the
Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Party, to cooperate with the Indemnifying Party and their
counsel in contesting any Third Party Claim that the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 14.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and upon written
notification thereof, the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of the Indemnified Party; provided further
that the Indemnifying Party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 14.3(b), or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
14.3(b) but fails diligently and promptly to prosecute or settle the Third
Party Claim, then the Indemnified Party shall have
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the right to defend, at the sole cost and expense of the Indemnifying Party (if
the Indemnified Party is entitled to indemnification hereunder), the Third
Party Claim by all appropriate proceedings, which proceedings shall be promptly
and vigorously prosecuted by the Indemnified Party to a final conclusion or
settled. The Indemnified Party shall have full control of such defense and
proceedings, provided, however, that the Indemnified Party may not enter into,
without the Indemnifying Party's consent, which shall not be unreasonably
withheld, any compromise or settlement of such Third Party Claim.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a
written notice to the Indemnified Party to the effect that the Indemnifying
Party disputes their potential liability to the Indemnified Party under this
Article XIV and if such dispute is resolved in favor of the Indemnifying Party,
the Indemnifying Party shall not be required to bear the costs and expenses of
the Indemnified Party's defense pursuant to this Section or of the Indemnifying
Party's participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all costs
and expenses of such litigation. The Indemnifying Party may participate in,
but not control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section 14.3(c), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation; provided, however, that
if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnifying Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnified Party, then the Indemnifying Party may employ
separate counsel and upon written notification thereof, the Indemnified Party
shall not have the right to assume the defense of such action on behalf of the
Indemnifying Party.
(d) In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder that does not involve a Third
Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the
Indemnified Party within sixty (60) days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes such claim, the claim specified by
the Indemnified Party in the Indemnity Notice shall be deemed a liability of
the Indemnifying Party hereunder. If the Indemnifying Party has timely
disputed such claim, as provided above, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction if the parties do
not reach a settlement of such dispute within thirty (30) days after notice of
a dispute is given.
(e) Payments of all amounts owing by any Indemnifying
Party pursuant to this Article XIV relating to a Third Party Claim shall be
made within thirty (30) days after the latest of (i) the settlement of such
Third Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice
period or (ii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under this
Agreement.
(f) The Indemnifying Party shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or
compromise a Third Party Claim against an Indemnified Party. If a firm offer
is made to settle such a claim solely by the payment of money damages and the
Indemnifying Party notifies the Indemnified Party in writing that the
Indemnifying Party agrees to such settlement, but the Indemnified Party elects
not to accept and agree to it, the Indemnified Party may continue to contest or
defend such Third Party Claim and, in such event, the total maximum liability
of the Indemnifying Party to indemnify or otherwise reimburse the Indemnified
Party hereunder with respect to such a claim shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable out-of-pocket costs
and reasonable expenses (including reasonable attorneys' fees and
disbursements) to the date of notice that the Indemnifying Party desired to
accept such settlement.
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(g) Notwithstanding any provision herein to the contrary,
the obligation of an Indemnifying Party to provide indemnification to an
Indemnified Party for breach of any representation or warranty as provided in
Sections 14.1(a) or 14.2(a) hereof shall not take effect unless and until the
Damages asserted against or incurred in the aggregate and on a collective basis
by the Indemnified Parties pursuant to either Section 14.1 or 14.2 (as
applicable) as a result of such a breach or breaches exceeds [$100,000].
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount
of any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and
the Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and
delivered by the Company or any Stockholder pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or any
Stockholder fails to comply in any material respect with any material covenant
or agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within thirty (30) days after receipt
of written notice thereof;
(c) at any time prior to the Effective Date by the
Company if any representation or warranty of APP or APP Sub contained in this
Agreement or in any certificate or other document executed and delivered by APP
or APP Sub pursuant to this Agreement is or becomes untrue in any material
respect or if APP fails to comply in any material respect with any covenant or
agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within thirty (30) days after receipt
of written notice thereof;
(d) at any time prior to the Effective Date by APP if, as
a result of the conduct of due diligence and regulatory compliance procedures,
APP deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have
been consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in
Section 16.3, in the event this Agreement is terminated pursuant to this
Article XV, this Agreement shall forthwith become void.
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<PAGE> 931
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo
recognize and acknowledge that each has in the past, currently has, and in the
future may possibly have, access to certain Confidential Information of APP and
the Surviving Corporation that is valuable, special and a unique asset of such
entity's business. APP and APP Sub acknowledge that they had in the past,
currently have, and in the future may possibly have, access to certain
Confidential Information of the Company and NewCo that is valuable, special and
a unique asset of each such business. The Company, NewCo, APP, and APP Sub,
severally, agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of APP, APP Sub,
Surviving Corporation, NewCo and the Company and (b) to counsel and other
advisers to APP, APP Sub, Surviving Corporation, NewCo and the Company provided
that such advisers (other than counsel) agree to the confidentiality provisions
of this Section 16.1, unless (i) such information becomes available to or known
by the public generally through no fault of the Company, NewCo, APP or APP Sub,
as the case may be, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii) the Company, NewCo, APP or APP
Sub, as the case may be, shall, if possible, give prior written notice thereof
to the Company, NewCo, APP or APP Sub and provide the Company, APP or APP Sub
with the opportunity to contest such disclosure, (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, or (iv) the disclosing party
is the sole and exclusive owner of such Confidential Information as a result of
the Merger or otherwise. In the event of a breach or threatened breach by the
Company, on the one hand, and APP or APP Sub, on the other hand, of the
provisions of this Section, APP, APP Sub, the Surviving Corporation, NewCo and
the Company shall be entitled to an injunction restraining the other party, as
the case may be, from disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting any of such
parties from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
Section 16.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, APP Sub, the Surviving
Corporation, NewCo and the Company agree that, in the event of a breach by
either of them of the foregoing covenant, the covenant may be enforced against
them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
Section 17.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by APP to a wholly owned subsidiary of APP; provided that any such
assignment shall not relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the
A-570
<PAGE> 932
respective heirs, legal representatives, successors and assigns of the parties
hereto. APP and APP Sub acknowledge and agree that the rights and remedies of
the Company under this Agreement will be directly available to the Stockholders
as third party beneficiaries of the rights and remedies of the Company under
this Agreement, including, without limitation, the rights and remedies under
Article 14 hereof to indemnification from APP and APP Sub against Damages
incurred by the Stockholders resulting from a breach by APP or APP Sub of any
representation, warranty or covenant of APP or APP Sub contained herein.
Except as provided in the preceding sentence or as otherwise provided herein,
neither this Agreement nor any other agreement contemplated hereby shall be
deemed to confer upon any person not a party hereto or thereto any rights or
remedies hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and
Covenants. The representations, warranties and covenants contained herein
shall survive the Closing and all statements contained in any certificate,
exhibit or other instrument delivered by or on behalf of the Company, any
Stockholder, APP or APP Sub pursuant to this Agreement shall be deemed to have
been representations and warranties by the Company, such Stockholder, APP and
APP Sub. Notwithstanding any provision in this Agreement to the contrary, the
representations and warranties contained herein shall survive the Closing until
the second anniversary of the Closing Date except that (a) the representations
and warranties set forth in Section 3.21 with respect to environmental matters
shall survive for a period of ten (10) years, (b) the representations and
warranties set forth in Section 3.30 with respect to tax matters shall survive
until such time as the limitations period has run for all tax periods ended
prior to the Closing Date, (c) the representations and warranties contained in
Section 3.27 and Section 3.33 with respect to healthcare matters shall survive
for a period of six (6) years and (d) solely for purposes of Section 14.1(c)
and Section 14.2(c), and solely to the extent that any party to be indemnified
pursuant to such provisions actually incurs liability under the Securities Act,
the Exchange Act or any other federal or state securities law, the
representations and warranties set forth therein shall survive until the
expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF TEXAS.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
Section 17.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
A-571
<PAGE> 933
Section 17.11 Confidentiality; Publicity and Disclosures. Each
party shall keep this Agreement and its terms confidential, and shall make no
press release or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge and
consent of the other parties hereto; provided that the foregoing shall not
prohibit any disclosure (a) by press release, filing or otherwise that APP has
determined in its good faith judgment and after advice of legal counsel to be
required by federal securities laws or the rules of the National Association of
Securities Dealers, (b) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request
or demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by telex,
telegram or courier service, when delivered to the party to whom notice is
sent, (ii) if delivered by facsimile transmission, when so sent and receipt
acknowledged by receipt or (iii) if delivered by mail (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may
designate by written notice to all other parties in accordance herewith):
If to APP and APP Sub: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Pacific Imaging Consultants
350 Hawthorne Blvd.
Oakland, California 94609
Fax No.: (510) 869-6251
Attn: Mark H. Weinberg, MBA
with a copy to: Wendel, Rosen, Black & Dean LLP
1111 Broadway, 24th Floor
Oakland, California 94607-4036
Fax No.: (510) 834-1928
Attn: Walter R. Turner, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any
act (except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party
A-572
<PAGE> 934
hereto, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. No remedy set forth in this Agreement
or otherwise conferred upon or reserved to any party shall be considered
exclusive of any other remedy available to any party, but the same shall be
distinct, separate and cumulative and may be exercised from time to time as
often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.
A-573
<PAGE> 935
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
--------------------------------
Gregory L. Solomon, President
APP SUB:
[AMERICAN PHYSICIAN PARTNERS,
SUBSIDIARY, INC.]
By:
------------------------------------
Its:
------------------------------------
THE COMPANY:
PACIFIC IMAGING CONSULTANTS, A MEDICAL
GROUP, INC.
By:
--------------------------------
Its:
--------------------------------
A-574
<PAGE> 936
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-575
<PAGE> 937
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-576
<PAGE> 938
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-577
<PAGE> 939
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-578
<PAGE> 940
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
A-579
<PAGE> 941
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
A-580
<PAGE> 942
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-581
<PAGE> 943
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth therein
are delivered in connection with that certain Agreement and Plan of
Reorganization and Merger dated ____________, 1997, by and between American
Physician Partners, Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made
pursuant to one section number can reasonably be interpreted by other parties to
be a disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain exceptions
to the representations and warranties set forth in Article III of the Agreement,
the inclusion of an item on these Disclosure Schedules shall not be deemed an
admission by American Physician Partners, Inc. that such item is material to
American Physician Partners, Inc., APP Sub, the Company, NewCo or any Company
Subsidiary or that it will have a material adverse effect on American Physician
Partners, Inc., APP Sub, the Company, NewCo or any Company Subsidiary.
A-582
<PAGE> 944
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and PACIFIC
IMAGING CONSULTANTS, A MEDICAL GROUP, INC., a California professional
corporation (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
PACIFIC IMAGING CONSULTANTS, A MEDICAL
GROUP, INC.
By:_________________________________
Its:________________________________
A-583
<PAGE> 945
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),
[AMERICAN PHYSICIAN PARTNERS SUBSIDIARY, INC.]
(a California corporation),
and
TOTAL MEDICAL IMAGING, INC.
(a California corporation)
================================================================================
A-584
<PAGE> 946
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE I Definitions.......................................................................... 2
Section 1.1 Definitions.......................................................................... 2
Section 1.2 Rules Of Interpretation.............................................................. 6
ARTICLE II The Merger........................................................................... 6
Section 2.1 The Merger........................................................................... 6
Section 2.2 The Closing.......................................................................... 6
Section 2.3 Effective Time....................................................................... 6
Section 2.4 Certificate of Incorporation of Surviving Corporation................................ 6
Section 2.5 Bylaws of Surviving Corporation...................................................... 6
Section 2.6 Directors of the Surviving Corporation............................................... 6
Section 2.7 Officers of the Surviving Corporation................................................ 6
Section 2.8 Conversion of Company Common Stock................................................... 7
Section 2.9 Exchange of Certificates Representing Shares of the Company Common Stock............. 7
Section 2.10 Fractional Shares.................................................................... 8
ARTICLE III Representations and Warranties of the Company........................................ 8
Section 3.1 Organization and Good Standing; Qualification........................................ 8
Section 3.2 Authorization and Validity........................................................... 8
Section 3.3 Governmental Authorization........................................................... 8
Section 3.4 Capitalization....................................................................... 9
Section 3.5 Transactions in Capital Stock........................................................ 9
Section 3.6 Continuity of Business Enterprise.................................................... 9
Section 3.7 Subsidiaries and Investments......................................................... 9
Section 3.8 Absence of Conflicting Agreements or Required Consents............................... 9
Section 3.9 Intentionally omitted................................................................ 9
Section 3.10 Absence of Changes................................................................... 9
Section 3.11 No Undisclosed Liabilities........................................................... 10
Section 3.12 Litigation and Claims................................................................ 10
Section 3.13 No Violation of Law.................................................................. 11
Section 3.14 Lease Agreements..................................................................... 11
Section 3.15 Real and Personal Property........................................................... 11
Section 3.16 Indebtedness for Borrowed Money...................................................... 12
Section 3.17 Contracts and Commitments............................................................ 12
Section 3.18 Employee Matters..................................................................... 13
Section 3.19 Labor Relations...................................................................... 13
Section 3.20 Employee Benefit Plans............................................................... 13
Section 3.21 Environmental Matters................................................................ 15
Section 3.22 Filing Reports....................................................................... 16
Section 3.23 Insurance Policies................................................................... 16
Section 3.24 Accounts Receivable; Payors.......................................................... 17
Section 3.25 Accounts Payable; Suppliers.......................................................... 17
Section 3.26 Inventory............................................................................ 17
Section 3.27 Licenses, Authorization and Provider Programs........................................ 18
Section 3.28 Inspections and Investigations....................................................... 18
Section 3.29 Proprietary Rights and Information................................................... 19
Section 3.30 Taxes................................................................................ 19
Section 3.31 Related Party Arrangements........................................................... 20
Section 3.32 Banking Relations.................................................................... 20
Section 3.33 Fraud and Abuse and Self Referral.................................................... 21
Section 3.34 Restrictions on Business Activities.................................................. 21
</TABLE>
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<TABLE>
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Section 3.35 Agreements in Full Force and Effect.................................................. 21
Section 3.36 Statements True and Correct.......................................................... 21
Section 3.37 Disclosure Schedules................................................................. 21
Section 3.38 Finders' Fees........................................................................ 21
ARTICLE IV Representations and Warranties of APP................................................ 21
Section 4.1 Organization and Good Standing; Qualification........................................ 21
Section 4.2 Authorization and Validity........................................................... 22
Section 4.3 Governmental Authorization........................................................... 22
Section 4.4 Capitalization....................................................................... 22
Section 4.5 Subsidiaries and Investments......................................................... 22
Section 4.6 Absence of Conflicting Agreements or Required Consents............................... 23
Section 4.7 Absence of Changes................................................................... 23
Section 4.8 No Undisclosed Liabilities........................................................... 23
Section 4.9 Litigation and Claims................................................................ 23
Section 4.10 No Violation of Law.................................................................. 23
Section 4.11 Employee Matters..................................................................... 23
Section 4.12 Taxes................................................................................ 23
Section 4.13 Related Party Arrangements........................................................... 24
Section 4.14 Statements True and Correct.......................................................... 25
Section 4.15 Schedules............................................................................ 25
Section 4.16 Finder's Fees........................................................................ 25
Section 4.17 Agreements in Full Force and Effect.................................................. 25
ARTICLE V ..................................................................................... 25
ARTICLE VI Closing Date Representations and Warranties Regarding ............................... 25
Section 6.1 Authorization and Validity........................................................... 25
Section 6.2 No Violation......................................................................... 25
Section 6.3 No Business, Agreements, Assets or Liabilities....................................... 25
ARTICLE VII Covenants of the Company............................................................. 26
Section 7.1 Conduct of The Company............................................................... 26
Section 7.2 Title to Assets; Indebtedness........................................................ 27
Section 7.3 Access............................................................................... 27
Section 7.4 Acquisition Proposals................................................................ 27
Section 7.5 Compliance With Obligations.......................................................... 28
Section 7.6 Notice of Certain Events............................................................. 28
Section 7.7 Intentionally omitted................................................................ 28
Section 7.8 Stockholders' Consent................................................................ 28
Section 7.9 Obligations of Company and Stockholders.............................................. 29
Section 7.10 Funding of Accrued Employee Benefits................................................. 29
Section 7.11 Accounting and Tax Matters........................................................... 29
ARTICLE VIII Covenants of APP..................................................................... 29
Section 8.1 Consummation of Agreement............................................................ 29
Section 8.2 Requirements to Effect the Merger and Acquisitions................................... 29
Section 8.3 Access............................................................................... 29
Section 8.4 Notification of Certain Matters...................................................... 30
ARTICLE IX Covenants of APP, APP Sub and the Company............................................ 30
Section 9.1 Filings; Other Action................................................................ 30
Section 9.2 Amendments of Disclosure Schedules................................................... 30
Section 9.3 Actions Contrary to Stated Intent.................................................... 31
Section 9.4 Public Announcements................................................................. 31
</TABLE>
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<TABLE>
<CAPTION>
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Section 9.5 Expenses............................................................................. 31
Section 9.6 Patient Confidentiality.............................................................. 31
Section 9.7 Registration Statements.............................................................. 31
ARTICLE X Conditions Precedent of APP.......................................................... 31
Section 10.1 Representations and Warranties....................................................... 31
Section 10.2 Covenants............................................................................ 31
Section 10.3 Legal Opinion........................................................................ 32
Section 10.4 Proceedings.......................................................................... 32
Section 10.5 No Material Adverse Effect........................................................... 32
Section 10.6 Government Approvals and Required Consents........................................... 32
Section 10.7 Securities Approvals................................................................. 32
Section 10.8 Closing Deliveries................................................................... 32
Section 10.9 Closing of Initial Public Offering................................................... 32
Section 10.10 Closing of Related Acquisitions...................................................... 32
Section 10.11 Dissenter's Rights................................................................... 32
Section 10.12 Stockholder Representation Letter; Indemnification Agreement......................... 32
Section 10.13 Transfer of Assets................................................................... 32
ARTICLE XI Conditions Precedent of the Company.................................................. 32
Section 11.1 Representations and Warranties....................................................... 33
Section 11.2 Covenants............................................................................ 33
Section 11.3 Legal Opinions....................................................................... 33
Section 11.4 Proceedings.......................................................................... 33
Section 11.5 Government Approvals and Required Consents........................................... 33
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing................................................. 33
Section 11.7 Closing of Initial Public Offering................................................... 33
Section 11.8 Closing Deliveries................................................................... 33
Section 11.9 No Material Adverse Effect........................................................... 33
ARTICLE XII Closing Deliveries................................................................... 33
Section 12.1 Deliveries of the Company............................................................ 33
Section 12.2 Deliveries of APP. .................................................................. 34
ARTICLE XIII Post Closing Matters................................................................. 35
Section 13.1 Further Instruments of Transfer...................................................... 35
Section 13.2 Merger Tax Covenant.................................................................. 35
Section 13.3 Current Public Information........................................................... 36
ARTICLE XIV Remedies............................................................................. 36
Section 14.1 Indemnification by the Company....................................................... 36
Section 14.2 Indemnification by APP and APP Sub................................................... 37
Section 14.3 Conditions of Indemnification........................................................ 37
Section 14.4 Costs, Expenses and Legal Fees....................................................... 39
Section 14.5 Tax Benefits; Insurance Proceeds..................................................... 39
ARTICLE XV Termination.......................................................................... 39
Section 15.1 Termination.......................................................................... 39
Section 15.2 Effect of Termination................................................................ 40
ARTICLE XVI Nondisclosure of Confidential Information............................................ 40
Section 16.1 Non-Disclosure Covenant.............................................................. 40
Section 16.2 Damages.............................................................................. 40
Section 16.3 Survival............................................................................. 41
</TABLE>
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<PAGE> 949
<TABLE>
<CAPTION>
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ARTICLE XVII Miscellaneous........................................................................ 41
Section 17.1 Amendment; Waivers................................................................... 41
Section 17.2 Assignment........................................................................... 41
Section 17.3 Parties in Interest; No Third Party Beneficiaries.................................... 41
Section 17.4 Entire Agreement..................................................................... 41
Section 17.5 Severability......................................................................... 41
Section 17.6 Survival of Representations, Warranties and Covenants................................ 41
Section 17.7 Governing Law........................................................................ 42
Section 17.8 Captions............................................................................. 42
Section 17.9 Gender and Number.................................................................... 42
Section 17.10 Intentionally omitted................................................................ 42
Section 17.11 Confidentiality; Publicity and Disclosures........................................... 42
Section 17.12 Notice............................................................................... 42
Section 17.13 No Waiver; Remedies.................................................................. 43
Section 17.14 Counterparts......................................................................... 43
Section 17.15 Defined Terms........................................................................ 43
EXHIBITS
Exhibit A - List of Target Companies........................................................................... A-1
Exhibit B - Merger Consideration............................................................................... B-1
Exhibit C - Stockholder Representation Letter.................................................................. C-1
Exhibit D - Indemnification Agreement.......................................................................... D-1
Exhibit E - Stockholder Release................................................................................ G-1
</TABLE>
Exhibit 1.1 - List of Stockholders
Exhibit 2.6 - List of Directors
Exhibit 2.7 - List of Officers
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
A-588
<PAGE> 950
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP"), [AMERICAN PHYSICIAN PARTNERS
SUBSIDIARY, INC.], a California corporation and a wholly-owned subsidiary of APP
("APP Sub"), and TOTAL MEDICAL IMAGING, INC., a California corporation (the
"Company").
RECITALS
A. The Company owns assets relating to the operation of diagnostic
imaging centers related to the professional medical practice specializing in
radiology conducted by PACIFIC IMAGING CONSULTANTS, A MEDICAL GROUP, INC., a
California professional medical corporation ("PIC"). All of the shares of the
common stock of the Company (the "Company Common Stock") are owned beneficially
and of record by the Stockholders. The Stockholders also own beneficially and of
record all of the shares of the common stock of PIC. PIC is a "Founding Company"
(as defined in Section 1.1 hereof).
B. APP Sub is engaged in the business of owning, operating and
acquiring the assets of, and managing the non-medical aspects of, radiology
practices and diagnostic imaging centers.
C. Pursuant to this Agreement, APP, APP Sub, and the Company intend
that APP Sub be merged with and into the Company, and that the Company be the
sole surviving corporation (sometimes referred to hereinafter as the "Surviving
Corporation"), and APP Sub be the disappearing corporation (sometimes referred
to hereinafter as the "Disappearing Corporation").
D. APP, APP Sub and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) APP Sub will merge with
and into the Company upon the terms and conditions set forth herein and in
accordance with the laws of the State of California, (ii) the outstanding shares
of the Company Common Stock shall be converted at such time into cash and shares
of common stock, par value $.0001 per share, of APP (the "APP Common Stock") as
set forth herein, and (iii) the Company shall become a wholly-owned subsidiary
of APP.
E. Prior to the Merger, the Company and PIC each intends to transfer
certain of its assets and liabilities to a newly formed professional corporation
("NewCo") in exchange for all of the capital stock of NewCo and to thereafter
distribute such NewCo stock to Stockholders (the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter into,
an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Stockholders, the "Target Interest Holders")
of each of the entities listed on Exhibit A (together with the Company, the
"Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder.
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AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, APP Sub and each of their Affiliates.
"APP Sub" shall have the meaning set forth in the preamble to this
Agreement.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed on Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the recitals
to this Agreement.
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"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section 3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section 3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the terms
hereof, as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement is
declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering of
APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section 14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or other
fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401
et seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651
et seq., (v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
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"Merger" shall have the meaning set forth in Section 2.1.
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Spin-Off Transaction" shall have the meaning set forth in the recitals
to this Agreement.
"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
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Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed to
be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, APP Sub shall be merged with and into the
Company in accordance with this Agreement and the separate corporate existence
of the Disappearing Corporation shall thereupon cease (the "Merger"). The
Company shall be the Surviving Corporation in the Merger and shall continue to
be governed by the laws of the State of California, and the separate corporate
existence of the Company with all its rights, privileges, powers, immunities,
purposes and franchises shall continue unaffected by the Merger, except as set
forth herein. The Surviving Corporation may, at any time concurrent with and/or
after the Effective Time, take any action in the name of or on behalf of the
Disappearing Corporation in order to effectuate the transactions contemplated by
this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take place
at 10:00 a.m., local time, at the offices of APP located at 2301 NationsBank
Plaza, 901 Main Street, Dallas, Texas on the day on which the transactions
contemplated by the Initial Public Offering are consummated. The date on which
the Closing occurs is hereinafter referred to as the "Closing Date."
Section 2.3 Effective Time. If all the conditions to the Merger set
forth in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section
1103 of the California General Corporation Law. The Merger shall become
effective at the time of the filing of such documents with the Secretary of
State of the State of California, in accordance with such law or at such later
time which the parties hereto have theretofore agreed upon and designated in
such filings as the effective time of the Merger (the "Effective Time").
Section 2.4 Certificate of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Article of Incorporation of the Company in
effect immediately prior to the Effective Time shall be amended and restated in
a manner satisfactory to APP. The Article of Incorporation, as so amended and
restated, shall be the Article of Incorporation of the Surviving Corporation.
Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP Sub in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger, until duly amended in accordance with applicable laws.
Section 2.6 Directors of the Surviving Corporation. The persons who are
directors of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time. The directors of the Surviving Corporation following the
Effective Time shall be set forth in Exhibit 2.6.
Section 2.7 Officers of the Surviving Corporation. The persons who are
officers of the Company immediately prior to the Effective Time shall submit a
written resignation in form and
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substance acceptable to APP, effective as of the Effective Time. The officers of
the Surviving Corporation following the Effective Time shall be set forth in
Exhibit 2.7.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the
part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time shall
be terminated and cancelled, without payment of any consideration therefor, and
shall cease to exist.
(d) Each share of common stock of APP Sub issued and
outstanding at the Effective Time shall be converted to one share of Company
Common Stock.
(e) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged and
remain outstanding as a validly issued, fully paid and nonassessable share of
APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock.
(a) At or after the Effective Time and at the Closing (i) the
Stockholders, as holders of a certificate or certificates representing shares of
the Company's Common Stock, shall upon surrender of each certificate or
certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until each
certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at the
Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Company
Common Stock or with respect to the stock powers accompanying any Company Common
Stock. Upon such delivery (or completion of appropriate affidavit of lost
certificate and indemnity), each Stockholder shall receive in exchange therefor
the Merger Consideration pursuant to Exhibit B and Section 2.10 hereof, if
applicable.
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Section 2.10 Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of APP Common Stock will be issued and any
Stockholder otherwise entitled to receive a fractional share of APP Common Stock
as part of the Merger Consideration hereunder shall receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP and APP Sub to enter into this Agreement and to
consummate the Merger and except as set forth in the Disclosure Schedules
attached hereto and incorporated herein by this reference, the Company
represents and warrants to APP and APP Sub both as of the date hereof and as of
the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. The Company and each Company Subsidiary is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement and, in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all requisite
corporate power to enter into this Agreement and all other agreements entered
into in connection with the transactions contemplated hereby and to consummate
the transactions contemplated hereby. The execution, delivery and, subject to
approval of this Agreement and the Merger by the Stockholders, performance by
the Company of this Agreement and the agreements contemplated herein, and the
consummation by the Company of the transactions contemplated hereby and thereby
are within the Company's respective corporate powers and have been duly
authorized by all necessary action on the part of the Company's Board of
Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby to which the Company is
a party constitute, or upon execution will constitute, valid and binding
agreements of the Company, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting the enforcement of creditors' rights generally, or by general
equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger (as contemplated by Section
2.3) and any other required documents related to the Merger, and other than
consents, filings or notifications required to be made or obtained solely by APP
or APP Sub (including, without limitation, in connection with the Initial Public
Offering, Form S-4 or any Hart-Scott-Rodino filing to be made by APP, if any),
the execution, delivery and performance by the Company of this Agreement and the
agreements provided for herein, and the consummation of the transactions
contemplated hereby and thereby by the Company require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
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Section 3.4 Capitalization. The authorized capital stock of the Company
consists of [_____] shares of the Company Common Stock, of which 10,000 shares
are issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the Company has no securities, bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
Section 3.5 Transactions in Capital Stock. There exist no Company
Rights. The Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership of shares
among any of its Stockholders has been altered or changed in contemplation of
the Merger within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the (2) two
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, require any notice under, or accelerate or modify, or permit any
person to accelerate or modify, any performance required by the terms of any
agreement, instrument, license or permit, to which the Company is a party or by
which the Company or any of its properties are subject or bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on the Company; and (v) except as
contemplated by this Agreement, will not create any Encumbrance or restriction
upon the Company Common Stock or any of the assets or properties of the Company.
Section 3.9 Intentionally omitted.
Section 3.10 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that
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individually or in the aggregate has had or could reasonably be expected to have
a Material Adverse Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent
with past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or accounting
practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with
past practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable, mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee benefits for
any employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee except
in the ordinary course of business;
(l) declared, set aside or made any payments, dividends or
other distributions to any Stockholder or any other holder of capital stock of
the Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its knowledge,
the Company does not have any liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted except for
liabilities or obligations reflected or reserved against in the Company's
Current Balance Sheet.
Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder, the Physician Employees or any other licensed professional or other
individual affiliated with the Company affecting or that would reasonably be
likely to affect the Company Common Stock or the operations, business condition,
(financial or otherwise), or results of operations of the Company which
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(i) if successful, may, individually or in the aggregate, have a Material
Adverse Effect on the Company or (ii) could adversely affect the ability of the
Company or any Company Subsidiary to effect the transactions contemplated
hereby, and to the knowledge of the Company there is no basis for any such
action or any state of facts or occurrence of any event which would reasonably
be likely to give rise to the foregoing. There are no unsatisfied judgments
against the Company or any Company Subsidiary or any licensed professional or
other individual affiliated with the Company or any Company Subsidiary relating
to services provided on behalf of the Company or any Company Subsidiary or any
consent decrees to which any of the foregoing is subject. Each of the matters,
if any, set forth in this Section 3.12 is fully covered by policies of insurance
of the Company or any Company Subsidiary as in effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any Company
Subsidiary has been, nor shall be as of the Effective Time (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which the Company or any Company Subsidiary is a party and pursuant to which the
Company or any Company Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the operation of its business and which requires payments in excess of
$12,000 per year (the "Lease Agreements"). The Company has delivered to APP true
and complete copies of all of the Lease Agreements. Each Lease Agreement is
valid, effective and in full force in accordance with its terms, and there is
not under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver to
APP or APP Sub in writing such consents as are necessary to effect a valid and
binding transfer or assignment of the Company's or any Company Subsidiary's
rights thereunder. The Company has a good, clear, valid and enforceable
leasehold interest under each of the Lease Agreements. The Lease Agreements
comply with the exceptions to ownership interests and compensation arrangements
set out in 42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar
applicable state law safe harbor or other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good title
to all of its properties and assets (real, personal and mixed, tangible and
intangible) and any rights or interests therein which it purports to own
including, without limitation, all the property and assets reflected in the
Company Current Financial Statements; and (ii) owns such rights, interests,
assets and property free and clear of all Encumbrances, title defects or
objections (except for taxes not yet due and payable). The personal property
presently used in connection with the operation of the business of the Company
and the Company Subsidiaries constitutes the necessary personal property assets
to continue operation of the Company and any Company Subsidiary.
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Section 3.16 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, the Company does not have any
direct or indirect indebtedness for borrowed money, including indebtedness by
way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i) all
agreements between the Company, on the one hand, and any Payor, government
entity, provider, hospital, health maintenance organization, other managed care
organization or other third-party provider, on the other hand, then in effect
relating to the provision of medical, diagnostic imaging or consulting services,
treatments, patient referrals or other similar activities, (ii) all indentures,
mortgages, notes, loan or credit agreements and other agreements and obligations
relating to the borrowing of money or to the direct or indirect guarantee or
assumption of obligations of third parties requiring the Company to make, or
setting forth conditions under which the Company would be required to make,
aggregate future payments in excess of $10,000 in any fiscal year or $25,000 in
the aggregate, (iii) all agreements for capital improvements or acquisitions
involving an amount of $75,000 in any fiscal year or $75,000 in the aggregate,
(iv) all agreements containing a covenant limiting the freedom of the Company
(or any provider employee of the Company) to compete in any line of business
with any person or entity or in any geographic area or (v) all written contracts
and commitments providing for future payments by the Company in excess of
$10,000 in any fiscal year or $25,000 in the aggregate and that are not
cancelable by providing notice of sixty (60) days or less. All such contracts,
agreements or other instruments are in full force and effect, there has been no
threatened cancellation thereof, there are no outstanding disputes thereunder,
each is with unrelated third parties and was entered into on an arms-length
basis and, assuming the receipt of the appropriate consents, all will continue
to be binding in accordance with their terms after consummation of the
transaction contemplated herein; there are no contracts, agreements or other
instruments to which the Company is a party or is bound (other than physician
employment contracts and insurance policies) which could either singularly or in
the aggregate have a Material Adverse Effect on the value to APP or APP Sub of
the assets and properties to be acquired by APP or APP Sub from the Company, or
which could inhibit or prevent the Company from transferring to or vesting in
APP or APP Sub good and sufficient title to the assets and properties to be
acquired by APP or APP Sub and the Surviving Corporation except where the
failure to transfer would not have a Material Adverse Effect on APP or APP Sub.
In every instance where consent is necessary, the Company shall, on or before
the Closing Date, use reasonable good faith efforts to obtain and deliver to APP
or APP Sub in writing, effective as of the Closing Date, such consents as are
necessary to enable the Surviving Corporation to enjoy all of the rights now
enjoyed by the Company under such contracts. Any and all such consents shall be
in a form reasonably acceptable to APP and shall contain an acknowledgment by
the consenting party that the Company has fully complied with and is not in
default under any provision of the particular contract or agreement.
Notwithstanding the foregoing, the Company shall not transfer to APP or APP Sub
any contracts or agreements relating to the provision of professional medical
services or other such agreements and contracts that APP consents to in writing
to be transferred in the Spin-off Transaction. No contract with a health care
provider or Payor has been materially amended or terminated within the last
twelve (12) months.
(b) The Company (i) has not received notice of any plan or
intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument required to be disclosed pursuant to Section
3.17(a), and to the knowledge of the Company there are no fact(s) that would
justify the exercise of such a right; and (ii) does not currently contemplate,
or have reason to believe any other Person currently contemplates, any amendment
or change to any such contract, agreement or instrument.
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Section 3.18 Employee Matters. The Company is not currently a party to
any employment contract (except for oral employment agreements which are
terminable at will), consulting or collective bargaining contracts, deferred
compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected to
receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for it
to the date hereof or amounts required to be reimbursed to such employees. Upon
termination of employment of any employee or Physician Employee, no severance or
other payments will become due and the Company has no policy, past practice or
plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair labor
practice, charge or complaint or any other employment-related matter against or
involving the Company pending or threatened before the National Labor Relations
Board or any federal, state or local agency, authority or court;
(c) To the knowledge of the Company, there are no charges,
investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the Immigration
Reform and Control Act of 1986, as amended, and all applicable regulations
promulgated thereunder; and
(e) To the knowledge of the Company, there are no inquiries,
investigations or monitoring activities of any licensed, registered, or
certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof (the "Employee Benefit Plans"). The Company has
provided to APP copies of all plan documents (as
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they may have been amended to the date hereof), determination letters, pending
determination letter applications, trust instruments, insurance contracts or
policies related to an Employee Benefit Plan, administrative services contracts,
annual reports, actuarial valuations, summary plan descriptions, summaries of
material modifications, administrative forms and other documents that constitute
a part of or are incident to the administration of the Employee Benefit Plans.
In addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee Benefit
Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any notice that
any Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach of
any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or other
liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the Company's
knowledge, threatened, claims, suits or other proceedings exist with respect to
any Employee Benefit Plan other than normal benefit claims filed by participants
or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or 501(c)(9)
of the Code and/or tax-exempt within the meaning of Section 501(a) of the Code
and, to the best knowledge of the Company and each Stockholder, has been
continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation of
any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency (within
the meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Company is a member (a "Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such plan
are at least equal in value to the present value of accrued benefits determined
on an ongoing basis as of the date hereof. With respect to each Employee Benefit
Plan described in Section 501(c)(9) of the Code, the assets of each such plan
are at least equal in value to the present value of accrued benefits, based upon
the most recent actuarial valuation as of a date no more than ninety (90) days
prior to the date hereof. The Disclosure Schedules contain a complete and
accurate statement of all actuarial assumptions applied to determine the present
value of accrued benefits under all Employee Benefit Plans subject to actuarial
assumptions.
(h) Excise Taxes. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
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(i) Multiemployer Plans. Neither the Company nor any member of
a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section 412
of the Code.
(j) PBGC. No facts or circumstances are known to the Company
that would result in the imposition of liability against APP, APP Sub or any of
its Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result
of any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any Employee
Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable provisions of ERISA.
(l) Other Compensation Arrangements. Neither the Company nor,
to the Company's knowledge, any Stockholder or Physician Employee is a party to
any compensation or debt arrangement with any Person relating to the provision
of health care related services other than arrangements with the Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has, within
the five (5) years preceding the date hereof, through the Effective Time,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of the Company no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by the Company of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by the Company to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law. The
Disclosure Schedules disclose any known presence of asbestos in or on the
Company's or any Company Subsidiary's owned or leased premises. To the knowledge
of the Company, there is no friable asbestos in or on the Company's or any
Company Subsidiary's owned or leased premises.
(c) To the knowledge of the Company, no soil or water in or
under any assets currently or formerly held for use or sale by the Company or
any Company Subsidiary is or has been contaminated by any Hazardous Substance
while such assets or premises were owned, leased, operated or managed, directly
or indirectly by the Company or any Company Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on the
Company.
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(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of the Company,
concerning the Company or any Company Subsidiary within the five (5) years
preceding the date hereof through the Effective Time with respect to any real
property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following terms
have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended to
assure the protection of the environment, or that classify, regulate,
call for the remediation of, require reporting with respect to, or list
or define air, water, groundwater, solid waste, hazardous, toxic, or
radioactive substances, materials, wastes, pollutants or contaminants,
or which are intended to assure the safety of employees, workers or
other persons, including the public in each case as in effect on the
date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials and
wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and
briefly describe the Company's policies of insurance to which the Company or any
Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by the
Company or any Company Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
the Company and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as the Company
and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which the Company or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies of all Insurance Policies have been provided to APP. Neither the
Company nor any Company Subsidiary nor any officer or director thereof has
received any notice or other written communication from any issuer of any
Current Policy cancelling such policy, materially increasing any deductibles or
retained amounts thereunder, or materially increasing the annual or other
premiums payable thereunder and, to the knowledge of the Company, no such
cancellation or increase of deductibles, retainages or premiums is threatened.
There are no outstanding claims, settlements or premiums owed against any
Insurance
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Policy, and all required notices have been given and all known potential or
actual claims under any Insurance Policy have been presented in due and timely
fashion. Within the five (5) years preceding the Agreement, neither the Company
nor any Company Subsidiary has filed a written application for any professional
liability insurance coverage which has been denied by an insurance agency or
carrier. The Disclosure Schedules also set forth a list of all claims under any
Insurance Policy in excess of $10,000 per occurrence filed by the Company or any
Company Subsidiary during the immediately preceding three-year period. Each
Physician Employee has, at all times while a Physician Employee, maintained or
been covered by professional malpractice insurance in such types and amounts as
are customary for such a physician practicing the same type of medicine in the
same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of all
accounts receivable of the Company as of March 31, 1997, which list is complete,
true and accurate in all material respects. All such accounts receivable arose
in the ordinary course of business and have not been previously written off as
bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements or
on the accounting records of the Company (which reserves are calculated
consistent with generally accepted accounting principles and past practice).
(b) The Disclosure Schedules set forth (i) a true, correct and
complete list of the names and addresses of each Payor of the Company as of such
date, which accounted for more than 5% of the revenues of the Company in the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for more than 5% of the revenues of the Company for the fiscal year to end
December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i)
list of the accounts payable of the Company as of March 31, 1997, and (ii) list
of each individual indebtedness owed by the Company of $5,000 or more, setting
forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company Current
Balance Sheet contained in the Company Financial Statements consisted, and all
such items on hand on the date of this Agreement consist, and all such items on
hand at the Effective Time will consist, net of all applicable reserves with
respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory are not materially in excess of normal
requirements, and none of such purchase commitments are at prices in excess of
prevailing market prices at the time of such purchase commitment.
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Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company and other licensed employee or independent
contractor of the Company (i) is the holder of all valid licenses, approvals,
orders, consents, permits, registrations, qualifications and other rights and
authorizations required by law, ordinance, regulation or ruling of any
governmental regulatory authority necessary to operate its business and (ii) is
eligible to participate in and to receive reimbursement under Titles XVIII and
XIX of the Social Security Act (the "Medicare and Medicaid Programs") and any
other programs funded in whole or in part by federal, state or local entities
for which the Company is eligible and which are listed in the Disclosure
Schedules ("Governmental Programs"). The Company and the Stockholders have a
current provider number for such Governmental Programs and with such private
non-governmental programs (including without limitation any private insurance
program) under which the Company is presently receiving payments directly or
indirectly from any Payor, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
number, and provider agreements, is set forth in the Disclosure Schedules, true,
complete and correct copies of which have been provided to APP. No violation,
default, order or deficiency exists with respect to any of the items listed in
the Disclosure Schedules except for such violations, defaults, orders or
deficiencies which would not be reasonably likely to have a Material Adverse
Effect on the Company, and there is no action pending or to the Company's
knowledge recommended by any state or federal agencies having jurisdiction over
the items listed in the Disclosure Schedules, either to revoke, withdraw or
suspend any material license or to terminate the participation of the Company in
any Governmental Program or Private Program, and no event has occurred which,
with or without notice or lapse of time, or both, would constitute grounds for a
violation, order or deficiency with respect to any of the items listed in the
Disclosure Schedules to revoke, withdraw or suspend any material license to
operate its business as is presently being conducted by it. To the knowledge of
the Company, there has been no decision not to renew any existing agreement with
any provider or Payor relating to the Company's business as presently being
conducted by it. The Company (i) has not had its Medicare/Medicaid provider
status suspended, relinquished, terminated or revoked (including orders that
have been entered by any such entities but stayed), (ii) has been reprimanded in
writing, sentenced, or disciplined by any licensing board, state agency,
regulatory body or authority, hospital, Payor or specialty board (including
orders that have been entered by any such entities but stayed), or (iii) is the
subject of an initial or final determination by any federal or state authority
that could result in any demand or reimbursement under the Medicare, Medicaid or
Government Programs or any exclusion or which monetary penalty under federal or
state law or (iv) has had a final judgment or settlement entered against it in
connection with a malpractice or similar action.
(b) The Company is not required, or for the 72-month period
prior to the Effective Time was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of the
Company, or any Physician Employee, nor the right of any licensed professional
or other individual affiliated with the Company to receive reimbursements
pursuant to any Governmental Program or Private Program has been terminated or
otherwise materially and adversely affected as a result of any investigation or
action whether by any federal or state governmental regulatory authority or
other third party. No Physician Employee, licensed professional or other
individual affiliated with the business has, during the past three (3) years
prior to the Effective Time, had their professional license or staff privileges
limited, suspended or revoked by any governmental regulatory authority or
agency, hospital, integrated delivery system, trade association, professional
review organization, accrediting organization or certifying agency (including
orders that have been entered by any such entities but stayed). True, correct
and complete copies of all reports, correspondence, notices and other documents
relating to any matter described or referenced in this Section 3.28 have been
provided to APP.
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Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v) other
similar agreements relating to the foregoing to which the Company or any Company
Subsidiary is a party (including expiration date if applicable) (collectively,
the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate
list and summary description of all agreements relating to technology, trade
secrets, know-how or processes that the Company is licensed or authorized to use
by others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of the Company, no
claim has been asserted by any person to the ownership of or for infringement by
the Company of any Proprietary Right of any other Person, and neither the
Company nor any Stockholder is aware of any valid basis for any such claim. To
the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) the Company has paid all
taxes, penalties, assessments and interest that have become due with respect to
any Tax Returns that it has filed and has properly accrued on its books and
records in accordance with generally accepted accounting principles for all of
the same that have not yet become due and payable and (ii) the Company is not
delinquent in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company
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Financial Statements. The Company has not violated any applicable federal,
state, local or foreign tax law. There are no security interests or liens on any
assets of the Company or any Company Subsidiary which have resulted from any
failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not
granted an extension to any taxing authority of the statute of limitation period
during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder is
a foreign person, as such term is referred to in Section 1445(f)(3) of the Code
and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of the
Company constitutes property that the Company, APP, APP Sub or any Affiliate of
APP, will be required to treat as being owned by another person pursuant to the
"Safe Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal
by the Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties of the
Company are subject to a lease to a "tax exempt entity" as such term is defined
in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated in
or cooperated with any international boycott as defined in Section 999 of the
Code.
(k) Parachute Payments. No payment required or contemplated to
be made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to the
Company's business. There is no commitment to, and no income reflected in the
Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure Schedules
is a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the Person
or Persons authorized in respect thereof.
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Section 3.33 Fraud and Abuse and Self Referral. Neither the Company nor
any Company Subsidiary has engaged and, to the knowledge of the Company, neither
the Company's officers and directors nor other Persons and entities providing
services for or on behalf of the Company have engaged, in any activities which
are prohibited under 42 U.S.C. Sections 1320a 7, 7a or 7b or 42 U.S.C.
Section 1395nn (subject to the exceptions or safe harbor provisions set forth in
such legislation), or the regulations promulgated thereunder or pursuant to
similar state or local statutes or regulations, or which are prohibited by
applicable rules of professional conduct or 18 U.S.C. Sections 24, 287, 371,
664, 669, 1001, 1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and
3486.
Section 3.34 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company, any
Company Subsidiary or officer, director or key employee of the Company or
Company Subsidiary, which has or reasonably could be expected to have the effect
of prohibiting or materially impairing the current medical practice of the
Company or any Company Subsidiary or the continuation of that medical practice
in the future, any acquisition of property by the Company, any Company
Subsidiary or the conduct of business by the Company or any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of the Company, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by the Company or any other party thereto. No
contract with a Physician Employee has been terminated in the last twelve (12)
months.
Section 3.36 Statements True and Correct. No representation or warranty
made herein by the Company or any Stockholder, nor any statement, certificate,
information, exhibit or instrument to be furnished by the Company or any
Stockholder to APP, APP Sub or any of their respective representatives pursuant
to this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required by
Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of any
of the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger and except as set forth in the Disclosure
Schedules attached hereto and incorporated herein by this reference, APP
represents and warrants to the Company and the Stockholders both as of the date
hereof and as of the Effective Time as follows:
Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its
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business as currently conducted. APP is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where such failure to be so qualified
or in good standing would not have a Material Adverse Effect on APP. Copies of
the certificate of incorporation and all amendments thereto of APP and the
bylaws of APP, as amended, and copies of the corporate minutes of APP regarding
the Merger and the transactions contemplated hereby, all of which have been or
will be made available to the Company for review, are true, correct and complete
as in effect on the date of this Agreement and accurately reflect all material
proceedings of the stockholders and directors of APP (and all committees
thereof) regarding the Merger and the transactions contemplated hereby. The
stock record books of APP, which have been or will be made available to the
Company for review, contain true, complete and accurate records of the stock
ownership of APP and the transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and the Other Agreements and to
consummate the Merger and the transactions contemplated hereby. The execution,
delivery and performance by APP of this Agreement and the agreements provided
for herein, including the Other Agreements and the consummation by APP of the
transactions contemplated hereby and thereby are within APP's corporate powers
and have been duly authorized by all necessary action on the part of APP's Board
of Directors. This Agreement has and the Other Agreements have been duly
executed by APP. This Agreement and all other agreements and obligations entered
into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements of APP, enforceable against it in
accordance with their respective terms, except as may be limited by bankruptcy
or other laws affecting creditors' rights generally, or by general equity
principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the Merger and the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of [20,000,000] shares of APP Common Stock, of which [2,000,000] shares
are issued and outstanding and [10,000,000] shares of APP Preferred Stock, none
of which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
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Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or obligation accrued, contingent or
otherwise, that is reasonably likely to have a Material Adverse Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of
the Effective Time (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever), in violation of
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business or
its advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate
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governmental agencies all Tax Returns and reports required to be filed with the
United States or any state or any political subdivision thereof or any foreign
jurisdiction. All such Tax Returns or reports are complete and accurate in all
material respects and properly reflect the taxes of APP for the periods covered
thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted an
extension to any taxing authority of the limitation period during which any tax
liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP Common
Stock is a foreign person, as such term is referred to in Section 1445(f)(3) of
the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated to
be made by APP will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed as
an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. The Disclosure Schedules or
Form S-4 sets forth a description of any interest held, directly or indirectly,
by any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
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Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to the Company or a Stockholder pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Schedules. All Schedules required by Article IV hereof and
attached hereto are true, correct and complete in all material respects as of
the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to such
agreements, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Article V Intentionally Omitted.
ARTICLE VI
Closing Date Representations and Warranties Regarding APP Sub
APP and APP Sub, jointly and severally, represent and warrant that the
following will be true and correct on the Closing Date as if made on that date:
Section 6.1 Authorization and Validity. The execution, delivery and
performance by APP Sub of this Agreement and the consummation of the
transactions contemplated thereby, have been duly authorized by APP Sub. This
Agreement will be as of the Closing Date duly executed and delivered by APP Sub
and will constitute the legal, valid and binding obligation of APP Sub
enforceable against APP Sub in accordance with its respective terms, except as
may be limited by bankruptcy or other laws affecting creditors' rights
generally, or by equity principles, or by public policy.
Section 6.2 No Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby will conflict with, or result in a violation or breach of
the terms, conditions or provisions of, or constitute a default under, the
certificate of incorporation or bylaws of APP Sub.
Section 6.3 No Business, Agreements, Assets or Liabilities. APP Sub has
not commenced business since its incorporation. APP Sub does not own any assets
(tangible or intangible) other than the consideration received upon the issuance
of shares of its capital stock and APP Sub does not have any liabilities,
accrued, contingent or otherwise (known or unknown and asserted or unasserted)
other than those assumed pursuant to this Agreement.
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ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. From the date hereof until the
Effective Time, the Company shall, in all material respects, conduct its
business in the ordinary and usual course consistent with past practices and
shall use reasonable efforts to:
(a) preserve intact its business and its relationships with
Payors, referral sources, customers, suppliers, employees and others having
business relations with it;
(b) maintain and keep its properties and assets in good repair
and condition consistent with past practice as is material to the conduct of the
business of the Company;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of
incorporation or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not
limited to, by way of stock split, dividend, recapitalization
or other reclassification) or any subscriptions, options,
warrants, rights or convertible securities, or enter into any
agreements or commitments of any character obligating it to
issue or sell any such securities;
(3) redeem, purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock or any option,
warrant or other right to purchase or acquire any such shares;
(4) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its
capital stock (except as expressly contemplated herein);
(5) voluntarily sell, transfer, surrender, abandon or
dispose of any of its assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the
ordinary course of business consistent with past practices;
(6) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge
or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital expenditures
which are not reasonably necessary for the conduct of its
business;
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(9) grant any increase in the compensation payable or
to become payable to directors, officers, consultants or
employees other than merit increases to employees of the
Company who are not directors or officers of the Company,
except in the ordinary course of business and consistent with
past practices;
(10) change in any manner any accounting principles
or methods other than changes which are consistent with
generally accepted accounting principles;
(11) enter into any material commitment or
transaction other than in the ordinary course of business;
(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;
(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;
(14) agree, whether in writing or otherwise, to do
any of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time,
the Company shall (i) except for sales of assets held as inventory, if any, in
the ordinary course of business prior to the Effective Time and except as
otherwise specifically described in the Disclosure Schedules to this Agreement,
have good and valid title to all of its assets including the LMI Assets (as
defined in Section 7.13 hereof) free and clear of all Encumbrances of any nature
whatsoever, except for current year ad valorem taxes and liens which arise by
operation of law, and (ii) have no direct or indirect indebtedness except for
indebtedness disclosed in the Company Financial Statements, the Disclosure
Schedules hereto or for normal and recurring accrued obligations of the Company
arising in connection with its business operations in the ordinary course of
business and which arise from the purchase of merchandise, supplies, inventory
and services used in connection with the provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, share certificate books, share registers,
accounts, tax returns, financial statements and all other data that, in the
reasonable opinion of APP, are required for APP to make such investigation as it
may desire of the properties and business of the Company. APP shall also be
allowed full access upon reasonable prior notice and during regular business
hours (and at such other times as the parties may reasonably agree) to consult
with the officers, employees (after announcement by the Company of the Merger to
its employees which shall occur no later than three (3) days subsequent to
execution hereof by the Company), accountants, counsel and agents of the Company
in connection with such investigation of the properties and business of the
Company. No investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall be
conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall
cause each of its directors, officers, employees or agents not to directly or
indirectly:
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(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or capital stock of the
Company, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of the Company, or, without APP's prior written approval, afford
to any Person other than APP and its agents access to the properties, books or
records of the Company. If the Company receives any offer or proposal after the
date hereof, written or otherwise, of the type referred to above, the Company
shall promptly inform APP of such offer or proposal, decline such offer and
furnish APP with a copy thereof if such offer or proposal is in writing.
Section 7.5 Compliance With Obligations. Prior to the Effective Time,
the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly notify
APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
the Company which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best
efforts to obtain the unanimous approval of its Stockholders to the Merger. In
seeking the approval of its Stockholders, the Company shall provide each
Stockholder with the Form S-4 which shall include information as may be required
by applicable law or as APP shall deem appropriate. The Board of Directors of
the Company
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shall recommend the approval of the Merger by the Stockholders of the Company.
If the Stockholders' approval is not unanimous, the Company shall give notice to
the nonconsenting Stockholders of the action taken by the consenting
Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to Section
7.8 hereof, the Company will take all action reasonably necessary to cause the
Company to perform its obligations under this Agreement and all related
agreements and to consummate the Merger and other transactions contemplated
hereby and thereby on the terms and conditions set forth in this Agreement and
such agreements; provided, however, that this covenant shall not require the
Company to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
Section 7.10 Funding of Accrued Employee Benefits. The Company hereby
covenants and agrees that it will take whatever steps are necessary to pay for
or fund completely any accrued benefits, where applicable, or vested accrued
benefits for which the Company or any entity might have any liability whatsoever
arising from any tax-qualified plan as required under applicable law. The
Company acknowledges that the purpose and intent of this covenant is to assure
that APP Sub shall have no liability whatsoever at any time after the Closing
Date with respect to any such tax-qualified plan, unless such plan is merged
with a plan sponsored by APP or APP Sub.
Section 7.11 Accounting and Tax Matters. The Company will not change in
any material respect the accounting methods or practices followed by the Company
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. The Company will not make
any material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (without regard to any extensions of
time) file all returns, information statements and other documents relating to
taxes of the Company required to be filed by it, and pay all taxes required to
be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company, along with PIC, shall
form, organize and incorporate NewCo in the state of California, and the
articles of incorporation and bylaws of NewCo shall be in form and substance
reasonably satisfactory to APP. Except for consummating the Spin-Off
Transaction, NewCo shall not commence business until the Closing Date. On or
prior to the Closing, the Company shall take all actions and execute all
documents, agreements or instruments necessary pursuant to and in compliance
with applicable law to effect the Spin-Off Transaction, including without
limitation, the following: Prior to Closing, the Company shall transfer to NewCo
good, valid and marketable title to all of the Company's right, title and
interest in and to the Employee Benefit Plans, and those contracts, agreements
and other assets identified in the Disclosure Schedules as being subject to
transfer to NewCo in the Spin-Off transaction, and shall contribute to NewCo
such other consideration and assets of the Company as may be required under
applicable law, in exchange for the issuance by NewCo of shares of NewCo Common
Stock, such shares, along with the shares being issued to PIC in connection with
the Spin-Off Transaction, being all of the issued and outstanding shares of
NewCo Common Stock. The Company shall then distribute the shares of NewCo Common
Stock to Stockholders in proportion to their respective ownership interests in
the Company.
Section 7.13 Transfer of Lafayette Medical Imaging Assets. Prior to the
Merger, the Company agrees to cause Lafayette Medical Imaging, a California
general partnership ("LMI"), to transfer to the Company and/or PIC valid and
marketable title to all of LMI's right, title and interest in and to the assets
listed on the Disclosure Schedules (the "LMI Assets").
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ARTICLE VIII
Covenants of APP and APP Sub
APP and APP Sub agree that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP and APP Sub will take all
action reasonably necessary to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions and take all
corporate and other action necessary to approve the Merger; provided, however,
that this covenant shall not require APP and APP Sub to make any expenditures
that are not expressly set forth in this Agreement or otherwise contemplated
herein.
Section 8.2 Requirements to Effect the Merger and Acquisitions. APP and
APP Sub will use their best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all necessary
documents in form approved by counsel for the parties to this Agreement.
Section 8.3 Access. APP and APP Sub shall, at reasonable times during
normal business hours and on reasonable notice, permit the Company and its
authorized representatives of the Company reasonable access to, and make
available for inspection, all of the assets and business of APP and APP Sub,
including its executive officers, and permit the Company and their authorized
representatives to inspect and, at the Company's sole expense, make copies of
all documents, records and information with respect to the affairs of APP and
APP Sub as the Company and their representatives may reasonably request, all for
the sole purpose of permitting the Company to become familiar with the business
and assets and liabilities of APP and APP Sub. No investigation by the Company
or the Stockholders shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of APP under this
Agreement.
Section 8.4 Notification of Certain Matters. APP and APP Sub shall
promptly inform the Company in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or lapse of time
or both, would become a default, received by APP subsequent to the date of this
Agreement and prior to the Effective Time under any contract, agreement or
investment material to APP's or APP Sub's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; (b) any
material adverse change in APP's condition (financial or otherwise), operations,
assets, liabilities or business or (c) defaults or disputes regarding Other
Agreements.
ARTICLE IX
Covenants of APP, APP Sub and the Company
APP, APP Sub and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP and APP Sub to promptly
prepare and file with the SEC the Registration Statements on Form S-1 and Form
S-4 (or other appropriate Forms) to be filed by APP in connection with its
Initial Public Offering and offering of the shares of APP Common Stock to the
Target Interest Holders pursuant to the transactions contemplated by this
Agreement and the Other Agreements (including the prospectus constituting parts
thereof, the "Registration Statements"). APP shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. The Company shall cooperate with
APP in the preparation of the Registration Statements and shall furnish all
information concerning the Company as may be reasonably requested in connection
with any such action in a timely manner.
(b) The Company, APP and APP Sub and each separately represent and
warrant that (i) in the case of the Company, none of the written information or
documents supplied or to be supplied by it
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specifically for inclusion in the Registration Statements, by exhibit or
otherwise and (ii) in the case of APP or APP Sub, will, at the time the
Registration Statements and each amendment and supplement thereto, if any,
becomes effective under the Securities Act, none of them contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Company shall be
entitled to review the Registration Statements and each of the amendments
thereto, if any, prior to the time each becomes effective under the Securities
Act. The Company shall have no responsibility for information contained in the
Registration Statements except for information provided by the Company
specifically for inclusion therein. The Company's review of the Registration
Statements shall not diminish or otherwise affect the representations, covenants
and warranties of APP and APP Sub contained in this Agreement.
(c) The Company shall, upon request, furnish APP with all information
concerning itself, its subsidiaries, directors, officers, partners,
Stockholders, and such other matters as may be reasonably requested by APP in
connection with the preparation of the Registration Statements and each of the
amendments or supplements thereto, or any other statement, filing, notice or
application made by or on behalf of each such party or any of its subsidiaries
to any governmental entity in connection with the Merger and the other
transactions contemplated by this Agreement.
Section 9.2 Amendments of Disclosure Schedules. Each party hereto
agrees that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to supplement or amend promptly the Disclosure Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on the Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Schedule that constitutes or reflects a Material Adverse Effect on APP may be
made unless the Company consents to such amendment or supplement. For purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 10.1 and 11.1 have been fulfilled,
the Disclosure Schedules hereto shall be deemed to be the Disclosure Schedules
as amended or supplemented pursuant to this Section 9.2. In the event that the
Company seeks to amend or supplement a Disclosure Schedule pursuant to this
Section 9.2 and APP does not consent to such amendment or supplement, or APP
seeks to amend or supplement a Disclosure Schedule pursuant to this Section 9.2,
and the Company does not consent, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Section
351 of the Code.
Section 9.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company in connection with the Merger shall be paid
by the Company in full immediately prior to the Closing and such expenses shall
be the sole responsibility of the Stockholders following the Closing Date and
not APP.
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Section 9.6 Patient Confidentiality. APP and APP Sub shall agree to
keep all records and information regarding the patients of the Company
confidential in accordance with all applicable laws.
Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP and APP Sub
Except as may be waived in writing by APP, the obligations of APP and
APP Sub hereunder are subject to the fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as delivered pursuant to Section 10.12
hereof) shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Effective
Date.
Section 10.2 Covenants. The Company shall have performed and complied
in all material respects with all covenants required by this Agreement to be
performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have delivered
to APP their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse Effect on
the Company shall have occurred since March 31, 1997, whether or not such change
shall have been caused by the deliberate act or omission of the Company or any
Stockholder.
Section 10.6 Government Approvals and Required Consents. The Company,
the Stockholders and APP shall have obtained all licenses, permits and all
necessary government and other third-party approvals and consents required under
any law, statements, rule, regulation or ordinance to consummate the
transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all Disclosure
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
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Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 10.11 Dissenter's Rights. The Company shall have satisfied each
of its obligations to its Stockholders regarding dissenters or related rights
under California Corporate Law, and the sum of the amount which may become due
to the Stockholders who have dissented to the Merger and have indicated their
intent to seek appraisal rights plus the cash portion of the Merger
Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder receiving Merger Consideration shall have executed
and delivered to APP the Stockholder Representation Letter in substantially the
form of Exhibit C. Each Principal Stockholder shall have executed and delivered
to APP the Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties of
the Company and its related entities to be transferred to pursuant to the
Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed in order to effectuate the transactions contemplated by
this Agreement.
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations and
warranties of APP and APP Sub contained herein shall be true and correct in all
material respects when initially made and shall be true and correct in all
material respects as of the Effective Date.
Section 11.2 Covenants. APP and APP Sub shall have performed and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Effective
Date.
Section 11.3 Legal Opinions. Counsel to APP and APP Sub shall have
delivered to the Company their opinion, dated as of the Effective Date, in form
and substance substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The Company,
the Stockholders, APP and APP Sub shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, contracts or any statute, rule, regulation or ordinances to
consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statements shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. At or prior to the Effective Date, the APP
Common Stock shall have been approved for listing on the Nasdaq National Market,
subject only to official notification of issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
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Section 11.8 Closing Deliveries. The Company shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to the Company referred to in Section
12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect on
APP or APP Sub shall have occurred since __________, 1997, whether or not such
change shall have been caused by the deliberate act or omission of APP or APP
Sub.
Section 11.10 Closing of Related Acquisition Involving PIC. The TMI
Assets shall have been transferred to PIC and the Related Acquisition involving
PIC shall have closed.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Effective
Date, the Company shall deliver to APP the following, all of which shall be in a
form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
and the Service Agreement and all related documents and agreements and
consummation of the Merger, each certified by the Secretary of the Company as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors
authorizing the execution, delivery and performance of the Service Agreement,
the Security Agreement and the Physician Employment Agreements each certified by
the Secretary as being true and correct copies of the originals thereof subject
to no modifications or amendments;
(c) a certificate of the President of the Company dated the
Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the
Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by the
Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company certifying
as to the incumbency of the directors and officers of such corporation and as to
the signatures of such directors and officers who have executed documents
delivered at the Closing on behalf of that corporation;
(f) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretary of State of California for the Company
establishing that each such corporation is in existence, has paid all franchise
or similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in the state of California;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which the Company
is qualified to do business, to the effect that each such corporation is
qualified to do business and, if applicable, is in good standing as a foreign
corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
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(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) intentionally omitted;
(k) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to
in Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty
of perjury and dated as of the Closing Date, to the effect that such Stockholder
is a United States citizen or a resident alien (and thus not a foreign person)
and providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit E (the "Stockholder Release");
(n) intentionally omitted; and
(o) such other instrument or instruments of transfer prepared
by APP as shall be necessary or appropriate, as APP or its counsel shall
reasonably request, to carry out and effect the purpose and intent of this
Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective Date, APP
shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) a copy of resolutions of the Board of Directors of APP Sub
authorizing the execution, delivery and performance of this Agreement, the
Service Agreement and the Security Agreement, each certified by the Secretary of
APP Sub as being true correct copies of the originals thereof subject to no
modifications or amendments;
(c) a certificate of the President of APP and APP Sub dated
the Closing Date as to the truth and correctness of the representations and
warranties of APP and APP Sub contained herein on and as of the Effective Date;
(d) a certificate of the President of APP and APP Sub dated
the Closing Date, (i) as to the performance and compliance by APP or APP Sub
with all covenants contained herein on and as of the Effective Date and (ii)
certifying that all conditions precedent required to be satisfied by APP and APP
Sub shall have been satisfied;
(e) a certificate of the Secretary of APP and APP Sub
certifying as to the incumbency and to the signatures of the officers of APP or
APP Sub who have executed documents delivered at the Closing on behalf of APP or
APP Sub;
(f) a certificate, dated within ten (10) days prior to the
Effective Date, of the secretary of state of incorporation establishing that APP
and APP Sub are, respectively, in existence, have paid all franchise or similar
taxes, if any, and otherwise are in good standing to transact business in the
state of Delaware and California;
(g) certificates (or photocopies thereof), dated within ten
(10) days prior to the Effective Date, of the Secretaries of State of the states
in which either APP and APP Sub is qualified to
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do business, to the effect that APP and APP Sub is qualified to do business and
is in good standing as a foreign corporation in such state;
(h) intentionally omitted;
(i) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II and
Exhibit B hereof; and
(k) such other instrument or instruments of transfer prepared
by the Company as shall be necessary or appropriate, as the Company or its
counsel shall reasonably request, to carry out and effect the purpose and intent
of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing, at
the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing at
________'s sole cost and expense, APP or the Surviving Corporation shall deliver
any further instruments of transfer and take all reasonable action as may be
necessary and appropriate to carry out the purpose and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and records
shall be maintained, and all Tax Returns and schedules thereto shall be filed in
a manner consistent with the Merger being treated as a Reorganization. These
obligations are excused as to a party required to maintain the books or file a
Tax Return if such party has provided to the other parties a written opinion of
competent tax counsel to the effect that there is not substantial authority,
within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report the Merger
as a Reorganization and such opinion either is furnished prior to the Effective
Time or is based on facts or events not known at the Effective Time. Each party
shall provide to each other party such tax information, reports, returns, or
schedules as may be reasonably required to assist such party in accounting for
and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any taxes
incurred by the Company and for which APP has successor liability therefor which
arise solely as a result of the Merger or the consummation of the transactions
contemplated hereby; provided that the foregoing shall not limit or otherwise be
deemed a waiver of any right of indemnification under Section 14.1 for a breach
of any representation, warranty or covenant of the Company or any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
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ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms and
conditions of this Article XIV, the Company agrees to indemnify, defend and hold
APP and the Surviving Corporation and their respective directors, officers,
stockholders, employees, agents, attorneys, consultants and Affiliates harmless
from and against all losses, claims, obligations, demands, assessments,
penalties, liabilities, costs, damages, reasonable attorneys' fees and expenses
(including, without limitation, all costs of experts and all costs incidental to
or in connection with any appellate process) (collectively, "Damages") asserted
against or incurred by such individuals and/or entities arising out of or
resulting from:
(a) a breach by the Company of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of the Company
contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company and/or
any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statement
of a material fact in any Registration Statement or any prospectus forming or
part thereof, or any amendment thereof or supplement thereto relating to the
Company (including any Company Subsidiary) required to be stated therein or (ii)
failure to state information necessary to make the statements therein not
misleading, which untrue statement or failure to state information arises or
results solely from information provided in writing to APP or its counsel by the
Company or any Stockholder or their agents specifically for inclusion in any
such Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP and APP Sub. Subject to the terms
and conditions of this Article XIV, APP and APP Sub jointly and severally hereby
agree to indemnify, defend and hold the Stockholders, the Company and their
respective directors, officers, stockholders, employees, agents, attorneys,
consultants and Affiliates harmless from and against all Damages asserted
against or incurred by such individuals and/or entities arising out of or
resulting from:
(a) a breach by APP or APP Sub of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of APP or
APP Sub contained in this Agreement or in any schedule or certificate delivered
hereunder; and
(b) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any untrue statements of
material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or required to be
stated therein or failure to state information necessary to make the statements
therein not misleading (except for any liability based upon any actual or
alleged untrue statement of material fact or an omission to state a material
fact relating to the Company or any Stockholder to the extent derived from any
information provided in writing by the Company or a Company Subsidiary or any of
their agents contained in the representations and
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warranties set forth in this Agreement or any certificate, exhibit, schedule or
instrument required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
of any of the parties hereto of liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement (an
"Indemnified Party") shall promptly (and, in the event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party for whom indemnification is sought (the "Indemnifying
Party) of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of Damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve any
Indemnifying Party of its obligations to any Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within thirty (30) days
after receipt of any Claim Notice (the "Election Period"), the Indemnifying
Party shall notify the Indemnified Party (x) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XIV
with respect to such Third Party Claim and (y) whether the Indemnifying Party
desires, at the sole cost and expense of such Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set forth
in Section 14.3(f) below, the Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. The
Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 14.3(b) and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in
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writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 14.3(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 14.3(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes their potential liability to the Indemnified
Party under this Article XIV and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 14.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Article XIV relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice period
or (ii) the expiration of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
agrees to such
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settlement, but the Indemnified Party elects not to accept and agree to it, the
Indemnified Party may continue to contest or defend such Third Party Claim and,
in such event, the total maximum liability of the Indemnifying Party to
indemnify or otherwise reimburse the Indemnified Party hereunder with respect to
such a claim shall be limited to and shall not exceed the amount of such
settlement offer, plus reasonable out-of-pocket costs and reasonable expenses
(including reasonable attorneys' fees and disbursements) to the date of notice
that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding any provision herein to the contrary, the
obligation of an Indemnifying Party to provide indemnification to an Indemnified
Party for breach of any representation or warranty as provided in Sections
14.1(a) or 14.2(a) hereof shall not take effect unless and until the Damages
asserted against or incurred in the aggregate and on a collective basis by the
Indemnified Parties pursuant to either Section 14.1 or 14.2 (as applicable) as a
result of such a breach or breaches exceeds
[$____________].
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the
Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or any Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any Stockholder
fails to comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(c) at any time prior to the Effective Date by the Company if
any representation or warranty of APP or APP Sub contained in this Agreement or
in any certificate or other document executed and delivered by APP or APP Sub
pursuant to this Agreement is or becomes untrue in any material respect or if
APP fails to comply in any material respect with any covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(d) at any time prior to the Effective Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
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Section 15.2 Effect of Termination. Except as set forth in Section
16.3, in the event this Agreement is terminated pursuant to this Article XV,
this Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company recognizes and
acknowledges that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP and the
Surviving Corporation that is valuable, special and a unique asset of such
entity's business. APP and APP Sub acknowledge that they had in the past,
currently have, and in the future may possibly have, access to certain
Confidential Information of the Company that is valuable, special and a unique
asset of each such business. The Company, APP, and APP Sub, severally, agree
that they will not disclose such Confidential Information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of APP, APP Sub, Surviving Corporation
and the Company and (b) to counsel and other advisers to APP, APP Sub, Surviving
Corporation and the Company provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 16.1, unless (i) such
information becomes available to or known by the public generally through no
fault of the Company, APP or APP Sub, as the case may be, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause (ii)
the Company, APP or APP Sub, as the case may be, shall, if possible, give prior
written notice thereof to the Company, APP or APP Sub and provide the Company,
APP or APP Sub with the opportunity to contest such disclosure, (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, or (iv)
the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Merger or otherwise. In the event of a breach or
threatened breach by the Company, on the one hand, and APP or APP Sub, on the
other hand, of the provisions of this Section, APP, APP Sub, the Surviving
Corporation and the Company shall be entitled to an injunction restraining the
other party, as the case may be, from disclosing, in whole or in part, such
Confidential Information. Nothing herein shall be construed as prohibiting any
of such parties from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
Section 16.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, APP Sub, the Surviving Corporation and the
Company agree that, in the event of a breach by either of them of the foregoing
covenant, the covenant may be enforced against them by injunctions and
restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
Section 17.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
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Section 17.3 Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP and APP Sub
acknowledge and agree that the rights and remedies of the Company under this
Agreement will be directly available to the Stockholders as third party
beneficiaries of the rights and remedies of the Company under this Agreement,
including, without limitation, the rights and remedies under Article 14 hereof
to indemnification from APP and APP Sub against Damages incurred by the
Stockholders resulting from a breach by APP or APP Sub of any representation,
warranty or covenant of APP or APP Sub contained herein. Except as provided in
the preceding sentence or as otherwise provided herein, neither this Agreement
nor any other agreement contemplated hereby shall be deemed to confer upon any
person not a party hereto or thereto any rights or remedies hereunder or
thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder, APP or APP
Sub pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder, APP and APP Sub. Notwithstanding
any provision in this Agreement to the contrary, the representations and
warranties contained herein shall survive the Closing until the second
anniversary of the Closing Date except that (a) the representations and
warranties set forth in Section 3.21 with respect to environmental matters shall
survive for a period of ten (10) years, (b) the representations and warranties
set forth in Section 3.30 with respect to tax matters shall survive until such
time as the limitations period has run for all tax periods ended prior to the
Closing Date, (c) the representations and warranties contained in Section 3.27
and Section 3.33 with respect to healthcare matters shall survive for a period
of six (6) years and (d) solely for purposes of Section 14.1(c) and Section
14.2(c), and solely to the extent that any party to be indemnified pursuant to
such provisions actually incurs liability under the Securities Act, the Exchange
Act or any other federal or state securities law, the representations and
warranties set forth therein shall survive until the expiration of any
applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF CALIFORNIA.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
Section 17.9 Gender and Number. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
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Section 17.11 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
<TABLE>
<S> <C>
If to APP and APP Sub: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Total Medical Imaging, Inc.
350 Hawthorne Blvd.
Oakland, California 94609
Fax No.: (510) 869-6251
Attn: Mark H. Weinberg, MBA
with a copy to : Wendel, Rosen, Black & Dean LLP
1111 Broadway, 24th Floor
Oakland, California 94607-4036
Fax No.: (510) 834-1928
Attn: Walter R. Turner, Esq.
</TABLE>
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party
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hereto, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F and the Disclosure Schedules attached
hereto with their initial letter capitalized and not otherwise defined therein
shall have the meanings as assigned to such terms in this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
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<PAGE> 994
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_______________________________________
Gregory L. Solomon, President
APP SUB:
[AMERICAN PHYSICIAN PARTNERS,
SUBSIDIARY, INC.]
By:_______________________________________
Its:______________________________________
THE COMPANY:
TOTAL MEDICAL IMAGING, INC.
By:_______________________________________
Its:______________________________________
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EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-634
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EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-635
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EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-636
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EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-637
<PAGE> 999
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-638
<PAGE> 1000
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth
therein are delivered in connection with that certain Agreement and Plan of
Reorganization and Merger dated ____________, 1997, by and between American
Physician Partners, Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made pursuant
to one section number can reasonably be interpreted by other parties to be a
disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain
exceptions to the representations and warranties set forth in Article III of the
Agreement, the inclusion of an item on these Disclosure Schedules shall not be
deemed an admission by American Physician Partners, Inc. that such item is
material to American Physician Partners, Inc., APP Sub, the Company or any
Company Subsidiary or that it will have a material adverse effect on American
Physician Partners, Inc., APP Sub, the Company or any Company Subsidiary.
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<PAGE> 1001
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and TOTAL
MEDICAL IMAGING, INC., a California corporation (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
TOTAL MEDICAL IMAGING, INC.
By:_________________________________
Its:________________________________
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and between
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)
and
RADIOLOGY AND NUCLEAR MEDICINE, A PROFESSIONAL ASSOCIATION
(a Kansas professional association)
================================================================================
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TABLE OF CONTENTS
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ARTICLE I Definitions.......................................................................... 2
Section 1.1 Definitions.......................................................................... 2
Section 1.2 Rules Of Interpretation.............................................................. 6
ARTICLE II The Merger........................................................................... 6
Section 2.1 The Merger........................................................................... 6
Section 2.2 The Closing.......................................................................... 6
Section 2.3 Effective Time....................................................................... 6
Section 2.4 Certificate of Incorporation of Surviving Corporation................................ 6
Section 2.5 Bylaws of Surviving Corporation...................................................... 7
Section 2.6 Directors of the Surviving Corporation............................................... 7
Section 2.7 Officers of the Surviving Corporation................................................ 7
Section 2.8 Conversion of Company Common Stock................................................... 7
Section 2.9 Exchange of Certificates Representing Shares of the Company Common
Stock................................................................................ 7
Section 2.10 Fractional Shares.................................................................... 8
ARTICLE III Representations and Warranties of the Company........................................ 8
Section 3.1 Organization and Good Standing; Qualification........................................ 8
Section 3.2 Authorization and Validity........................................................... 8
Section 3.3 Governmental Authorization........................................................... 8
Section 3.4 Capitalization....................................................................... 9
Section 3.5 Transactions in Capital Stock........................................................ 9
Section 3.6 Continuity of Business Enterprise.................................................... 9
Section 3.7 Subsidiaries and Investments......................................................... 9
Section 3.8 Absence of Conflicting Agreements or Required Consents............................... 9
Section 3.9 Intentionally omitted................................................................ 9
Section 3.10 Absence of Changes................................................................... 10
Section 3.11 No Undisclosed Liabilities........................................................... 10
Section 3.12 Litigation and Claims................................................................ 11
Section 3.13 No Violation of Law.................................................................. 11
Section 3.14 Lease Agreements..................................................................... 11
Section 3.15 Real and Personal Property........................................................... 11
Section 3.16 Indebtedness for Borrowed Money...................................................... 12
Section 3.17 Contracts and Commitments............................................................ 12
Section 3.18 Employee Matters..................................................................... 13
Section 3.19 Labor Relations...................................................................... 13
Section 3.20 Employee Benefit Plans............................................................... 14
Section 3.21 Environmental Matters................................................................ 15
Section 3.22 Filing Reports....................................................................... 16
Section 3.23 Insurance Policies................................................................... 16
Section 3.24 Accounts Receivable; Payors.......................................................... 17
Section 3.25 Accounts Payable; Suppliers.......................................................... 17
Section 3.26 Inventory............................................................................ 17
Section 3.27 Licenses, Authorization and Provider Programs........................................ 18
Section 3.28 Inspections and Investigations....................................................... 18
Section 3.29 Proprietary Rights and Information................................................... 19
Section 3.30 Taxes................................................................................ 19
Section 3.31 Related Party Arrangements........................................................... 20
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Section 3.32 Banking Relations.................................................................... 20
Section 3.33 Fraud and Abuse and Self Referral.................................................... 21
Section 3.34 Restrictions on Business Activities.................................................. 21
Section 3.35 Agreements in Full Force and Effect.................................................. 21
Section 3.36 Statements True and Correct.......................................................... 21
Section 3.37 Disclosure Schedules................................................................. 21
Section 3.38 Finders' Fees........................................................................ 21
ARTICLE IV Representations and Warranties of APP................................................ 21
Section 4.1 Organization and Good Standing; Qualification........................................ 22
Section 4.2 Authorization and Validity........................................................... 22
Section 4.3 Governmental Authorization........................................................... 22
Section 4.4 Capitalization....................................................................... 22
Section 4.5 Subsidiaries and Investments......................................................... 23
Section 4.6 Absence of Conflicting Agreements or Required Consents............................... 23
Section 4.7 Absence of Changes................................................................... 23
Section 4.8 No Undisclosed Liabilities........................................................... 23
Section 4.9 Litigation and Claims................................................................ 23
Section 4.10 No Violation of Law.................................................................. 23
Section 4.11 Employee Matters..................................................................... 23
Section 4.12 Taxes................................................................................ 24
Section 4.13 Related Party Arrangements........................................................... 25
Section 4.14 Statements True and Correct.......................................................... 25
Section 4.15 Disclosure Schedules................................................................. 25
Section 4.16 Finder's Fees........................................................................ 25
Section 4.17 Agreements in Full Force and Effect.................................................. 25
ARTICLE V Closing Date Representations and Warranties of the Company........................... 25
Section 5.1 Organization and Good Standing; Qualification........................................ 25
Section 5.2 Capitalization....................................................................... 25
Section 5.3 Corporate Records.................................................................... 26
Section 5.4 Authorization and Validity........................................................... 26
Section 5.5 No Violation......................................................................... 26
Section 5.6 No Business, Agreements, Assets or Liabilities....................................... 26
Section 5.7 Compliance with Laws................................................................. 26
ARTICLE VI ARTICLE VI INTENTIONALLY OMITTED..................................................... 26
ARTICLE VII Covenants of the Company............................................................. 26
Section 7.1 Conduct of The Company............................................................... 26
Section 7.2 Title to Assets; Indebtedness........................................................ 28
Section 7.3 Access............................................................................... 28
Section 7.4 Acquisition Proposals................................................................ 28
Section 7.5 Compliance With Obligations.......................................................... 29
Section 7.6 Notice of Certain Events............................................................. 29
Section 7.7 Intentionally omitted................................................................ 29
Section 7.8 Stockholders' Consent................................................................ 29
Section 7.9 Obligations of Company and Stockholders.............................................. 29
Section 7.10 Funding of Accrued Employee Benefits................................................. 30
Section 7.11 Accounting and Tax Matters........................................................... 30
Section 7.12 Spin-Off Transaction................................................................. 30
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ARTICLE VIII Covenants of APP.............................................................................. 31
Section 8.1 Consummation of Agreement............................................................ 31
Section 8.2 Requirements to Effect the Merger and Acquisitions................................... 31
Section 8.3 Access............................................................................... 31
Section 8.4 Notification of Certain Matters...................................................... 31
Section 8.5 Qualified Retirement Plans........................................................... 31
ARTICLE IX Covenants of APP and the Company..................................................... 32
Section 9.1 Filings; Other Action................................................................ 32
Section 9.2 Amendments of Disclosure Schedules................................................... 32
Section 9.3 Actions Contrary to Stated Intent.................................................... 33
Section 9.4 Public Announcements................................................................. 33
Section 9.5 Expenses............................................................................. 33
Section 9.6 Patient Confidentiality.............................................................. 33
Section 9.7 Registration Statements.............................................................. 33
ARTICLE X Conditions Precedent of APP.......................................................... 33
Section 10.1 Representations and Warranties....................................................... 33
Section 10.2 Covenants............................................................................ 33
Section 10.3 Legal Opinion........................................................................ 33
Section 10.4 Proceedings.......................................................................... 33
Section 10.5 No Material Adverse Effect........................................................... 33
Section 10.6 Government Approvals and Required Consents........................................... 33
Section 10.7 Securities Approvals................................................................. 34
Section 10.8 Closing Deliveries................................................................... 34
Section 10.9 Closing of Initial Public Offering................................................... 34
Section 10.10 Closing of Related Acquisitions...................................................... 34
Section 10.11 Dissenter's Rights................................................................... 34
Section 10.12 Stockholder Representation Letter; Indemnification Agreement......................... 34
Section 10.13 Transfer of Assets................................................................... 34
ARTICLE XI Conditions Precedent of the Company.................................................. 34
Section 11.1 Representations and Warranties....................................................... 34
Section 11.2 Covenants............................................................................ 34
Section 11.3 Legal Opinions....................................................................... 35
Section 11.4 Proceedings.......................................................................... 35
Section 11.5 Government Approvals and Required Consents........................................... 35
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing................................................. 35
Section 11.7 Closing of Initial Public Offering................................................... 35
Section 11.8 Closing Deliveries................................................................... 35
Section 11.9 No Material Adverse Effect........................................................... 35
Section 11.10 Service Fee Valuations............................................................... 35
Section 11.11 Tax Opinion.......................................................................... 35
ARTICLE XII Closing Deliveries................................................................... 35
Section 12.1 Deliveries of the Company............................................................ 35
Section 12.2 Deliveries of APP. .................................................................. 36
ARTICLE XIII Post Closing Matters.......................................................................... 37
Section 13.1 Further Instruments of Transfer...................................................... 37
Section 13.2 Merger Tax Covenant.................................................................. 38
Section 13.3 Current Public Information........................................................... 38
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ARTICLE XIV Remedies...................................................................................... 38
Section 14.1 Indemnification by the Company....................................................... 38
Section 14.2 Indemnification by APP............................................................... 39
Section 14.3 Conditions of Indemnification........................................................ 39
Section 14.4 Costs, Expenses and Legal Fees....................................................... 41
Section 14.5 Tax Benefits; Insurance Proceeds..................................................... 41
ARTICLE XV Termination.......................................................................... 42
Section 15.1 Termination.......................................................................... 42
Section 15.2 Effect of Termination................................................................ 42
ARTICLE XVI Nondisclosure of Confidential Information..................................................... 42
Section 16.1 Non-Disclosure Covenant.............................................................. 42
Section 16.2 Damages.............................................................................. 43
Section 16.3 Survival............................................................................. 43
ARTICLE XVII Miscellaneous................................................................................. 43
Section 17.1 Amendment; Waivers................................................................... 43
Section 17.2 Assignment........................................................................... 43
Section 17.3 Parties in Interest; No Third Party Beneficiaries.................................... 43
Section 17.4 Entire Agreement..................................................................... 43
Section 17.5 Severability......................................................................... 43
Section 17.6 Survival of Representations, Warranties and Covenants................................ 44
Section 17.7 Governing Law........................................................................ 44
Section 17.8 Captions............................................................................. 44
Section 17.9 Gender and Number.................................................................... 44
Section 17.10 Intentionally omitted................................................................ 44
Section 17.11 Confidentiality; Publicity and Disclosures........................................... 44
Section 17.12 Notice............................................................................... 44
Section 17.13 No Waiver; Remedies.................................................................. 45
Section 17.14 Counterparts......................................................................... 45
Section 17.15 Defined Terms........................................................................ 45
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EXHIBITS
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Exhibit A - List of Target Companies............................................................................A-1
Exhibit B - Merger Consideration................................................................................B-1
Exhibit C - Stockholder Representation Letter...................................................................C-1
Exhibit D - Indemnification Agreement...........................................................................D-1
Exhibit E - Physician Employment Agreement .....................................................................E-1
Exhibit F - Service Agreement...................................................................................F-1
Exhibit G - Stockholder Release.................................................................................G-1
Exhibit 1.1 - List of Stockholders Exhibit 10.3 - Legal Opinion (Company
Counsel) Exhibit 11.3 - Legal Opinion (APP Counsel) Exhibit 11.11 - Tax Opinion
Exhibit 12.2(k) - APP Tax Certificate
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP") and RADIOLOGY AND NUCLEAR
MEDICINE, A PROFESSIONAL ASSOCIATION, a Kansas professional association (the
"Company").
RECITALS
A. The Company owns and operates (i) a professional medical practice(s)
specializing in radiology and (ii) a diagnostic imaging center. All of the
shares of the common stock, of the Company (the "Company Common Stock") are
owned beneficially and of record by the Stockholders.
B. APP is engaged in the business of owning, operating and acquiring
the assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that the
Company be merged with and into APP, and that APP be the sole surviving
corporation (sometimes referred to hereinafter as the "Surviving Corporation"),
and the Company be the disappearing corporation (sometimes referred to
hereinafter as the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) the Company will merge
with and into APP upon the terms and conditions set forth herein and in
accordance with the laws of the State of Kansas and (ii) the outstanding shares
of the Company Common Stock shall be converted at such time into cash and shares
of common stock, par value $.0001 per share, of APP (the "APP Common Stock") as
set forth herein.
E. Prior to the Merger, the Company intends to transfer certain of its
assets most of which relate solely to the practice of medicine to a newly formed
Kansas limited liability company ("NewCo"), such transfer to be made for the
benefit of the Stockholders who are also members of NewCo (the "Spin- Off
Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter into,
an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Stockholders, the "Target Interest Holders")
of each of the entities listed on Exhibit A (together with the Company, the
"Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder.
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AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, NewCo and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed in Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the recitals
to this Agreement.
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
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"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section 3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section 3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the terms
hereof, as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement is
declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering of
APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section 14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or other
fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA SectionSection 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA SectionSection 1401
et seq., (iv) The Occupational Safety and Health Act, 29 USCA SectionSection 651
et seq., (v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
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"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Section 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Physician Employee" shall mean each radiologist employed by the
Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the recitals
to this Agreement.
"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
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"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed to
be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into APP
in accordance with this Agreement and the separate corporate existence of the
Disappearing Corporation shall thereupon cease (the "Merger"). APP shall be the
Surviving Corporation in the Merger and shall continue to be governed by the
laws of the State of Delaware, and the separate corporate existence of APP with
all its rights, privileges, powers, immunities, purposes and franchises shall
continue unaffected by the Merger, except as set forth herein. The Surviving
Corporation may, at any time concurrent with and/or after the Effective Time,
take any action in the name of or on behalf of the Disappearing Corporation in
order to effectuate the transactions contemplated by this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take place
at 10:00 a.m., local time, at the offices of APP located at 2301 NationsBank
Plaza, 901 Main Street, Dallas, Texas on the day on which the transactions
contemplated by the Initial Public Offering are consummated. The date on which
the Closing occurs is hereinafter referred to as the "Closing Date."
Section 2.3 Effective Time. If all the conditions to the Merger set
forth in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section 252
and Section 17-6702 of the Kansas General Corporation Code. The Merger shall
become effective at the time of the filing of such documents with the
Secretaries of State of the States of Kansas and Delaware, in accordance with
such law or at such later time which the parties hereto have theretofore agreed
upon and designated in such filings as the effective time of the Merger (the
"Effective Time").
Section 2.4 Certificate of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Articles of Incorporation of APP in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation without any amendment or modification as a result
of the Merger.
Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger.
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Section 2.6 Directors of the Surviving Corporation. The persons who are
directors of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time.
Section 2.7 Officers of the Surviving Corporation. The persons who are
officers of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the
part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time shall
be terminated and cancelled, without payment of any consideration therefor, and
shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged and
remain outstanding as a validly issued, fully paid and nonassessable share of
APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the
Company Common Stock.
(a) At or after the Effective Time and at the Closing (i) the
Stockholders, as holders of a certificate or certificates which, until the
Effective Time, represented shares of the Company's Common Stock, shall upon
surrender of each certificate or certificates (or completion of appropriate
affidavit of lost certificate and indemnity) receive such allocation of Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto; and (ii) until each certificate or certificates representing
Company Common Stock have been surrendered by the Stockholders, the certificates
for Company Common Stock shall, for all purposes, represent solely the right to
receive Merger Consideration as determined in accordance with the provisions of
Exhibit B attached hereto and Section 2.10 hereof, if applicable. At the
Effective Time, each share of Company Common Stock converted into Merger
Consideration shall by virtue of the Merger and without any action on the part
of the holders thereof, cease to be outstanding, be cancelled and returned and
all shares of APP Common Stock issuable to the Stockholders in the Merger as
part of the Merger Consideration shall be deemed for all purposes to have been
issued by APP at the Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Company
Common Stock or with respect to the stock powers accompanying any Company Common
Stock. Upon such delivery (or completion of appropriate affidavit
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of lost certificate and indemnity), each Stockholder shall receive in exchange
therefor the Merger Consideration pursuant to Exhibit B and Section 2.10 hereof,
if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of APP Common Stock will be issued and any
Stockholder otherwise entitled to receive a fractional share of APP Common Stock
as part of the Merger Consideration hereunder shall receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to consummate
the Merger and except as set forth in the Disclosure Schedules attached hereto
and incorporated herein by this reference, the Company represents and warrants
to APP as of the date hereof and as of the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. The Company and each Company Subsidiary is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all requisite
corporate power to enter into this Agreement and all other agreements entered
into in connection with the transactions contemplated hereby and to consummate
the transactions contemplated hereby. The execution, delivery and, subject to
approval of this Agreement and the Merger by the Stockholders, performance by
the Company of this Agreement and the agreements contemplated herein, and the
consummation by the Company of the transactions contemplated hereby and thereby
are within the Company's respective corporate powers and have been duly
authorized by all necessary action on the part of the Company's Board of
Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby to which the Company is
a party constitute, or upon execution will constitute, valid and binding
agreements of the Company, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting the enforcement of creditors' rights generally, or by general
equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger (as contemplated by Section
2.3) and any other required documents related to the Merger, and other than
consents, filings or notifications required to be made or obtained solely by APP
(including, without limitation, in connection with the Initial Public Offering,
Form S-4 or any Hart-Scott-Rodino filing to be made by APP, if any), the
execution, delivery and performance by the Company of this Agreement and the
agreements provided for herein, and the consummation of the transactions
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contemplated hereby and thereby by the Company require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 3.4 Capitalization. The authorized capital stock of the Company
consists of [_____] shares of the Company Common Stock, of which [____] shares
are issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the Company has no securities, bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
Section 3.5 Transactions in Capital Stock. There exist no Company
Rights. The Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership of shares
among any of its Stockholders has been altered or changed in contemplation of
the Merger within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the (2) two
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, require any notice under, or accelerate or modify, or permit any
person to accelerate or modify, any performance required by the terms of any
agreement, instrument, license or permit, to which the Company is a party or by
which the Company or any of its properties are subject or bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on the Company; and (v) except as
contemplated by this Agreement, will not create any Encumbrance or restriction
upon the Company Common Stock or any of the assets or properties of the Company.
Section 3.9 Intentionally omitted.
Section 3.10 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
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(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent
with past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with
past practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable, mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee benefits
for any employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends or
other distributions to any Stockholder or any other holder of capital stock of
the Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its knowledge,
the Company does not have any liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted except for
liabilities or obligations reflected or reserved against in the Company's
Current Balance Sheet.
Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder, the Physician Employees or any other licensed professional or other
individual affiliated with
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the Company affecting or that would reasonably be likely to affect the Company
Common Stock or the operations, business condition, (financial or otherwise), or
results of operations of the Company which (i) if successful, may, individually
or in the aggregate, have a Material Adverse Effect on the Company or (ii) could
adversely affect the ability of the Company or any Company Subsidiary to effect
the transactions contemplated hereby, and to the knowledge of the Company there
is no basis for any such action or any state of facts or occurrence of any event
which would reasonably be likely to give rise to the foregoing. There are no
unsatisfied judgments against the Company or any Company Subsidiary or any
licensed professional or other individual affiliated with the Company or any
Company Subsidiary relating to services provided on behalf of the Company or any
Company Subsidiary or any consent decrees to which any of the foregoing is
subject. Each of the matters, if any, set forth in this Section 3.12 is fully
covered by policies of insurance of the Company or any Company Subsidiary as in
effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any Company
Subsidiary has been, nor shall be as of the Effective Time (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which the Company or any Company Subsidiary is a party and pursuant to which the
Company or any Company Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the operation of its business and which requires payments in excess of
$12,000 per year (the "Lease Agreements"). The Company has delivered to APP true
and complete copies of all of the Lease Agreements. Each Lease Agreement is
valid, effective and in full force in accordance with its terms, and there is
not under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver to
APP in writing such consents as are necessary to effect a valid and binding
transfer or assignment of the Company's or any Company Subsidiary's rights
thereunder. The Company has a good, clear, valid and enforceable leasehold
interest under each of the Lease Agreements. The Lease Agreements comply with
the exceptions to ownership interests and compensation arrangements set out in
42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar applicable
state law safe harbor or other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good title
to all of its properties and assets (real, personal and mixed, tangible and
intangible) and any rights or interests therein which it purports to own
including, without limitation, all the property and assets reflected in the
Company Current Financial Statements; and (ii) owns such rights, interests,
assets and property free and clear of all Encumbrances, title defects or
objections (except for taxes not yet due and payable). The personal property
presently used in connection with the operation of the business of the Company
and
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the Company Subsidiaries constitutes the necessary personal property assets to
continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, the Company does not have any
direct or indirect indebtedness for borrowed money, including indebtedness by
way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000 in
any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP of the assets and
properties to be acquired by APP from the Company, or which could inhibit or
prevent the Company from transferring to or vesting in APP good and sufficient
title to the assets and properties to be acquired by APP and the Surviving
Corporation except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, the Company
shall, on or before the Closing Date, use reasonable good faith efforts to
obtain and deliver to APP in writing, effective as of the Closing Date, such
consents as are necessary to enable the Surviving Corporation to enjoy all of
the rights now enjoyed by the Company under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to APP
any contracts or agreements relating to the provision of professional medical
services or other such agreements and contracts that APP consents to in writing
to be transferred to NewCo in the Spin-off Transaction. No contract with a
health care provider or Payor has been materially amended or terminated within
the last twelve (12) months.
(b) The Company (i) has not received notice of any plan or
intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument required to be disclosed pursuant to Section
3.17(a), and to the knowledge of the Company there are no fact(s) that would
justify the exercise of such a right; and (ii) does not currently contemplate,
or have reason to
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believe any other Person currently contemplates, any amendment or change to any
such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a party to
any employment contract (except for oral employment agreements which are
terminable at will), consulting or collective bargaining contracts, deferred
compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected to
receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for it
to the date hereof or amounts required to be reimbursed to such employees. Upon
termination of employment of any employee or Physician Employee, no severance or
other payments will become due and the Company has no policy, past practice or
plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair labor
practice, charge or complaint or any other employment-related matter against or
involving the Company pending or threatened before the National Labor Relations
Board or any federal, state or local agency, authority or court;
(c) To the knowledge of the Company, there are no charges,
investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the
Immigration Reform and Control Act of 1986, as amended, and all applicable
regulations promulgated thereunder; and
(e) To the knowledge of the Company, there are no inquiries,
investigations or monitoring activities of any licensed, registered, or
certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or
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to which the Company contributes on behalf of its employees and all employee
benefit plans previously sponsored or contributed to on behalf of its employees
within the three years preceding the date hereof (the "Employee Benefit Plans").
The Company has provided to APP copies of all plan documents (as they may have
been amended to the date hereof), determination letters, pending determination
letter applications, trust instruments, insurance contracts or policies related
to an Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee Benefit
Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any notice that
any Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach of
any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or other
liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the Company's
knowledge, threatened, claims, suits or other proceedings exist with respect to
any Employee Benefit Plan other than normal benefit claims filed by participants
or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or 501(c)(9)
of the Code and/or tax-exempt within the meaning of Section 501(a) of the Code
and, to the best knowledge of the Company and each Stockholder, has been
continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation of
any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency (within
the meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Company is a member (a "Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such plan
are at least equal in value to the present value of accrued benefits determined
on an ongoing basis as of the date hereof. With respect to each Employee Benefit
Plan described in Section 501(c)(9) of the Code, the assets of each such plan
are at least equal in value to the present value of accrued benefits, based upon
the most recent actuarial valuation as of a date no more than ninety (90) days
prior to the date hereof. The Disclosure Schedules contain a complete and
accurate statement of all actuarial assumptions applied to determine the present
value of accrued benefits under all Employee Benefit Plans subject to actuarial
assumptions.
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(h) Excise Taxes. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any member of
a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section 412
of the Code.
(j) PBGC. No facts or circumstances are known to the Company
that would result in the imposition of liability against APP or any of its
Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result of
any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any Employee
Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable provisions of ERISA.
(l) Other Compensation Arrangements. Neither the Company nor,
to the Company's knowledge, any Stockholder or Physician Employee is a party to
any compensation or debt arrangement with any Person relating to the provision
of health care related services other than arrangements with the Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has, within
the five (5) years preceding the date hereof, through the Effective Time,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of the Company no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by the Company of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by the Company to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Disclosure Schedule 3.21(b) discloses any known presence of asbestos in or on
the Company's or any Company Subsidiary's owned or leased premises. To the
knowledge of the Company, there is no friable asbestos in or on the Company's or
any Company Subsidiary's owned or leased premises.
(c) To the knowledge of the Company, no soil or water in or
under any assets currently or formerly held for use or sale by the Company or
any Company Subsidiary is or has been contaminated by any Hazardous Substance
while such assets or premises were owned, leased, operated
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or managed, directly or indirectly by the Company or any Company Subsidiary,
where such contamination had, or would be reasonably likely to have, a Material
Adverse Effect on the Company.
(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of the Company,
concerning the Company or any Company Subsidiary within the five (5) years
preceding the date hereof through the Effective Time with respect to any real
property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following
terms have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended to
assure the protection of the environment, or that classify, regulate,
call for the remediation of, require reporting with respect to, or list
or define air, water, groundwater, solid waste, hazardous, toxic, or
radioactive substances, materials, wastes, pollutants or contaminants,
or which are intended to assure the safety of employees, workers or
other persons, including the public in each case as in effect on the
date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials and
wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and
briefly describe the Company's policies of insurance to which the Company or any
Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by the
Company or any Company Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
the Company and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as the Company
and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which the Company or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies of all Insurance Policies have been provided to APP. Neither the
Company nor any Company Subsidiary nor any officer or director thereof has
received any notice or other written communication from any issuer of any
Current Policy cancelling such policy, materially increasing any deductibles or
retained
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amounts thereunder, or materially increasing the annual or other premiums
payable thereunder and, to the knowledge of the Company, no such cancellation or
increase of deductibles, retainages or premiums is threatened. There are no
outstanding claims, settlements or premiums owed against any Insurance Policy,
and all required notices have been given and all known potential or actual
claims under any Insurance Policy have been presented in due and timely fashion.
Within the five (5) years preceding the Agreement, neither the Company nor any
Company Subsidiary has filed a written application for any professional
liability insurance coverage which has been denied by an insurance agency or
carrier. The Disclosure Schedules also set forth a list of all claims under any
Insurance Policy in excess of $10,000 per occurrence filed by the Company or any
Company Subsidiary during the immediately preceding three-year period. Each
Physician Employee has, at all times while a Physician Employee, maintained or
been covered by professional malpractice insurance in such types and amounts as
are customary for such a physician practicing the same type of medicine in the
same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of all
accounts receivable of the Company as of March 31, 1997, which list is complete,
true and accurate in all material respects. All such accounts receivable arose
in the ordinary course of business and have not been previously written off as
bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements or
on the accounting records of the Company (which reserves are calculated
consistent with generally accepted accounting principles and past practice).
(b) The Disclosure Schedules set forth (i) a true, correct and
complete list of the names and addresses of each Payor of the Company as of such
date, which accounted for more than 5% of the revenues of the Company in the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for more than 5% of the revenues of the Company for the fiscal year to end
December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i)
list of the accounts payable of the Company as of March 31, 1997, and (ii) list
of each individual indebtedness owed by the Company of $5,000 or more, setting
forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company Current
Balance Sheet contained in the Company Financial Statements consisted, and all
such items on hand on the date of this Agreement consist, and all such items on
hand at the Effective Time will consist, net of all applicable reserves with
respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory are not materially in excess of normal
requirements, and none of such purchase commitments are at prices in excess of
prevailing market prices at the time of such purchase commitment.
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Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or practice his or her specialty and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which the Company is eligible and which are listed in the Disclosure Schedules
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any private
insurance program) under which the Company is presently receiving payments
directly or indirectly from any Payor for patient care provided by such
Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to APP.
No violation, default, order or deficiency exists with respect to any of the
items listed in the Disclosure Schedules except for such violations, defaults,
orders or deficiencies which would not be reasonably likely to have a Material
Adverse Effect on the Company, and there is no action pending or to the
Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program, and
no event has occurred which, with or without notice or lapse of time, or both,
would constitute grounds for a violation, order or deficiency with respect to
any of the items listed in the Disclosure Schedules to revoke, withdraw or
suspend any material license to operate its business as is presently being
conducted by it. To the knowledge of the Company, there has been no decision not
to renew any existing agreement with any provider or Payor relating to the
Company's business as presently being conducted by it. Neither the Company nor
any Physician Employee (i) has had his/her/its professional license, Drug
Enforcement Agency number, Medicare/Medicaid provider status or staff privileges
at any hospital or diagnostic imaging center suspended, relinquished, terminated
or revoked (including orders that have been entered by any such entities but
stayed), (ii) has been reprimanded in writing, sentenced, or disciplined by any
licensing board, state agency, regulatory body or authority, hospital, Payor or
specialty board (including orders that have been entered by any such entities
but stayed), or (iii) is the subject of an initial or final determination by any
federal or state authority that could result in any demand or reimbursement
under the Medicare, Medicaid or Government Programs or any exclusion or which
monetary penalty under federal or state law or (iv) has had a final judgment or
settlement entered against him/her/it in connection with a malpractice or
similar action.
(b) The Company is not required, or for the 72-month period
prior to the Effective Time was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of the
Company, or any Physician Employee, nor the right of any licensed professional
or other individual affiliated with the Company to receive reimbursements
pursuant to any Governmental Program or Private Program has been terminated or
otherwise materially and adversely affected as a result of any investigation or
action whether by any federal or state governmental regulatory authority or
other third party. No Physician Employee, licensed professional or other
individual affiliated with the business has, during the past three (3) years
prior to the Effective Time, had their professional license or staff privileges
limited, suspended or revoked by any governmental regulatory authority or
agency, hospital, integrated delivery system, trade association, professional
review organization, accrediting organization or certifying agency (including
orders that have been entered by any such entities but stayed). True, correct
and complete copies of all reports, correspondence, notices and other documents
relating to any matter described or referenced in this Section 3.28 have been
provided to APP.
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Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v) other
similar agreements relating to the foregoing to which the Company or any Company
Subsidiary is a party (including expiration date if applicable) (collectively,
the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate
list and summary description of all agreements relating to technology, trade
secrets, know-how or processes that the Company is licensed or authorized to use
by others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of the Company, no
claim has been asserted by any person to the ownership of or for infringement by
the Company of any Proprietary Right of any other Person, and neither the
Company nor any Stockholder is aware of any valid basis for any such claim. To
the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in Disclosure Schedule 3.30(b), (i) the Company has paid all
taxes, penalties, assessments and interest that have become due with respect to
any Tax Returns that it has filed and has properly accrued on its books and
records in accordance with generally accepted accounting principles for all of
the same that have not yet become due and payable and (ii) the Company is not
delinquent in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company
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Financial Statements. The Company has not violated any applicable federal,
state, local or foreign tax law. There are no security interests or liens on any
assets of the Company or any Company Subsidiary which have resulted from any
failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not
granted an extension to any taxing authority of the statute of limitation period
during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Code and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of the
Company constitutes property that the Company, APP or any Affiliate of APP, will
be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties of
the Company are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated
in or cooperated with any international boycott as defined in Section 999 of the
Code.
(k) Parachute Payments. No payment required or contemplated
to be made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election to
be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has
not been a personal holding company within the meaning of Section 542 of the
Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to the
Company's business. There is no commitment to, and no income reflected in the
Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure Schedules
is a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the Person
or Persons authorized in respect thereof.
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Section 3.33 Fraud and Abuse and Self Referral. Neither the Company nor
any Company Subsidiary has engaged and, to the knowledge of the Company, neither
the Company's officers and directors nor the Physician Employees or other
Persons and entities providing professional services for or on behalf of the
Company have engaged, in any activities which are prohibited under 42 U.S.C.
SectionSection 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. SectionSection 24, 287, 371, 664, 669, 1001,
1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company, any
Company Subsidiary or officer, director or key employee of the Company or
Company Subsidiary, which has or reasonably could be expected to have the effect
of prohibiting or materially impairing the current medical practice of the
Company or any Company Subsidiary, any acquisition of property by the Company or
the continuation of that medical practice in the future by NewCo, any Company
Subsidiary or the conduct of business by the Company or any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of the Company, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by the Company or any other party thereto. No
contract with a Physician Employee has been terminated in the last twelve (12)
months.
Section 3.36 Statements True and Correct. No representation or warranty
made herein by the Company or any Stockholder, nor any statement, certificate,
information, exhibit or instrument to be furnished by the Company or any
Stockholder to APP or any of its respective representatives pursuant to this
Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required by
Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of any
of the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger and except as set forth in the Disclosure
Schedules attached hereto and incorporated herein by this reference, APP
represents and warrants to the Company and the Stockholders both as of the date
hereof and as of the Effective Time as follows:
Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its
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business as currently conducted. APP is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where such failure to be so qualified
or in good standing would not have a Material Adverse Effect on APP. Copies of
the certificate of incorporation and all amendments thereto of APP and the
bylaws of APP, as amended, and copies of the corporate minutes of APP regarding
the Merger and the transactions contemplated hereby, all of which have been or
will be made available to the Company for review, are true, correct and complete
as in effect on the date of this Agreement and accurately reflect all material
proceedings of the stockholders and directors of APP (and all committees
thereof) regarding the Merger and the transactions contemplated hereby. The
stock record books of APP, which have been or will be made available to the
Company for review, contain true, complete and accurate records of the stock
ownership of APP and the transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and the Other Agreements and to
consummate the Merger and the transactions contemplated hereby. The execution,
delivery and performance by APP of this Agreement and the agreements provided
for herein, including the Other Agreements and the consummation by APP of the
transactions contemplated hereby and thereby are within APP's corporate powers
and have been duly authorized by all necessary action on the part of APP's Board
of Directors. This Agreement has and the Other Agreements have been duly
executed by APP. This Agreement and all other agreements and obligations entered
into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements of APP, enforceable against it in
accordance with their respective terms, except as may be limited by bankruptcy
or other laws affecting creditors' rights generally, or by general equity
principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the Merger and the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares are
issued and outstanding and 10,000,000 shares of APP Preferred Stock, none of
which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
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Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or obligation accrued, contingent or
otherwise, that is reasonably likely to have a Material Adverse Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of
the Effective Time (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever), in violation of
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business or
its advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate
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governmental agencies all Tax Returns and reports required to be filed with the
United States or any state or any political subdivision thereof or any foreign
jurisdiction. All such Tax Returns or reports are complete and accurate in all
material respects and properly reflect the taxes of APP for the periods covered
thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedule, (i) APP has paid all taxes, penalties,
assessments and interest that have become due with respect to any Tax Returns
that it has filed and has properly accrued on its books and records for all of
the same that have not yet become due and (ii) APP is not delinquent in the
payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted
an extension to any taxing authority of the limitation period during which any
tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated
to be made by APP will be characterized as an "excess parachute payment" within
the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed
as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. The Disclosure Schedules or
Form S-4 sets forth a description of any interest held, directly or indirectly,
by any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
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Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to the Company or a Stockholder pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules required by
Article IV hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to such
agreements, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true and
correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo is a
Kansas limited liability company duly organized, validly existing and in good
standing under the laws of its state of organization, with all requisite power
and authority to carry on the business in which it intends to engage, to own the
properties it intends to own, and to execute and deliver the Service Agreement,
the Security Agreement and the Physician Employment Agreements and consummate
the transactions and perform the services contemplated thereby. NewCo is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its intended business makes such qualification
necessary, which jurisdictions are listed in the Disclosure Schedules, except
where the failure to be so qualified shall not have a Material Adverse Effect on
NewCo.
Section 5.2 Capitalization. The authorized membership interests of
NewCo consists of [_____] interests of NewCo, of which [______] interests are
issued and outstanding. The members own all of the issued and outstanding
interests of NewCo, free and clear of any Encumbrance. Each outstanding interest
of NewCo has been legally and validly issued and is fully paid and
nonassessable. There exist no options, warrants, subscriptions or other rights
to purchase, or securities convertible into or exchangeable for, any of the
authorized or outstanding interests of NewCo. No interest of NewCo has been
issued or disposed of in violation of the preemptive rights, rights of first
refusal or similar rights of any of NewCo's members.
Section 5.3 Records. The copy of the operating agreement and all
amendments thereto of NewCo that have been delivered or made available to APP
are true, correct and complete copies thereof, as in effect on the Closing Date.
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Section 5.4 Authorization and Validity. The execution, delivery and
performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the [Board of Directors] of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the operating
agreement or other charter document of NewCo, or (b) violate or conflict with
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities. NewCo has
not commenced business since its formation. Other than its operating agreement
or other charter document, and as of the Closing Date, the Service Agreement,
the Security Agreement, the Physician Employment Agreements, and the other
contracts and agreements assigned to NewCo as part of the Spin-Off Transaction,
NewCo is not a party to or subject to any agreement, indenture or other
instrument. NewCo does not own any assets (tangible or intangible) other than
the consideration received upon the issuance of membership interests or pursuant
to the Spin-Off Transaction, and NewCo does not have any liabilities, accrued,
contingent or otherwise (known or unknown and asserted or unasserted) other than
those assumed pursuant to the Spin-Off Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure to
so comply or file would not, individually or in the aggregate, have a Material
Adverse Effect on NewCo.
ARTICLE VI
ARTICLE VI INTENTIONALLY OMITTED.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant to the
Spin-Off Transaction, from the date hereof until the Effective Time, the Company
shall, in all material respects, conduct its business in the ordinary and usual
course consistent with past practices and shall use reasonable efforts to:
(a) preserve intact its business and its relationships with
Payors, referral sources, customers, suppliers, patients, employees and others
having business relations with it;
(b) maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the conduct
of the business of the Company;
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(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of
incorporation or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not
limited to, by way of stock split, dividend, recapitalization
or other reclassification) or any subscriptions, options,
warrants, rights or convertible securities, or enter into any
agreements or commitments of any character obligating it to
issue or sell any such securities;
(3) redeem, purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock or any option,
warrant or other right to purchase or acquire any such shares;
(4) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its
capital stock (except as expressly contemplated herein);
(5) voluntarily sell, transfer, surrender, abandon or
dispose of any of its assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the
ordinary course of business consistent with past practices;
(6) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge
or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital expenditures
which are not reasonably necessary for the conduct of its
business;
(9) grant any increase in the compensation payable or
to become payable to directors, officers, consultants or
employees other than merit increases to employees of the
Company who are not directors or officers of the Company,
except in the ordinary course of business and consistent with
past practices;
(10) change in any manner any accounting principles
or methods other than changes which are consistent with
generally accepted accounting principles;
(11) enter into any material commitment or
transaction other than in the ordinary course of business;
(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;
(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;
(14) agree, whether in writing or otherwise, to do
any of the foregoing; and
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(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time,
the Company shall (i) except for sales of assets held as inventory, if any, in
the ordinary course of business prior to the Effective Time and except as
otherwise specifically described in the Disclosure Schedules to this Agreement,
have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or indirect
indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations in
the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, share certificate books, share registers,
accounts, tax returns, financial statements and all other data that, in the
reasonable opinion of APP, are required for APP to make such investigation as it
may desire of the properties and business of the Company. APP shall also be
allowed full access upon reasonable prior notice and during regular business
hours (and at such other times as the parties may reasonably agree) to consult
with the officers, employees (after announcement by the Company of the Merger to
its employees which shall occur no later than three (3) days subsequent to
execution hereof by the Company), accountants, counsel and agents of the Company
in connection with such investigation of the properties and business of the
Company. No investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall be
conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall
cause each of its directors, officers, employees or agents not to directly or
indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or capital stock of the
Company, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of the Company, or, without APP's prior written approval, afford
to any Person other than APP and its agents access to the properties, books or
records of the Company. If the Company receives any offer or proposal after the
date hereof, written or otherwise, of the type referred to above, the Company
shall promptly inform APP of such offer or proposal, decline such offer and
furnish APP with a copy thereof if such offer or proposal is in writing.
Section 7.5 Compliance With Obligations. Prior to the Effective Time,
the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
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Section 7.6 Notice of Certain Events. The Company shall promptly
notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
the Company which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best
efforts to obtain the unanimous approval of its Stockholders to the Merger. In
seeking the approval of its Stockholders, the Company shall provide each
Stockholder with the Form S-4 which shall include information as may be required
by applicable law or as APP shall deem appropriate. The Board of Directors of
the Company shall recommend the approval of the Merger by the Stockholders of
the Company. If the Stockholders' approval is not unanimous, the Company shall
give notice to the nonconsenting Stockholders of the action taken by the
consenting Stockholders as may be required by applicable law; provided, however,
that this covenant shall not require the Company to make any expenditures that
are not expressly set forth in this Agreement or otherwise contemplated herein.
Section 7.9 Obligations of Company and Stockholders. Subject to Section
7.8 hereof, the Company will take all action reasonably necessary to cause the
Company to perform its obligations under this Agreement and all related
agreements and to consummate the Merger and other transactions contemplated
hereby and thereby on the terms and conditions set forth in this Agreement and
such agreements.
Section 7.10 Funding of Accrued Employee Benefits. The Company hereby
covenants and agrees that it will take whatever steps are necessary to pay for
or fund completely any accrued benefits, where applicable, or vested accrued
benefits for which the Company or any entity might have any liability whatsoever
arising from any tax-qualified plan as required under applicable law. The
Company acknowledges that the purpose and intent of this covenant is to assure
that APP shall have no liability whatsoever at any time after the Closing Date
with respect to any such tax-qualified plan, unless such plan is merged with a
plan sponsored by APP.
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Section 7.11 Accounting and Tax Matters. The Company will not change in
any material respect the accounting methods or practices followed by the Company
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. The Company will not make
any material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (without regard to any extensions of
time) file all returns, information statements and other documents relating to
taxes of the Company required to be filed by it, and pay all taxes required to
be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form and organize
NewCo in the state of Kansas, and the operating agreement of NewCo shall be in
form and substance reasonably satisfactory to APP. Except for consummating the
Spin-Off Transaction, NewCo shall not commence business until the Closing Date.
On or prior to the Closing, the Company shall take all actions and execute all
documents, agreements or instruments necessary pursuant to and in compliance
with applicable law to effect the Spin-Off Transaction, including without
limitation, the following: Prior to the Closing, the Company shall transfer to
NewCo good, valid and marketable title to all of the Company's right, title and
interest in and to the Employee Benefit Plans, all contracts and agreements and
other assets listed on the Disclosure Schedule (to be delivered by the Company
prior to Closing, which schedule will be subject to the approval of APP, which
approval shall not be unreasonably withheld) which by law either cannot be
acquired or cannot be used by APP because they relate to the practice of
medicine or radiology, and shall contribute to NewCo such other consideration
and assets of the Company as may be required under applicable law, for the
benefit of the Stockholders who are also members of NewCo.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Merger; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
Section 8.2 Requirements to Effect the Merger and Acquisitions. APP
will use their best efforts to take, or cause to be taken, all actions necessary
to effect the Merger under applicable law, including without limitation the
filing with the appropriate government officials of all necessary documents in
form approved by counsel for the parties to this Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and their authorized representatives to inspect
and, at the Company's sole expense, make copies of all documents, records and
information with respect to the affairs of APP as the Company and their
representatives may reasonably request, all for the sole purpose of permitting
the Company to become familiar with the business and assets and liabilities of
APP. No investigation by the Company or the Stockholders shall diminish or
otherwise affect any of the representations, warranties, covenants or agreements
of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly
inform the Company in writing of (a) any notice of, or other communication
relating to, a default or event that, with notice or
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lapse of time or both, would become a default, received by APP subsequent to the
date of this Agreement and prior to the Effective Time under any contract,
agreement or investment material to APP's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; (b) any
material adverse change in APP's condition (financial or otherwise), operations,
assets, liabilities or business or (c) defaults or disputes regarding Other
Agreements.
Section 8.5 Qualified Retirement Plans. To the extent permitted by law,
APP shall establish a qualified plan and trust for NewCo, within the meaning of
Section 401(a) and 501(a), respectively, of the Code ("New Qualified Plan") that
will provide benefits to Physician Members of NewCo who earn in excess of the
limitations established under Section 415(c) of the Code that (a) are comparable
(as determined under Section 401(a)(4) of the Code) to the benefits provided
under the qualified plans referenced in the Disclosure Schedules, if any,
sponsored by the Company as of March 31, 1997 and (b) provide investment
alternatives in accordance with Department of Labor Regulation 2550.404C-1. APP
will file for a favorable determination letter from the IRS on the New Qualified
Plan. Benefits provided under the New Qualified Plan shall be conditioned on a
favorable determination letter from the IRS. In addition, APP will request a
favorable determination from the IRS that NewCo is not a member of an affiliated
service group (as defined in Section 414(m) of the Code) or a recipient
organization of leased employee services (as defined in Section 414(n) of the
Code). Costs associated with the establishment and design of the New Qualified
Plan shall be paid by APP. NewCo shall be responsible for funding any
contributions to, or any ongoing administrative costs of, the New Qualified
Plan.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and file
with the SEC the Registration Statements on Form S-1 and Form S-4 (or other
appropriate Forms) to be filed by APP in connection with its Initial Public
Offering and offering of the shares of APP Common Stock to the Target Interest
Holders pursuant to the transactions contemplated by this Agreement and the
Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. The Company shall cooperate with APP in the
preparation of the Registration Statements and shall furnish all information
concerning the Company and NewCo as may be reasonably requested in connection
with any such action in a timely manner.
(b) The Company and APP and each separately represent and warrant that
(i) in the case of the Company, none of the written information or documents
supplied or to be supplied by it specifically for inclusion in the Registration
Statements, by exhibit or otherwise and (ii) in the case of APP, will, at the
time the Registration Statements and each amendment and supplement thereto, if
any, becomes effective under the Securities Act, none of them contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Company shall be
entitled to review the Registration Statements and each of the amendments
thereto, if any, prior to the time each becomes effective under the Securities
Act. The Company shall have no responsibility for information contained in the
Registration Statements except for information provided by the Company
specifically for inclusion therein. The Company's review of the Registration
Statements shall not diminish or otherwise affect the representations, covenants
and warranties of APP contained in this Agreement.
(c) The Company shall, upon request, furnish APP with all information
concerning itself, its subsidiaries, directors, officers, partners, Stockholders
and NewCo, and such other matters as may be reasonably requested by APP in
connection with the preparation of the Registration Statements and each of the
amendments or supplements thereto, or any other statement, filing, notice or
application made
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by or on behalf of each such party or any of its subsidiaries to any
governmental entity in connection with the Merger and the other transactions
contemplated by this Agreement.
Section 9.2 Amendments of Disclosure Schedules. Each party hereto
agrees that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to supplement or amend promptly the Disclosure Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on the Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Disclosure Schedule that constitutes or reflects a Material Adverse Effect on
APP may be made unless the Company consents to such amendment or supplement. For
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have been
fulfilled, the Disclosure Schedules hereto shall be deemed to be the Disclosure
Schedules as amended or supplemented pursuant to this Section 9.2. In the event
that the Company seeks to amend or supplement a Disclosure Schedule pursuant to
this Section 9.2 and APP does not consent to such amendment or supplement, or
APP seeks to amend or supplement a Disclosure Schedule pursuant to this Section
9.2, and the Company does not consent, this Agreement shall be deemed terminated
by mutual consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Section
351 of the Code.
Section 9.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company and NewCo shall be paid by the Company in
full immediately prior to the Closing and any such expenses shall be the sole
responsibility of the Stockholders following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all
records and information regarding the patients of the Company and NewCo
confidential in accordance with all applicable laws.
Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as
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delivered pursuant to Section 10.12 hereof) shall have been true and correct in
all material respects when initially made and shall be true and correct in all
material respects as of the Effective Date.
Section 10.2 Covenants. The Company shall have performed and complied
in all material respects with all covenants required by this Agreement to be
performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have delivered
to APP their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse Effect on
the Company shall have occurred since March 31, 1997, whether or not such change
shall have been caused by the deliberate act or omission of the Company or any
Stockholder.
Section 10.6 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, statements, rule, regulation or ordinance to consummate the
transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all Disclosure
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 10.11 Dissenter's Rights. The Company shall have satisfied each
of its obligations to its Stockholders regarding dissenters or related rights
under the Kansas General Corporation Code, and the number of shares of Company
Common Stock held by the Stockholders who have dissented to the Merger and have
indicated their intent to seek appraisal rights shall not exceed [15%] of the
then outstanding shares of Company Common Stock.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder receiving Merger Consideration shall have executed
and delivered to APP the Stockholder Representation Letter in substantially the
form of Exhibit C. Each Principal Stockholder shall have executed and delivered
to APP the Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties of
the Company and its related entities to be transferred to NewCo pursuant to the
Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
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Section 10.14 Physician Employment Agreements. Each Physician Employee
and such other radiologists whose names are set forth on Disclosure Schedule
10.14 shall have entered into a Physician Employment Agreement between NewCo and
each such Physician Employee in a form reasonably consistent to the form
attached as Exhibit E and satisfactory to APP in its sole discretion (the
"Physician Employment Agreements").
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered to the
Company their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents (including
consent of the Stockholders required pursuant to applicable state law and the
Company's charter documents in effect as of the date of this Agreement) required
under any law, contracts or any statute, rule, regulation or ordinances to
consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statements shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. At or prior to the Effective Date, the APP
Common Stock shall have been approved for listing on the Nasdaq National Market,
subject only to official notification of issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to the Company referred to in Section
12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect on
APP shall have occurred since __________, 1997, whether or not such change shall
have been caused by the deliberate act or omission of APP.
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Section 11.10 Service Fee Valuations. The Company shall have received
from Shattuck Hammond Partners, Inc. ("Shattuck") its opinion and analysis in a
form consistent with the engagement letter with Shattuck dated _________, 1997.
Section 11.11 Tax Opinion. The Company shall have received from Haynes
and Boone, L.L.P., special tax counsel to APP, a tax opinion, substantially in
the form set forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Closing
Date, the Company shall deliver to APP the following, all of which shall be in a
form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
and the Service Agreement and all related documents and agreements and
consummation of the Merger, each certified by the Secretary of the Company as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the appropriate governing body of
NewCo authorizing the execution, delivery and performance of the Service
Agreement, the Security Agreement and the Physician Employment Agreements each
certified by the Secretary of NewCo as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(c) a certificate of the President of the Company dated the
Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the
Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by the
Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and an
authorized officer of NewCo certifying as to the incumbency of the managers and
officers of Newco and as to the signatures of such managers and officers who
have executed documents delivered at the Closing on behalf of that corporation;
(f) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretary of State of Kansas for the Company and NewCo
establishing that each such entity is in existence, has paid all franchise or
similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in the state of Kansas;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
entity is qualified to do business and, if applicable, is in good standing as a
foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section ------- 3.27; ----
(i) the resignations of the directors and officers of the
Company as requested by APP;
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(j) the executed Service Agreement in substantially the form
attached hereto as Exhibit F, as revised in accordance with changes reasonably
deemed necessary or advisable by legal counsel retained by APP, the Company and
NewCo in the State of Kansas to address regulatory and compliance issues (the
"Service Agreement");
(k) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to
in Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty
of perjury and dated as of the Closing Date, to the effect that such Stockholder
is a United States citizen or a resident alien (and thus not a foreign person)
and providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit G (the "Stockholder Release");
(n) intentionally omitted; and
(o) such other instrument or instruments of transfer prepared
by APP as shall be necessary or appropriate, as APP or its counsel shall
reasonably request, to carry out and effect the purpose and intent of this
Agreement.
Section 12.2 Deliveries of APP. At or prior to the Closing Date, APP
shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) intentionally omitted;
(c) a certificate of the President of APP dated the Closing
Date as to the truth and correctness of the representations and warranties of
APP contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the Closing
Date, (i) as to the performance and compliance by APP with all covenants
contained herein on and as of the Effective Date and (ii) certifying that all
conditions precedent required to be satisfied by APP shall have been satisfied;
(e) a certificate of the Secretary of APP certifying as to
the incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the
Effective Date, of the secretary of state of incorporation establishing that APP
is in existence, have paid all franchise or similar taxes, if any, and otherwise
are in good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten
(10) days prior to the Effective Date, of the Secretaries of State of the states
in which APP is qualified to do business, to the effect that APP is qualified to
do business and is in good standing as a foreign corporation in such state;
(h) the executed Service Agreement as revised in accordance
with the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
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(j) the Merger Consideration in accordance with Article II and
Exhibit B hereof;
(k) a certificate of APP in the form attached hereto as
Exhibit 12.2(k); and
(l) such other instrument or instruments of transfer prepared
by the Company as shall be necessary or appropriate, as the Company or its
counsel shall reasonably request, to carry out and effect the purpose and intent
of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing, at
the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing, at
the request of NewCo and at NewCo's sole cost and expense, APP or the Surviving
Corporation shall deliver any further instruments of transfer and take all
reasonable action as may be necessary and appropriate to carry out the purpose
and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and records
shall be maintained, and all Tax Returns and schedules thereto shall be filed in
a manner consistent with the Merger being treated as a Reorganization. These
obligations are excused as to a party required to maintain the books or file a
Tax Return if such party has provided to the other parties a written opinion of
competent tax counsel to the effect that there is not substantial authority,
within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report the Merger
as a Reorganization and such opinion either is furnished prior to the Effective
Time or is based on facts or events not known at the Effective Time. Each party
shall provide to each other party such tax information, reports, returns, or
schedules as may be reasonably required to assist such party in accounting for
and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any taxes
incurred by the Company and for which APP has successor liability therefor which
arise solely as a result of the Merger or the consummation of the transactions
contemplated hereby; provided that the foregoing shall not limit or otherwise be
deemed a waiver of any right of indemnification under Section 14.1 for a breach
of any representation, warranty or covenant of the Company or any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms and
conditions of this Article XIV, the Company agrees to indemnify, defend and hold
APP and its respective directors, officers, stockholders, employees, agents,
attorneys, consultants and Affiliates harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, reasonable
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attorneys' fees and expenses (including, without limitation, all costs of
experts and all costs incidental to or in connection with any appellate process)
(collectively, "Damages") asserted against or incurred by such individuals
and/or entities arising out of or resulting from:
(a) a breach by the Company of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of the Company
contained in this Agreement or in any Disclosure Schedule or certificate
delivered thereunder;
(b) any violation (or alleged violation) by the Company and/or
any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statement
of material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto relating to the Company
(including any Company Subsidiary) or NewCo required to be stated therein or
(ii) failure to state information required to be stated therein or necessary to
make the statements therein not misleading, arising which untrue statement or
failure to state information arises or result solely from information provided
in writing to APP or its counsel by the Company or any Stockholder or their
agents specifically for inclusion in any such Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto.
Section 14.2 Indemnification by APP. Subject to the terms and
conditions of this Article XIV, APP hereby agrees to indemnify, defend and hold
the Stockholders, the Company and NewCo and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and Affiliates
harmless from and against all Damages asserted against or incurred by such
individuals and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty (without
giving effect to any Material Adverse Effect qualifier contained as part of any
such representation or warranty) or covenant of APP contained in this Agreement
or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statements
of material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto or (ii) failure to state
information required to be stated therein or necessary to make the statements
required to be stated therein not misleading (except for any liability based
upon any actual or alleged untrue statement of material fact or an omission to
state a material fact relating to NewCo, the Company or any Stockholder to the
extent derived from any information provided in writing by the Company or a
Company Subsidiary or any of their agents contained in the representations and
warranties set forth in this Agreement or any certificate, exhibit, schedule or
instrument required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
any of the parties hereto of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
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Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement (an
"Indemnified Party") shall promptly (and, in the event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party for whom indemnification is sought (the "Indemnifying
Party) of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of Damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve any
Indemnifying Party of its obligations to any Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within thirty (30) days
after receipt of any Claim Notice (the "Election Period"), the Indemnifying
Party shall notify the Indemnified Party (x) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XIV
with respect to such Third Party Claim and (y) whether the Indemnifying Party
desires, at the sole cost and expense of such Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set forth
in Section 14.3(f) below, the Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. The
Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 14.3(b) and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 14.3(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 14.3(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have
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the right to defend, at the sole cost and expense of the Indemnifying Party (if
the Indemnified Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and proceedings,
provided, however, that the Indemnified Party may not enter into, without the
Indemnifying Party's consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes their
potential liability to the Indemnified Party under this Article XIV and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all costs and expenses of such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
Section 14.3(c), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation; provided, however, that if the
named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnifying Party has
been advised by counsel that there may be one or more legal defenses available
to it that are different from or additional to those available to the
Indemnified Party, then the Indemnifying Party may employ separate counsel and
upon written notification thereof, the Indemnified Party shall not have the
right to assume the defense of such action on behalf of the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Article XIV relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice period
or (ii) the expiration of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
agrees to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Party desired to accept such settlement.
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(g) Notwithstanding any provision herein to the contrary, the
obligation of an Indemnifying Party to provide indemnification to an Indemnified
Party for breach of any representation or warranty as provided in Sections
14.1(a) or 14.2(a) hereof shall not take effect unless and until the Damages
asserted against or incurred in the aggregate and on a collective basis by the
Indemnified Parties pursuant to either Section 14.1 or 14.2 (as applicable) as a
result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the
Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or any Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any Stockholder
fails to comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(c) at any time prior to the Effective Date by the Company if
any representation or warranty of APP contained in this Agreement or in any
certificate or other document executed and delivered by APP pursuant to this
Agreement is or becomes untrue in any material respect of if APP fails to comply
in any material respect with any covenant or agreement contained herein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
(d) at any time prior to the Effective Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in Section
16.3, in the event this Agreement is terminated pursuant to this Article XV,
this Agreement shall forthwith become void.
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<PAGE> 1048
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo recognize
and acknowledge that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP that is
valuable, special and a unique asset of such entity's business. APP acknowledges
that it had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of the Company and NewCo that is
valuable, special and a unique asset of each such business. The Company, NewCo
and APP, severally, agree that they will not disclose such Confidential
Information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
APP, NewCo and the Company and (b) to counsel and other advisers to APP, NewCo
and the Company provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 16.1, unless (i) such information
becomes available to or known by the public generally through no fault of the
Company, NewCo or APP, as the case may be, (ii) disclosure is required by law or
the order of any governmental authority under color of law, provided, that prior
to disclosing any information pursuant to this clause (ii) the Company, NewCo or
APP, as the case may be, shall, if possible, give prior written notice thereof
to the Company, NewCo or APP and provide the Company or APP with the opportunity
to contest such disclosure, (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party, or (iv) the disclosing party is the sole and exclusive
owner of such Confidential Information as a result of the Merger or otherwise.
In the event of a breach or threatened breach by the Company, on the one hand,
and APP, on the other hand, of the provisions of this Section, APP, NewCo and
the Company shall be entitled to an injunction restraining the other party, as
the case may be, from disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting any of such
parties from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
Section 16.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, NewCo and the Company agree that, in the event of
a breach by either of them of the foregoing covenant, the covenant may be
enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
Section 17.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP acknowledges
and agrees that the rights and remedies of the Company under this Agreement will
be directly available
A-687
<PAGE> 1049
to the Stockholders as third party beneficiaries of the rights and remedies of
the Company under this Agreement, including, without limitation, the rights and
remedies under Article 14 hereof to indemnification from APP against Damages
incurred by the Stockholders resulting from a breach by APP of any
representation, warranty or covenant of APP contained herein. Except as provided
in the preceding sentence or as otherwise provided herein, neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby or delivered in connection herewith constitute the entire
agreement of the parties regarding the subject matter hereof, and supersede all
prior agreements and understandings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder or APP
pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder and APP. Notwithstanding any
provision in this Agreement to the contrary, the representations and warranties
contained herein shall survive the Closing until the second anniversary of the
Closing Date except that (a) the representations and warranties set forth in
Section 3.21 with respect to environmental matters shall survive for a period of
ten (10) years, (b) the representations and warranties set forth in Section 3.30
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.27 and Section 3.33 with
respect to healthcare matters shall survive for a period of six (6) years, (d)
the representations and warranties contained in Exhibit 12.2(k) shall survive
for seven (7) years, and (e) solely for purposes of Section 14.1(c) and Section
14.2(c), and solely to the extent that any party to be indemnified pursuant to
such provisions actually incurs liability under the Securities Act, the Exchange
Act or any other federal or state securities law, the representations and
warranties set forth therein shall survive until the expiration of any
applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES
GOVERNING CONFLICTS OF LAWS) OF THE STATE OF KANSAS.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
Section 17.9 Gender and Number. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of
A-688
<PAGE> 1050
the other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Radiology and Nuclear Medicine,
a Professional Association
823 SW Mulvane St., Suite 1
Topeka, KS 66606
Fax. No.: (913) 234-2469
Attn: William Walls, M.D.
with a copy to : Lathrop & Gage L.C.
9401 Indian Creek Parkway, Bldg. #40
Overland Park, KS 66210
Fax. No.: (913) 451-0875
Attn: Jeffrey O. Ellis, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof
A-689
<PAGE> 1051
or the exercise of any other right, power or privilege. No remedy set forth in
this Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
A-690
<PAGE> 1052
Section 17.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
A-691
<PAGE> 1053
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
------------------------------------------
Gregory L. Solomon, President
THE COMPANY:
RADIOLOGY AND NUCLEAR MEDICINE, A
PROFESSIONAL ASSOCIATION
By:
------------------------------------------
Its:
-----------------------------------------
A-692
<PAGE> 1054
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-693
<PAGE> 1055
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-694
<PAGE> 1056
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-695
<PAGE> 1057
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-696
<PAGE> 1058
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
A-697
<PAGE> 1059
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
A-698
<PAGE> 1060
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-699
<PAGE> 1061
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth
therein are delivered in connection with that certain Agreement and Plan of
Reorganization and Merger dated ____________, 1997, by and between American
Physician Partners, Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made pursuant
to one section number can reasonably be interpreted by other parties to be a
disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain
exceptions to the representations and warranties set forth in Article III of the
Agreement, the inclusion of an item on these Disclosure Schedules shall not be
deemed an admission by American Physician Partners, Inc. that such item is
material to American Physician Partners, Inc., the Company, NewCo or any Company
Subsidiary or that it will have a material adverse effect on American Physician
Partners, Inc., the Company, NewCo or any Company Subsidiary.
A-700
<PAGE> 1062
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and RADIOLOGY
AND NUCLEAR MEDICINE, A PROFESSIONAL CORPORATION (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By: __________________________________
Gregory L. Solomon, President
THE COMPANY:
RADIOLOGY AND NUCLEAR MEDICINE, A
PROFESSIONAL ASSOCIATION
By:_________________________________
Its:________________________________
A-701
<PAGE> 1063
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and between
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)
and
ADVANCED IMAGING OF ORANGE COUNTY, P.C.
(a New York professional corporation)
================================================================================
A-702
<PAGE> 1064
TABLE OF CONTENTS
Page
----
ARTICLE I Definitions...................................................... 2
Section 1.1 Definitions........................................... 2
Section 1.2 Rules Of Interpretation............................... 6
ARTICLE II The Merger...................................................... 6
Section 2.1 The Merger............................................ 6
Section 2.2 The Closing........................................... 6
Section 2.3 Effective Time........................................ 6
Section 2.4 Certificate of Incorporation of Surviving
Corporation........................................... 6
Section 2.5 Bylaws of Surviving Corporation....................... 7
Section 2.6 Directors of the Surviving Corporation................ 7
Section 2.7 Officers of the Surviving Corporation................. 7
Section 2.8 Conversion of Company Common Stock.................... 7
Section 2.9 Exchange of Certificates Representing Shares
of the Company Common Stock........................... 7
Section 2.10 Fractional Shares..................................... 8
ARTICLE III Representations and Warranties of the Company.................. 8
Section 3.1 Organization and Good Standing; Qualification......... 8
Section 3.2 Authorization and Validity............................ 8
Section 3.3 Governmental Authorization............................ 8
Section 3.4 Capitalization........................................ 9
Section 3.5 Transactions in Capital Stock......................... 9
Section 3.6 Continuity of Business Enterprise..................... 9
Section 3.7 Subsidiaries and Investments.......................... 9
Section 3.8 Absence of Conflicting Agreements or Required
Consents.............................................. 9
Section 3.9 Intentionally omitted................................. 9
Section 3.10 Absence of Changes.................................... 10
Section 3.11 No Undisclosed Liabilities............................ 10
Section 3.12 Litigation and Claims................................. 11
Section 3.13 No Violation of Law................................... 11
Section 3.14 Lease Agreements...................................... 11
Section 3.15 Real and Personal Property............................ 11
Section 3.16 Indebtedness for Borrowed Money....................... 12
Section 3.17 Contracts and Commitments............................. 12
Section 3.18 Employee Matters...................................... 13
Section 3.19 Labor Relations....................................... 13
Section 3.20 Employee Benefit Plans................................ 14
Section 3.21 Environmental Matters................................. 15
Section 3.22 Filing Reports........................................ 16
Section 3.23 Insurance Policies.................................... 16
Section 3.24 Accounts Receivable; Payors........................... 17
Section 3.25 Accounts Payable; Suppliers........................... 17
Section 3.26 Inventory............................................. 17
Section 3.27 Licenses, Authorization and Provider Programs......... 18
Section 3.28 Inspections and Investigations........................ 18
A-703
<PAGE> 1065
Page
----
Section 3.29 Proprietary Rights and Information.................... 19
Section 3.30 Taxes................................................. 19
Section 3.31 Related Party Arrangements............................ 20
Section 3.32 Banking Relations..................................... 20
Section 3.33 Fraud and Abuse and Self Referral..................... 21
Section 3.34 Restrictions on Business Activities................... 21
Section 3.35 Agreements in Full Force and Effect................... 21
Section 3.36 Statements True and Correct........................... 21
Section 3.37 Disclosure Schedules.................................. 21
Section 3.38 Finders' Fees......................................... 21
ARTICLE IV Representations and Warranties of APP........................... 21
Section 4.1 Organization and Good Standing; Qualification......... 22
Section 4.2 Authorization and Validity............................ 22
Section 4.3 Governmental Authorization............................ 22
Section 4.4 Capitalization........................................ 22
Section 4.5 Subsidiaries and Investments.......................... 23
Section 4.6 Absence of Conflicting Agreements or Required
Consents.............................................. 23
Section 4.7 Absence of Changes.................................... 23
Section 4.8 No Undisclosed Liabilities............................ 23
Section 4.9 Litigation and Claims................................. 23
Section 4.10 No Violation of Law................................... 23
Section 4.11 Employee Matters...................................... 23
Section 4.12 Taxes................................................. 24
Section 4.13 Related Party Arrangements............................ 25
Section 4.14 Statements True and Correct........................... 25
Section 4.15 Disclosure Schedules.................................. 25
Section 4.16 Finder's Fees......................................... 25
Section 4.17 Agreements in Full Force and Effect................... 25
ARTICLE V Closing Date Representations and Warranties of the Company....... 25
Section 5.1 Organization and Good Standing; Qualification......... 25
Section 5.2 Capitalization........................................ 25
Section 5.3 Corporate Records..................................... 26
Section 5.4 Authorization and Validity............................ 26
Section 5.5 No Violation.......................................... 26
Section 5.6 No Business, Agreements, Assets or Liabilities........ 26
Section 5.7 Compliance with Laws.................................. 26
ARTICLE VI Intentionally Omitted........................................... 26
ARTICLE VII Covenants of the Company....................................... 26
Section 7.1 Conduct of The Company................................ 26
Section 7.2 Title to Assets; Indebtedness......................... 28
Section 7.3 Access................................................ 28
Section 7.4 Acquisition Proposals................................. 28
Section 7.5 Compliance With Obligations........................... 29
Section 7.6 Notice of Certain Events.............................. 29
A-704
<PAGE> 1066
Page
----
Section 7.7 Intentionally omitted................................. 29
Section 7.8 Stockholders' Consent................................. 29
Section 7.9 Obligations of Company and Stockholders............... 29
Section 7.10 Funding of Accrued Employee Benefits.................. 29
Section 7.11 Accounting and Tax Matters............................ 30
Section 7.12 Spin-Off Transaction.................................. 30
Section 7.13 "F" Reorganization.................................... 30
ARTICLE VIII Covenants of APP.............................................. 30
Section 8.1 Consummation of Agreement............................. 30
Section 8.2 Requirements to Effect the Merger and Acquisitions.... 31
Section 8.3 Access................................................ 31
Section 8.4 Notification of Certain Matters....................... 31
Section 8.5 Qualified Retirement Plans............................ 31
ARTICLE IX Covenants of APP and the Company................................ 31
Section 9.1 Filings; Other Action................................. 31
Section 9.2 Amendments of Schedules............................... 32
Section 9.3 Actions Contrary to Stated Intent..................... 32
Section 9.4 Public Announcements.................................. 32
Section 9.5 Expenses.............................................. 32
Section 9.6 Patient Confidentiality............................... 32
Section 9.7 Registration Statements............................... 33
ARTICLE X Conditions Precedent of APP...................................... 33
Section 10.1 Representations and Warranties........................ 33
Section 10.2 Covenants............................................. 33
Section 10.3 Legal Opinion......................................... 33
Section 10.4 Proceedings........................................... 33
Section 10.5 No Material Adverse Effect............................ 33
Section 10.6 Government Approvals and Required Consents............ 33
Section 10.7 Securities Approvals.................................. 33
Section 10.8 Closing Deliveries.................................... 33
Section 10.9 Closing of Initial Public Offering.................... 33
Section 10.10 Closing of Related Acquisitions....................... 33
Section 10.11 Dissenter's Rights.................................... 34
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement............................................. 34
Section 10.13 Transfer of Assets.................................... 34
ARTICLE XI Conditions Precedent of the Company............................. 34
Section 11.1 Representations and Warranties........................ 34
Section 11.2 Covenants............................................. 34
Section 11.3 Legal Opinions........................................ 34
Section 11.4 Proceedings........................................... 34
Section 11.5 Government Approvals and Required Consents............ 34
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing.................. 34
Section 11.7 Closing of Initial Public Offering.................... 35
Section 11.8 Closing Deliveries.................................... 35
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Page
----
Section 11.9 No Material Adverse Effect............................ 35
Section 11.10 Service Agreement Analysis............................ 35
Section 11.11 Tax Opinion........................................... 35
ARTICLE XII Closing Deliveries............................................. 35
Section 12.1 Deliveries of the Company............................. 35
Section 12.2 Deliveries of APP. ................................... 36
ARTICLE XIII Post Closing Matters.......................................... 37
Section 13.1 Further Instruments of Transfer....................... 37
Section 13.2 Merger Tax Covenant................................... 37
Section 13.3 Current Public Information............................ 38
ARTICLE XIV Remedies....................................................... 38
Section 14.1 Indemnification by the Company........................ 38
Section 14.2 Indemnification by APP................................ 38
Section 14.3 Conditions of Indemnification......................... 39
Section 14.4 Costs, Expenses and Legal Fees........................ 41
Section 14.5 Tax Benefits; Insurance Proceeds...................... 41
ARTICLE XV Termination..................................................... 41
Section 15.1 Termination........................................... 41
Section 15.2 Effect of Termination................................. 42
ARTICLE XVI Nondisclosure of Confidential Information...................... 42
Section 16.1 Non-Disclosure Covenant............................... 42
Section 16.2 Damages............................................... 42
Section 16.3 Survival.............................................. 42
ARTICLE XVII Miscellaneous................................................. 42
Section 17.1 Amendment; Waivers.................................... 42
Section 17.2 Assignment............................................ 43
Section 17.3 Parties in Interest; No Third Party Beneficiaries..... 43
Section 17.4 Entire Agreement...................................... 43
Section 17.5 Severability.......................................... 43
Section 17.6 Survival of Representations, Warranties
and Covenants......................................... 43
Section 17.7 Governing Law......................................... 43
Section 17.8 Captions.............................................. 43
Section 17.9 Gender and Number..................................... 44
Section 17.10 Intentionally omitted................................. 44
Section 17.11 Confidentiality; Publicity and Disclosures............ 44
Section 17.12 Notice................................................ 44
Section 17.13 No Waiver; Remedies................................... 45
Section 17.14 Counterparts.......................................... 45
Section 17.15 Defined Terms......................................... 45
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Page
----
EXHIBITS
Exhibit A - List of Target Companies.........................................A-1
Exhibit B - Merger Consideration.............................................B-1
Exhibit C - Stockholder Representation Letter................................C-1
Exhibit D - Indemnification Agreement........................................D-1
Exhibit E - Physician Employment Agreement ..................................E-1
Exhibit F - Service Agreement................................................F-1
Exhibit G - Stockholder Release..............................................G-1
Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
A-707
<PAGE> 1069
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this "Agreement"),
dated as of June __, 1997, is by and among AMERICAN PHYSICIAN PARTNERS, INC., a
Delaware corporation ("APP") and ADVANCED IMAGING OF ORANGE COUNTY, P.C., a New
York professional corporation (the "Company").
RECITALS
A. The Company owns and operates (i) a professional medical practice(s)
specializing in radiology and (ii) diagnostic imaging centers. All of the shares
of the common stock of the Company (the "Company Common Stock") are owned
beneficially and of record by the Stockholders.
B. APP is engaged in the business of owning, operating and acquiring the
assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that the Company
be merged with and into APP, and that APP be the sole surviving corporation
(sometimes referred to hereinafter as the "Surviving Corporation"), and the
Company be the disappearing corporation (sometimes referred to hereinafter as
the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the transactions
contemplated hereby, pursuant to which (i) the Company will merge with and into
APP upon the terms and conditions set forth herein and in accordance with the
laws of the State of New York and (ii) the outstanding shares of the Company
Common Stock shall be converted at such time into cash and shares of common
stock, par value $.0001 per share, of APP (the "APP Common Stock") as set forth
herein.
E. Prior to the Merger, the Company intends to transfer certain of its
assets most of which relate solely to the practice of medicine to a [newly
formed professional corporation] ("NewCo") in exchange for all of the capital
stock of NewCo and to thereafter distribute such NewCo stock to the Stockholders
(the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter into, an
Agreement and Plan of Reorganization and Merger or other acquisition agreements
(collectively, the "Other Agreements") similar to this Agreement with interest
holders (together with the Stockholders, the "Target Interest Holders") of each
of the entities listed on Exhibit A (together with the Company, the "Target
Companies").
G. The parties intend for the transaction contemplated by this Agreement
along with the transactions contemplated by the Other Agreements to qualify as a
tax-free exchange within the meaning of Sections 351 and 368 of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder, as applicable.
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AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that, directly
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, NewCo and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall mean
(i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed in Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by this
Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited consolidated
balance sheet of the Company as of December 31, 1996 and the related statements
of income, stockholders' equity and statements of cash flows of the Company and
its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
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"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company Audited
Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section 3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section 3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of the
date hereof or otherwise delivered by any party hereto pursuant to the terms
hereof, as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement is
declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property interest,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
"Environmental Laws" shall have the meaning set forth in Section 3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
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"Form S-1" shall mean the Form S-1 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with its Initial Public
Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with the offering of APP
Common Stock as consideration under the Merger and other mergers contemplated by
the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party to
this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section 14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section 14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or other
fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA SectionSection 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA SectionSection 1401
et seq., (iv) The Occupational Safety and Health Act, 29 USCA SectionSection 651
et seq., (v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
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"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
SectionSection 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock[, $_____ par value per
share,] of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Physician Employee" shall mean each radiologist employed by the Company
or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section 12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the recitals
to this Agreement.
"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the recitals
to this Agreement.
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"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign income,
excise, corporate, franchise, property, sales, use, payroll, withholding,
provider, environmental, duties, value added and other tax returns (including
information returns).
"Third Party Claim" shall have the meaning set forth in Section 14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number (e.g.,
Article IV) or a Section number (e.g., Section 6.2) shall be construed to be a
reference to the designated Article number or Section number of this Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into APP
in accordance with this Agreement and the separate corporate existence of the
Disappearing Corporation shall thereupon cease (the "Merger"). APP shall be the
Surviving Corporation in the Merger and shall continue to be governed by the
laws of the State of New York, and the separate corporate existence of the
Company with all its rights, privileges, powers, immunities, purposes and
franchises shall continue unaffected by the Merger, except as set forth herein.
The Surviving Corporation may, at any time concurrent with and/or after the
Effective Time, take any action in the name of or on behalf of the Disappearing
Corporation in order to effectuate the transactions contemplated by this
Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take place at
10:00 a.m., local time, at the offices of APP located at 2301 NationsBank Plaza,
901 Main Street, Dallas, Texas on the day on which the transactions contemplated
by the Initial Public Offering are consummated. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
Section 2.3 Effective Time. If all the conditions to the Merger set
forth in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section 904
of the New York Business Corporation Law. The Merger shall become effective at
the time of the filing of such documents with the Secretary of State of the
State of New York, in accordance with such law or at such later time which the
parties hereto have theretofore agreed upon and designated in such filings as
the effective time of the Merger (the "Effective Time").
Section 2.4 Certificate of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Certificate of Incorporation of the Company
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation without any amendment or modification
as a result of the Merger.
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Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation without any amendment or modification as a result of the Merger.
Section 2.6 Directors of the Surviving Corporation. The persons who are
directors of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time.
Section 2.7 Officers of the Surviving Corporation. The persons who are
officers of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time.
Section 2.8 Conversion of Company Common Stock. The manner of converting
shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the part
of the holder thereof, all shares of Company Common Stock issued and outstanding
at the Effective Time (excluding shares held by APP pursuant to Section 2.8(d)
hereof) shall cease to be outstanding and shall be cancelled and retired and
shall cease to exist, and each holder of a certificate or certificates
representing any such shares of Company Common Stock shall thereafter cease to
have any rights with respect to such shares of Company Common Stock, except the
right to receive, without interest, (i) cash and (ii) validly issued, fully paid
and nonassessable shares of APP Common Stock, all as determined in accordance
with the provisions of Exhibit B attached hereto (the "Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time shall be
terminated and cancelled, without payment of any consideration therefor, and
shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock issued
and outstanding as of the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, continue unchanged and
remain outstanding as a validly issued, fully paid and nonassessable share of
APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock.
(a) At or after the Effective Time and at the Closing (i) the
Stockholders, as holders of a certificate or certificates representing shares of
the Company's Common Stock, shall upon surrender of each certificate or
certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until each
certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at the
Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees
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to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to such Company Common Stock or with
respect to the stock powers accompanying any Company Common Stock. Upon such
delivery (or completion of appropriate affidavit of lost certificate and
indemnity), each Stockholder shall receive in exchange therefor the Merger
Consideration pursuant to Exhibit B and Section 2.10 hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of APP Common Stock will be issued and any
Stockholder otherwise entitled to receive a fractional share of APP Common Stock
as part of the Merger Consideration hereunder shall receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to consummate
the Merger and except as set forth in the Disclosure Schedules attached hereto
and incorporated herein by this reference, the Company represents and warrants
to APP both as of the date hereof and as of the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. The Company and each Company Subsidiary is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all requisite
corporate power to enter into this Agreement and all other agreements entered
into in connection with the transactions contemplated hereby and to consummate
the transactions contemplated hereby. The execution, delivery and, subject to
approval of this Agreement and the Merger by the Stockholders, performance by
the Company of this Agreement and the agreements contemplated herein, and the
consummation by the Company of the transactions contemplated hereby and thereby
are within the Company's respective corporate powers and have been duly
authorized by all necessary action on the part of the Company's Board of
Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby to which the Company is
a party constitute, or upon execution will constitute, valid and binding
agreements of the Company, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting the enforcement of creditors' rights generally, or by general
equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger (as contemplated by Section
2.3) and any other required documents related to the Merger, and other than
consents, filings or notifications required to be made or obtained solely by APP
(including,
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without limitation, in connection with the Initial Public Offering, Form S-4 or
any Hart-Scott-Rodino filing to be made by APP, if any), the execution, delivery
and performance by the Company of this Agreement and the agreements provided for
herein, and the consummation of the transactions contemplated hereby and thereby
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority.
Section 3.4 Capitalization. The authorized capital stock of the Company
consists of 200 shares of the Company Common Stock, of which 130 shares are
issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the Company has no securities, bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
Section 3.5 Transactions in Capital Stock. There exist no Company
Rights. The Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership of shares
among any of its Stockholders has been altered or changed in contemplation of
the Merger within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the (2) two
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, require any notice under, or accelerate or modify, or permit any
person to accelerate or modify, any performance required by the terms of any
agreement, instrument, license or permit, to which the Company is a party or by
which the Company or any of its properties are subject or bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on the Company; and (v) except as
contemplated by this Agreement, will not create any Encumbrance or restriction
upon the Company Common Stock or any of the assets or properties of the Company.
Section 3.9 Intentionally omitted.
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Section 3.10 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on the Company;
(b) paid, discharged or satisfied any material liability, other
than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent with
past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or accounting
practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with
past practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable, mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any equity
or other interest in itself;
(j) increased any salaries, wages or any employee benefits for
any employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee except in
the ordinary course of business;
(l) declared, set aside or made any payments, dividends or other
distributions to any Stockholder or any other holder of capital stock of the
Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any action
described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its knowledge,
the Company does not have any liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted except for
liabilities or obligations reflected or reserved against in the Company's
Current Balance Sheet.
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Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder, the Physician Employees or any other licensed professional or other
individual affiliated with the Company affecting or that would reasonably be
likely to affect the Company Common Stock or the operations, business condition,
(financial or otherwise), or results of operations of the Company which (i) if
successful, may, individually or in the aggregate, have a Material Adverse
Effect on the Company or (ii) could adversely affect the ability of the Company
or any Company Subsidiary to effect the transactions contemplated hereby, and to
the knowledge of the Company there is no basis for any such action or any state
of facts or occurrence of any event which would reasonably be likely to give
rise to the foregoing. There are no unsatisfied judgments against the Company or
any Company Subsidiary or any licensed professional or other individual
affiliated with the Company or any Company Subsidiary relating to services
provided on behalf of the Company or any Company Subsidiary or any consent
decrees to which any of the foregoing is subject. Each of the matters, if any,
set forth in this Section 3.12 is fully covered by policies of insurance of the
Company or any Company Subsidiary as in effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any Company
Subsidiary has been, nor shall be as of the Effective Time (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which the Company or any Company Subsidiary is a party and pursuant to which the
Company or any Company Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the operation of its business and which requires payments in excess of
$12,000 per year (the "Lease Agreements"). The Company has delivered to APP true
and complete copies of all of the Lease Agreements. Each Lease Agreement is
valid, effective and in full force in accordance with its terms, and there is
not under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver to
APP in writing such consents as are necessary to effect a valid and binding
transfer or assignment of the Company's or any Company Subsidiary's rights
thereunder. The Company has a good, clear, valid and enforceable leasehold
interest under each of the Lease Agreements. The Lease Agreements comply with
the exceptions to ownership interests and compensation arrangements set out in
42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar applicable
state law safe harbor or other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good title to
all of its properties and assets (real, personal and mixed, tangible and
intangible) and any rights or interests therein
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which it purports to own including, without limitation, all the property and
assets reflected in the Company Current Financial Statements; and (ii) owns such
rights, interests, assets and property free and clear of all Encumbrances, title
defects or objections (except for taxes not yet due and payable). The personal
property presently used in connection with the operation of the business of the
Company and the Company Subsidiaries constitutes the necessary personal property
assets to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, the Company does not have any
direct or indirect indebtedness for borrowed money, including indebtedness by
way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000 in
any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP of the assets and
properties to be acquired by APP from the Company, or which could inhibit or
prevent the Company from transferring to or vesting in APP good and sufficient
title to the assets and properties to be acquired by APP and the Surviving
Corporation except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, the Company
shall, on or before the Closing Date, use reasonable good faith efforts to
obtain and deliver to APP in writing, effective as of the Closing Date, such
consents as are necessary to enable the Surviving Corporation to enjoy all of
the rights now enjoyed by the Company under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to APP
any contracts or agreements relating to the provision of professional medical
services or other such agreements and contracts that APP consents to in writing
to be transferred to NewCo in the Spin-off Transaction. No contract with a
health care provider or Payor has been materially amended or terminated within
the last twelve (12) months.
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(b) The Company (i) has not received notice of any plan or
intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument required to be disclosed pursuant to Section
3.17(a), and to the knowledge of the Company there are no fact(s) that would
justify the exercise of such a right; and (ii) does not currently contemplate,
or have reason to believe any other Person currently contemplates, any amendment
or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a party to
any employment contract (except for oral employment agreements which are
terminable at will), consulting or collective bargaining contracts, deferred
compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected to
receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for it
to the date hereof or amounts required to be reimbursed to such employees. Upon
termination of employment of any employee or Physician Employee, no severance or
other payments will become due and the Company has no policy, past practice or
plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in material
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, occupational
safety and health, and is not engaged in any unfair labor practice within the
meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair labor
practice, charge or complaint or any other employment-related matter against or
involving the Company pending or threatened before the National Labor Relations
Board or any federal, state or local agency, authority or court;
(c) To the knowledge of the Company, there are no charges,
investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the Immigration
Reform and Control Act of 1986, as amended, and all applicable regulations
promulgated thereunder; and
(e) To the knowledge of the Company, there are no inquiries,
investigations or monitoring activities of any licensed, registered, or
certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
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Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a complete
and accurate list of all employee benefit plans (within the meaning of Section
3(3) of ERISA) sponsored by the Company or to which the Company contributes on
behalf of its employees and all employee benefit plans previously sponsored or
contributed to on behalf of its employees within the three years preceding the
date hereof (the "Employee Benefit Plans"). The Company has provided to APP
copies of all plan documents (as they may have been amended to the date hereof),
determination letters, pending determination letter applications, trust
instruments, insurance contracts or policies related to an Employee Benefit
Plan, administrative services contracts, annual reports, actuarial valuations,
summary plan descriptions, summaries of material modifications, administrative
forms and other documents that constitute a part of or are incident to the
administration of the Employee Benefit Plans. In addition, the Company has
provided or made available to APP a written description of all existing
practices engaged in by the Company that constitute Employee Benefit Plans.
Subject to the requirements of ERISA, each of the Employee Benefit Plans can be
terminated or amended at will by the Company without any further liability or
obligation on the part of such entity to make further contributions or payments
in connection therewith following such termination. No unwritten amendment
exists with respect to any Employee Benefit Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any notice that
any Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency or authority.
(d) Prohibited Transactions. No prohibited transactions (within
the meaning of Section 4975 of the Code or Section 406 of ERISA) have occurred
with respect to any Employee Benefit Plan. There has been no breach of any duty
under ERISA or applicable law (including, without limitation, any health care
contractor requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan), which would be reasonably
likely to result, directly or indirectly, (including through any obligation of
indemnification or contribution), in any taxes, penalties or other liability to
APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the Company's
knowledge, threatened, claims, suits or other proceedings exist with respect to
any Employee Benefit Plan other than normal benefit claims filed by participants
or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or 501(c)(9)
of the Code and/or tax-exempt within the meaning of Section 501(a) of the Code
and, to the best knowledge of the Company and each Stockholder, has been
continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation of
any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency (within the
meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Company is a member (a "Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such plan
are at least equal in value to the present value of accrued benefits determined
on an ongoing basis as of the date hereof. With respect to each Employee Benefit
Plan described in Section 501(c)(9) of the Code, the assets of each such plan
are at least equal in value to the present value of accrued benefits, based upon
the most recent actuarial valuation as of a date no more than ninety (90) days
prior to the date hereof. The Disclosure Schedules
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contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any member of a
Controlled Group is or ever has been obligated to contribute to a multiemployer
plan within the meaning of Section 3(37) of ERISA or any other Employee Benefit
Plan which has been subject to Title IV of ERISA or Section 412 of the Code.
(j) PBGC. No facts or circumstances are known to the Company that
would result in the imposition of liability against APP or any of its Affiliates
by the Pension Benefit Guaranty Corporation ("PBGC") as a result of any act or
omission by the Company or any member of a Controlled Group. No reportable event
(within the meaning of Section 4043 of ERISA) for which the notice requirement
has not been waived has occurred with respect to any Employee Benefit Plan
subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable provisions of ERISA.
(l) Other Compensation Arrangements. Neither the Company nor, to
the Company's knowledge, any Stockholder or Physician Employee is a party to any
compensation or debt arrangement with any Person relating to the provision of
health care related services other than arrangements with the Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has, within
the five (5) years preceding the date hereof, through the Effective Time,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of the Company no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by the Company of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by the Company to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Schedule 3.21(b) discloses any known presence of asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises. To the knowledge of the
Company, there is no friable asbestos in or on the Company's or any Company
Subsidiary's owned or leased premises.
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(c) To the knowledge of the Company, no soil or water in or under
any assets currently or formerly held for use or sale by the Company or any
Company Subsidiary is or has been contaminated by any Hazardous Substance while
such assets or premises were owned, leased, operated or managed, directly or
indirectly by the Company or any Company Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on the
Company.
(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of the Company,
concerning the Company or any Company Subsidiary within the five (5) years
preceding the date hereof through the Effective Time with respect to any real
property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following terms
have the following meanings:
"Environmental Laws" shall mean any federal, state or local laws,
ordinances, codes, regulations, rules, policies and orders (including
without limitation, Medical Waste Laws) that are intended to assure the
protection of the environment, or that classify, regulate, call for the
remediation of, require reporting with respect to, or list or define
air, water, groundwater, solid waste, hazardous, toxic, or radioactive
substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons,
including the public in each case as in effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any pollutant
or contaminant, or infectious or radioactive substance or material,
including without limitation, those substances, materials and wastes
defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any Hazardous
Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and
briefly describe the Company's policies of insurance to which the Company or any
Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by the
Company or any Company Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
the Company and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as the Company
and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which the Company or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies
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of all Insurance Policies have been provided to APP. Neither the Company nor any
Company Subsidiary nor any officer or director thereof has received any notice
or other written communication from any issuer of any Current Policy cancelling
such policy, materially increasing any deductibles or retained amounts
thereunder, or materially increasing the annual or other premiums payable
thereunder and, to the knowledge of the Company, no such cancellation or
increase of deductibles, retainages or premiums is threatened. There are no
outstanding claims, settlements or premiums owed against any Insurance Policy,
and all required notices have been given and all known potential or actual
claims under any Insurance Policy have been presented in due and timely fashion.
Within the five (5) years preceding the Agreement, neither the Company nor any
Company Subsidiary has filed a written application for any professional
liability insurance coverage which has been denied by an insurance agency or
carrier. The Disclosure Schedules also set forth a list of all claims under any
Insurance Policy in excess of $10,000 per occurrence filed by the Company or any
Company Subsidiary during the immediately preceding three-year period. Each
Physician Employee has, at all times while a Physician Employee, maintained or
been covered by professional malpractice insurance in such types and amounts as
are customary for such a physician practicing the same type of medicine in the
same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of all
accounts receivable of the Company as of March 31, 1997, which list is complete,
true and accurate in all material respects. All such accounts receivable arose
in the ordinary course of business and have not been previously written off as
bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements or
on the accounting records of the Company (which reserves are calculated
consistent with generally accepted accounting principles and past practice).
(b) The Disclosure Schedules set forth (i) a true, correct and
complete list of the names and addresses of each Payor of the Company as of such
date, which accounted for more than 5% of the revenues of the Company in the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for more than 5% of the revenues of the Company for the fiscal year to end
December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i)
list of the accounts payable of the Company as of March 31, 1997, and (ii) list
of each individual indebtedness owed by the Company of $5,000 or more, setting
forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company Current
Balance Sheet contained in the Company Financial Statements consisted, and all
such items on hand on the date of this Agreement consist, and all such items on
hand at the Effective Time will consist, net of all applicable reserves with
respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory
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are not materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other licensed
employee or independent contractor of the Company (i) is the holder of all valid
licenses, approvals, orders, consents, permits, registrations, qualifications
and other rights and authorizations required by law, ordinance, regulation or
ruling of any governmental regulatory authority necessary to operate its
business or practice his or her specialty and (ii) is eligible to participate in
and to receive reimbursement under Titles XVIII and XIX of the Social Security
Act (the "Medicare and Medicaid Programs") and any other programs funded in
whole or in part by federal, state or local entities for which the Company is
eligible and which are listed in the Disclosure Schedules ("Governmental
Programs"). The Company, the Stockholders, and each Physician Employee has a
current provider number for such Governmental Programs and with such private
non-governmental programs (including without limitation any private insurance
program) under which the Company is presently receiving payments directly or
indirectly from any Payor for patient care provided by such Physician Employee,
licensed employee or independent contractor (such non-governmental programs
herein referred to as "Private Programs"). A true, correct and complete list of
such licenses, permits and other authorizations (including, but not limited to
verification of Medicare and Medicaid provider numbers and participating
physician contracts under 1842(h) of the Social Security Act), and provider
agreements, is set forth in the Disclosure Schedules, true, complete and correct
copies of which have been provided to APP. No violation, default, order or
deficiency exists with respect to any of the items listed in the Disclosure
Schedules except for such violations, defaults, orders or deficiencies which
would not be reasonably likely to have a Material Adverse Effect on the Company,
and there is no action pending or to the Company's knowledge recommended by any
state or federal agencies having jurisdiction over the items listed in the
Disclosure Schedules, either to revoke, withdraw or suspend any material license
or to terminate the participation of the Company in any Governmental Program or
Private Program, and no event has occurred which, with or without notice or
lapse of time, or both, would constitute grounds for a violation, order or
deficiency with respect to any of the items listed in the Disclosure Schedules
to revoke, withdraw or suspend any material license to operate its business as
is presently being conducted by it. To the knowledge of the Company, there has
been no decision not to renew any existing agreement with any provider or Payor
relating to the Company's business as presently being conducted by it. Neither
the Company nor any Physician Employee (i) has had his/her/its professional
license, Drug Enforcement Agency number, Medicare/Medicaid provider status or
staff privileges at any hospital or diagnostic imaging center suspended,
relinquished, terminated or revoked (including orders that have been entered by
any such entities but stayed), (ii) has been reprimanded in writing, sentenced,
or disciplined by any licensing board, state agency, regulatory body or
authority, hospital, Payor or specialty board (including orders that have been
entered by any such entities but stayed), or (iii) is the subject of an initial
or final determination by any federal or state authority that could result in
any demand or reimbursement under the Medicare, Medicaid or Government Programs
or any exclusion or which monetary penalty under federal or state law or (iv)
has had a final judgment or settlement entered against him/her/it in connection
with a malpractice or similar action.
(b) The Company is not required, or for the 72-month period prior
to the Effective Time was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of the
Company, or any Physician Employee, nor the right of any licensed professional
or other individual affiliated with the Company to receive reimbursements
pursuant to any Governmental Program or Private Program has been terminated or
otherwise materially and adversely affected as a result of any investigation or
action whether by any federal or state governmental regulatory authority or
other third party. No Physician Employee, licensed professional or other
individual affiliated with the business has, during the past three (3) years
prior to the Effective Time, had their professional license or staff privileges
limited, suspended or revoked by any governmental regulatory authority or
agency, hospital, integrated delivery system, trade association, professional
review organization, accrediting organization or certifying agency
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(including orders that have been entered by any such entities but stayed). True,
correct and complete copies of all reports, correspondence, notices and other
documents relating to any matter described or referenced in this Section 3.28
have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v) other
similar agreements relating to the foregoing to which the Company or any Company
Subsidiary is a party (including expiration date if applicable) (collectively,
the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate list
and summary description of all agreements relating to technology, trade secrets,
know-how or processes that the Company is licensed or authorized to use by
others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of the Company, no
claim has been asserted by any person to the ownership of or for infringement by
the Company of any Proprietary Right of any other Person, and neither the
Company nor any Stockholder is aware of any valid basis for any such claim. To
the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) the Company has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records in
accordance with generally accepted accounting principles for all of the same
that have not yet become due and payable and (ii) the Company is not delinquent
in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
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assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated any
applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not
granted an extension to any taxing authority of the statute of limitation period
during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required
to be withheld by the Company and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder is a
foreign person, as such term is referred to in Section 1445(f)(3) of the Code
and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of the
Company constitutes property that the Company, APP or any Affiliate of APP, will
be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties of the
Company are subject to a lease to a "tax exempt entity" as such term is defined
in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(k) Parachute Payments. No payment required or contemplated to be
made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to the
Company's business. There is no commitment to, and no income reflected in the
Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure Schedules is
a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such
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as checking account, borrowing arrangements, safe deposit box, etc.) and the
Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the Company nor
any Company Subsidiary has engaged and, to the knowledge of the Company, neither
the Company's officers and directors nor the Physician Employees or other
Persons and entities providing professional services for or on behalf of the
Company have engaged, in any activities which are prohibited under 42 U.S.C.
SectionSection 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Section 24, 287, 371, 664, 669, 1001, 1027,
1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company, any
Company Subsidiary or officer, director or key employee of the Company or
Company Subsidiary, which has or reasonably could be expected to have the effect
of prohibiting or materially impairing the current medical practice of the
Company or any Company Subsidiary or the continuation of that medical practice
in the future by NewCo, any acquisition of property by the Company, any Company
Subsidiary or the conduct of business by the Company or any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of the Company, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by the Company or any other party thereto. No
contract with a Physician Employee has been terminated in the last twelve (12)
months.
Section 3.36 Statements True and Correct. No representation or warranty
made herein by the Company or any Stockholder, nor any statement, certificate,
information, exhibit or instrument to be furnished by the Company or any
Stockholder to APP or any of its respective representatives pursuant to this
Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required by
Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of any
of the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
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Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the Merger
and the transactions contemplated hereby, all of which have been or will be made
available to the Company for review, are true, correct and complete as in effect
on the date of this Agreement and accurately reflect all material proceedings of
the stockholders and directors of APP (and all committees thereof) regarding the
Merger and the transactions contemplated hereby. The stock record books of APP,
which have been or will be made available to the Company for review, contain
true, complete and accurate records of the stock ownership of APP and the
transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and the Other Agreements and to
consummate the Merger and the transactions contemplated hereby. The execution,
delivery and performance by APP of this Agreement and the agreements provided
for herein, including the Other Agreements and the consummation by APP of the
transactions contemplated hereby and thereby are within APP's corporate powers
and have been duly authorized by all necessary action on the part of APP's Board
of Directors. This Agreement has and the Other Agreements have been duly
executed by APP. This Agreement and all other agreements and obligations entered
into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements of APP, enforceable against it in
accordance with their respective terms, except as may be limited by bankruptcy
or other laws affecting creditors' rights generally, or by general equity
principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the Merger and the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP consists
of [20,000,000] shares of APP Common Stock, of which [2,000,000] shares are
issued and outstanding and [10,000,000] shares of APP Preferred Stock, none of
which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
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Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or obligation accrued, contingent or
otherwise, that is reasonably likely to have a Material Adverse Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of
the Effective Time (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever), in violation of
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business or
its advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
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Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted an
extension to any taxing authority of the limitation period during which any tax
liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required
to be withheld by APP and paid to governmental agencies for all income, social
security, unemployment insurance, sales, excise, use, and other taxes have been
collected or withheld and paid to the respective governmental agencies.
(f) Foreign Person. Neither APP nor any holders of APP Common
Stock is a foreign person, as such term is referred to in Section 1445(f)(3) of
the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject to a
lease to a "tax exempt entity" as such term is defined in Section 168(h)(2) of
the Code.
(h) Collapsible Corporation. APP has not at any time consented,
and the holders of APP Common Stock will not permit APP to elect, to have the
provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated to be
made by APP will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed as an
"S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
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Section 4.13 Related Party Arrangements. The Disclosure Schedules or
Form S-4 sets forth a description of any interest held, directly or indirectly,
by any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to the Company or a Stockholder pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules required by
Article IV hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to such
agreements, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true and
correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo is a
professional corporation duly organized, validly existing and in good standing
under the laws of its state of organization, with all requisite corporate power
and authority to carry on the business in which it intends to engage, to own the
properties it intends to own, and to execute and deliver the Service Agreement,
the Security Agreement and the Physician Employment Agreements and consummate
the transactions and perform the services contemplated thereby. NewCo is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its intended business makes such qualification
necessary, which jurisdictions are listed in the Disclosure Schedules, except
where the failure to be so qualified shall not have a Material Adverse Effect on
NewCo.
Section 5.2 Capitalization. The authorized capital stock of NewCo
consists of [_____] shares of NewCo Common Stock, of which [______] shares are
issued and outstanding, and no shares of capital stock of NewCo are held in
treasury. The Stockholders own all of the issued and outstanding shares of NewCo
Common Stock, free and clear of any Encumbrance. Each outstanding share of NewCo
Common Stock has been legally and validly issued and is fully paid and
nonassessable. There exist no options, warrants, subscriptions or other rights
to purchase, or securities convertible into or exchangeable for, any of the
authorized or outstanding securities of NewCo. No shares of capital stock of
NewCo have been issued or disposed of in violation of the preemptive rights,
rights of first refusal or similar rights of any of NewCo's stockholders.
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Section 5.3 Corporate Records. The copies of the articles or certificate
of incorporation and bylaws, and all amendments thereto, of NewCo that have been
delivered or made available to APP are true, correct and complete copies
thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery and
performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or performance
of the Service Agreement, the Security Agreement, the Physician Employment
Agreements or the other agreements contemplated thereby nor the consummation of
the transactions or provision of services contemplated thereby will (a) conflict
with, or result in a violation or breach of the terms, conditions or provisions
of, or constitute a default under, the articles or certificate of incorporation
or bylaws of NewCo, or (b) violate or conflict with any applicable local, state
or federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency or authority or court binding on
it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities. NewCo has
not commenced business since its incorporation. Other than its articles or
certificate of incorporation and bylaws, and as of the Closing Date, the Service
Agreement, the Security Agreement, the Physician Employment Agreements, and the
other contracts and agreements assigned to NewCo as part of the Spin-Off
Transaction, NewCo is not a party to or subject to any agreement, indenture or
other instrument. NewCo does not own any assets (tangible or intangible) other
than the consideration received upon the issuance of shares of its capital stock
or pursuant to the Spin-Off Transaction, and NewCo does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted) other than those assumed pursuant to the Spin-Off Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all applicable
laws, regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports, except where failure to so
comply or file would not, individually or in the aggregate, have a Material
Adverse Effect on NewCo.
ARTICLE VI
Intentionally Omitted.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant to the
Spin-Off Transaction or the "F" Reorganization, from the date hereof until the
Effective Time, the Company shall, in all material respects, conduct its
business in the ordinary and usual course consistent with past practices and
shall use reasonable efforts to:
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(a) preserve intact its business and its relationships with
Payors, referral sources, customers, suppliers, patients, employees and others
having business relations with it;
(b) maintain and keep its properties and assets in good repair
and condition consistent with past practice as is material to the conduct of the
business of the Company;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of incorporation
or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not
limited to, by way of stock split, dividend, recapitalization or
other reclassification) or any subscriptions, options, warrants,
rights or convertible securities, or enter into any agreements
or commitments of any character obligating it to issue or sell
any such securities;
(3) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or any option,
warrant or other right to purchase or acquire any such shares;
(4) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its
capital stock (except as expressly contemplated herein);
(5) voluntarily sell, transfer, surrender, abandon or
dispose of any of its assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the
ordinary course of business consistent with past practices;
(6) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge or
encumbrance of any kind, except liens for taxes not currently
due and except for liens which arise by operation of law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital expenditures
which are not reasonably necessary for the conduct of its
business;
(9) grant any increase in the compensation payable or to
become payable to directors, officers, consultants or employees
other than merit increases to employees of the Company who are
not directors or officers of the Company, except in the ordinary
course of business and consistent with past practices;
(10) change in any manner any accounting principles or
methods other than changes which are consistent with generally
accepted accounting principles;
(11) enter into any material commitment or transaction
other than in the ordinary course of business;
(12) take any action which could reasonably be expected
to have a Material Adverse Effect on the Company;
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(13) apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount
payable directly or indirectly to or for the benefit of any
Affiliate of the Company, other than in the ordinary course and
consistent with past practices;
(14) agree, whether in writing or otherwise, to do any
of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits hereto,
other than as required to discharge its or their fiduciary
duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time, the
Company shall (i) except for sales of assets held as inventory, if any, in the
ordinary course of business prior to the Effective Time and except as otherwise
specifically described in the Disclosure Schedules to this Agreement, have good
and valid title to all of its assets free and clear of all Encumbrances of any
nature whatsoever, except for current year ad valorem taxes and liens which
arise by operation of law, and (ii) have no direct or indirect indebtedness
except for indebtedness disclosed in the Company Financial Statements, the
Disclosure Schedules hereto or for normal and recurring accrued obligations of
the Company arising in connection with its business operations in the ordinary
course of business and which arise from the purchase of merchandise, supplies,
inventory and services used in connection with the provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, share certificate books, share registers,
accounts, tax returns, financial statements and all other data that, in the
reasonable opinion of APP, are required for APP to make such investigation as it
may desire of the properties and business of the Company. APP shall also be
allowed full access upon reasonable prior notice and during regular business
hours (and at such other times as the parties may reasonably agree) to consult
with the officers, employees (after announcement by the Company of the Merger to
its employees which shall occur no later than three (3) days subsequent to
execution hereof by the Company), accountants, counsel and agents of the Company
in connection with such investigation of the properties and business of the
Company. No investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall be
conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall
cause each of its directors, officers, employees or agents not to directly or
indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or capital stock of the
Company, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of the Company, or, without APP's prior written approval, afford
to any Person other than APP and its agents access to the properties, books or
records of the Company. If the Company receives any offer or proposal after the
date hereof, written or otherwise, of the type referred to above, the Company
shall promptly inform APP of such offer or proposal, decline such offer and
furnish APP with a copy thereof if such offer or proposal is in writing.
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Section 7.5 Compliance With Obligations. Prior to the Effective Time,
the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly notify
APP of:
(a) any notice or other communication from any Person or entity
alleging that the consent of such Person or entity is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the Company
who is expected to receive annualized compensation of at least $50,000 in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
the Company which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of the Company,
including but not limited to any licensure or certification deficiencies, or
violations; limitations on a license or a provider agreement; freeze or
reduction in MediCare or Medicaid rates, notice of overpayment; being the
subject of any investigation relating to patient abuse, fraud, kickbacks, false
claims or other alleged illegal payment practices under the Fraud and Abuse
Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best
efforts to obtain the unanimous approval of its Stockholders to the Merger. In
seeking the approval of its Stockholders, the Company shall provide each
Stockholder with the Form S-4 which shall include information as may be required
by applicable law or as APP shall deem appropriate. The Board of Directors of
the Company shall recommend the approval of the Merger by the Stockholders of
the Company. If the Stockholders' approval is not unanimous, the Company shall
give notice to the nonconsenting Stockholders of the action taken by the
consenting Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to Section
7.8 hereof, the Company will take all action reasonably necessary to cause the
Company to perform its obligations under this Agreement and all related
agreements and to consummate the Merger and other transactions contemplated
hereby and thereby on the terms and conditions set forth in this Agreement and
such agreements; provided, however, that this covenant shall not require the
Company to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
Section 7.10 Funding of Accrued Employee Benefits. The Company hereby
covenants and agrees that it will take whatever steps are necessary to pay for
or fund completely any accrued benefits,
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where applicable, or vested accrued benefits for which the Company or any entity
might have any liability whatsoever arising from any tax-qualified plan as
required under applicable law. The Company acknowledges that the purpose and
intent of this covenant is to assure that APP shall have no liability whatsoever
at any time after the Closing Date with respect to any such tax-qualified plan,
unless such plan is merged with a plan sponsored by APP.
Section 7.11 Accounting and Tax Matters. The Company will not change in
any material respect the accounting methods or practices followed by the Company
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. The Company will not make
any material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (without regard to any extensions of
time) file all returns, information statements and other documents relating to
taxes of the Company required to be filed by it, and pay all taxes required to
be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form, organize and
incorporate NewCo in the state of New York, and the articles or certificate of
incorporation and bylaws of NewCo shall be in form and substance reasonably
satisfactory to APP. Except for consummating the Spin-Off Transaction, NewCo
shall not commence business until the Closing Date. On or prior to the Closing,
the Company shall take all actions and execute all documents, agreements or
instruments necessary pursuant to and in compliance with applicable law to
effect the Spin-Off Transaction, including without limitation, the following:
Prior to the Closing, the Company shall transfer to NewCo good, valid and
marketable title to all of the Company's right, title and interest in and to the
Employee Benefit Plans, all contracts and agreements and other assets listed on
the Disclosure Schedules (to be delivered by the Company prior to Closing, which
schedule will be subject to the approval of APP, which approval shall not be
unreasonably withheld) which by law either cannot be acquired or cannot be used
by APP because they relate to the practice of medicine or radiology, and shall
contribute to NewCo such other consideration and assets of the Company as may be
required under applicable law, in exchange for the issuance by NewCo of shares
of NewCo Common Stock, such shares being all of the issued and outstanding
shares of NewCo Common Stock. The Company shall then distribute the shares of
NewCo Common Stock to the Stockholders in proportion to their respective
ownership interest in the Company.
Section 7.13 "F" Reorganization. The Company shall convert its corporate
status from that of a professional medical corporation to that of a general
business corporation in a transaction which will qualify as a tax-free
transaction under Section 368(a)(2)(F) of the Code (the "F" Reorganization).
The Company shall prepare and execute all documents necessary to effectuate the
"F" Reorganization prior to the Closing. At or prior to the Closing, the Company
shall cause an amendment to this Agreement to be executed which will reflect the
changes which result from the "F" Reorganization.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Merger; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
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Section 8.2 Requirements to Effect the Merger and Acquisitions. APP will
use its best efforts to take, or cause to be taken, all actions necessary to
effect the Merger under applicable law, including without limitation the filing
with the appropriate government officials of all necessary documents in form
approved by counsel for the parties to this Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and their authorized representatives to inspect
and, at the Company's sole expense, make copies of all documents, records and
information with respect to the affairs of APP as the Company and their
representatives may reasonably request, all for the sole purpose of permitting
the Company to become familiar with the business and assets and liabilities of
APP. No investigation by the Company or the Stockholders shall diminish or
otherwise affect any of the representations, warranties, covenants or agreements
of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly inform
the Company in writing of (a) any notice of, or other communication relating to,
a default or event that, with notice or lapse of time or both, would become a
default, received by APP subsequent to the date of this Agreement and prior to
the Effective Time under any contract, agreement or investment material to APP's
condition (financial or otherwise), operations, assets, liabilities or business
and to which it is subject; (b) any material adverse change in APP's condition
(financial or otherwise), operations, assets, liabilities or business or (c)
defaults or disputes regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP shall use its best efforts
to establish a qualified plan and trust for NewCo, within the meaning of Section
401(a) and 501(a), respectively, of the Code ("New Qualified Plan") that will
provide benefits comparable (as determined under Section 401(a)(4) of the Code)
to the benefits provided under the qualified plans referenced in the Disclosure
Schedules, if any, sponsored by the Company as of March 31, 1997. APP will file
for a favorable determination letter from the IRS on the New Qualified Plan and
request a favorable determination from the IRS that NewCo is not a member of an
affiliated service group (as defined in Section 414(m) of the Code) or a
recipient organization of leased employee services (as defined in Section 414(n)
of the Code). Any benefits provided under the New Qualified Plan shall be
conditioned on a favorable determination letter from the IRS. Costs associated
with the establishment and design of the New Qualified Plan shall be paid by
APP. The NewCo shall be responsible for funding any contributions to, or any
ongoing administrative costs of, the New Qualified Plan.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and file
with the SEC the Registration Statements on Form S-1 and Form S-4 (or other
appropriate Forms) to be filed by APP in connection with its Initial Public
Offering and offering of the shares of APP Common Stock to the Target Interest
Holders pursuant to the transactions contemplated by this Agreement and the
Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. The Company shall cooperate with APP in the
preparation of the Registration Statements and shall furnish all information
concerning the Company and NewCo as may be reasonably requested in connection
with any such action in a timely manner.
(b) The Company and APP and each separately represent and warrant that
(i) in the case of the Company, none of the written information or documents
supplied or to be supplied by it specifically
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for inclusion in the Registration Statements, by exhibit or otherwise and (ii)
in the case of APP, will, at the time the Registration Statements and each
amendment and supplement thereto, if any, becomes effective under the Securities
Act, none of them contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Company shall be entitled to review the Registration
Statements and each of the amendments thereto, if any, prior to the time each
becomes effective under the Securities Act. The Company shall have no
responsibility for information contained in the Registration Statements except
for information provided by the Company specifically for inclusion therein. The
Company's review of the Registration Statements shall not diminish or otherwise
affect the representations, covenants and warranties of APP contained in this
Agreement.
(c) The Company shall, upon request, furnish APP with all information
concerning itself, its subsidiaries, directors, officers, partners, Stockholders
and NewCo, and such other matters as may be reasonably requested by APP in
connection with the preparation of the Registration Statements and each of the
amendments or supplements thereto, or any other statement, filing, notice or
application made by or on behalf of each such party or any of its subsidiaries
to any governmental entity in connection with the Merger and the other
transactions contemplated by this Agreement.
Section 9.2 Amendments of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Disclosure Schedules with respect to any matter
that would have been or would be required to be set forth or described in the
Disclosure Schedules in order to not materially breach any representation,
warranty or covenant of such party contained herein; provided that no amendment
or supplement to a Disclosure Schedule that constitutes or reflects a Material
Adverse Effect on the Company may be made unless APP consents to such amendment
or supplement, and no amendment or supplement to a Disclosure Schedule that
constitutes or reflects a Material Adverse Effect on APP may be made unless the
Company consents to such amendment or supplement. For purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 10.1 and 11.1 have been fulfilled, the
Disclosure Schedules hereto shall be deemed to be the Disclosure Schedules as
amended or supplemented pursuant to this Section 9.2. In the event that the
Company seeks to amend or supplement a Disclosure Schedule pursuant to this
Section 9.2 and APP does not consent to such amendment or supplement, or APP
seeks to amend or supplement a Disclosure Schedule pursuant to this Section 9.2,
and the Company does not consent, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Sections
351 or 368 of the Code, as applicable.
Section 9.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company and NewCo in connection with the Merger
shall be paid by the Company Stockholders in full immediately prior to the
Closing and such expenses shall be the sole responsibility of the Stockholders
following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all records
and information regarding the patients of the Company and NewCo confidential in
accordance with all applicable laws.
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Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as delivered pursuant to Section 10.12
hereof) shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Effective
Date.
Section 10.2 Covenants. The Company shall have performed and complied in
all material respects with all covenants required by this Agreement to be
performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have delivered
to APP their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse Effect on
the Company shall have occurred since March 31, 1997, whether or not such change
shall have been caused by the deliberate act or omission of the Company or any
Stockholder.
Section 10.6 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, statements, rule, regulation or ordinance to consummate the
transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all Disclosure
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
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Section 10.11 Dissenter's Rights. The Company shall have satisfied each
of its obligations to its Stockholders regarding dissenters or related rights
under New York Business Corporation Law, and the sum of the amount which may
become due to the Stockholders who have dissented to the Merger and have
indicated their intent to seek appraisal rights plus the cash portion of the
Merger Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties of
the Company and its related entities to be transferred to NewCo pursuant to the
Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician Employee
and such other radiologists whose names are set forth on the Disclosure
Schedules shall have entered into a Physician Employment Agreement between NewCo
and each such Physician Employee in a form reasonably consistent to the form
attached as Exhibit E and satisfactory to APP in its sole discretion (the
"Physician Employment Agreements").
Section 10.15 Completion of "F" Reorganization. The Company shall have
(1) completed the "F" Reorganization, and all transfers and dissolutions related
thereto, and (2) amended this Agreement to reflect changes resulting from the
"F" Reorganization.
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered to the
Company their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, contracts or any statute, rule, regulation or ordinances to
consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the
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Registration Statements shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC. At or prior to the
Effective Date, APP shall have received all state securities and "Blue Sky"
permits necessary to consummate the transactions contemplated hereby. At or
prior to the Effective Date, the APP Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to the Company referred to in Section 12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect on
APP shall have occurred since __________, 1997, whether or not such change shall
have been caused by the deliberate act or omission of APP.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its analysis and opinion, in a
form satisfactory to the Company, that the terms of the Service Agreement are
fair and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from Haynes
and Boone, L.L.P., an opinion regarding the tax consequences of the transactions
contemplated by this Agreement and the other Agreements, substantially in the
form set forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Effective
Date, the Company shall deliver to APP the following, all of which shall be in a
form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
and the Service Agreement and all related documents and agreements and
consummation of the Merger, each certified by the Secretary of the Company as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of NewCo
authorizing the execution, delivery and performance of the Service Agreement,
the Security Agreement and the Physician Employment Agreements each certified by
the Secretary of NewCo as being true and correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of the Company dated the
Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the
Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by the
Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and officers
of such corporation and as to the signatures of such directors and officers who
have executed documents delivered at the Closing on behalf of that corporation;
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(f) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretary of State of New York for the Company and NewCo
establishing that each such corporation is in existence, has paid all franchise
or similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in the state of New York;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and licenses
referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the form
attached hereto as Exhibit F, as revised in accordance with changes reasonably
deemed necessary or advisable by legal counsel retained by APP, the Company and
NewCo in the State of New York to address regulatory and compliance issues (the
"Service Agreement");
(k) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty of
perjury and dated as of the Closing Date, to the effect that such Stockholder is
a United States citizen or a resident alien (and thus not a foreign person) and
providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit G (the "Stockholder Release");
(n) intentionally omitted; and
(o) such other instrument or instruments of transfer prepared by
APP as shall be necessary or appropriate, as APP or its counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective Date, APP
shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) Intentionally omitted;
(c) a certificate of the President of APP dated the Closing Date
as to the truth and correctness of the representations and warranties of APP
contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the Closing Date,
(i) as to the performance and compliance by APP with all covenants contained
herein on and as of the Effective Date and (ii) certifying that all conditions
precedent required to be satisfied by APP shall have been satisfied;
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(e) a certificate of the Secretary of APP certifying as to the
incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the
Effective Date, of the secretary of state of incorporation establishing that APP
is in existence, has paid all franchise or similar taxes, if any, and otherwise
is in good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten (10)
days prior to the Effective Date, of the Secretaries of State of the states in
which APP is qualified to do business, to the effect that APP is qualified to do
business and is in good standing as a foreign corporation in such state;
(h) the executed Service Agreement as revised in accordance with
the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II and
Exhibit B hereof; and
(k) such other instrument or instruments of transfer prepared by
the Company as shall be necessary or appropriate, as the Company or its counsel
shall reasonably request, to carry out and effect the purpose and intent of this
Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing, at
the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing, at
the request of NewCo and at NewCo's sole cost and expense, APP or the Surviving
Corporation shall deliver any further instruments of transfer and take all
reasonable action as may be necessary and appropriate to carry out the purpose
and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and records
shall be maintained, and all Tax Returns and schedules thereto shall be filed in
a manner consistent with the Merger being treated as a Reorganization. These
obligations are excused as to a party required to maintain the books or file a
Tax Return if such party has provided to the other parties a written opinion of
competent tax counsel to the effect that there is not substantial authority,
within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report the Merger
as a Reorganization and such opinion either is furnished prior to the Effective
Time or is based on facts or events not known at the Effective Time. Each party
shall provide to each other party such tax information, reports, returns, or
schedules as may be reasonably required to assist such party in accounting for
and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any taxes
incurred by the Company and for which APP has successor liability therefor which
arise solely as a result of the Merger or the consummation of the transactions
contemplated hereby; provided that the foregoing shall not limit
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or otherwise be deemed a waiver of any right of indemnification under Section
14.1 for a breach of any representation, warranty or covenant of the Company or
any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms and
conditions of this Article XIV, the Company agrees to indemnify, defend and hold
APP and its respective directors, officers, stockholders, employees, agents,
attorneys, consultants and Affiliates harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, reasonable attorneys' fees and expenses (including, without limitation,
all costs of experts and all costs incidental to or in connection with any
appellate process) (collectively, "Damages") asserted against or incurred by
such individuals and/or entities arising out of or resulting from:
(a) a breach by the Company of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of the Company
contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company and/or
any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act or
any other federal or state "blue sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any (i) untrue statement of
material fact in any Registration Statement or any prospectus forming or part
thereof, or any amendment thereof or supplement thereto relating to the Company
(including any Company Subsidiary) or NewCo required to be stated therein or
(ii) failure to state information necessary to make the statements therein not
misleading, which untrue statement or failure to state information arises or
results solely from information provided in writing to APP or its counsel by the
Company or any Stockholder or their agents specifically for inclusion in any
such Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP. Subject to the terms and conditions
of this Article XIV, APP hereby agrees to indemnify, defend and hold the
Stockholders, the Company and NewCo and their respective directors, officers,
stockholders, employees, agents, attorneys, consultants and Affiliates harmless
from and against all Damages asserted against or incurred by such individuals
and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty (without
giving effect to any Material Adverse Effect qualifier contained as part of any
such representation or warranty) or covenant of APP contained in this Agreement
or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act or
any other federal or state "blue sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon
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any untrue statements of material fact in any Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or required to be stated therein or failure to state information
necessary to make the statements therein not misleading (except for any
liability based upon any actual or alleged untrue statement of material fact or
an omission to state a material fact relating to NewCo, the Company or any
Stockholder which was derived from any information provided in writing by the
Company or a Company Subsidiary or any of their agents contained in the
representations and warranties set forth in this Agreement or any certificate,
exhibit, schedule or instrument required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
any of the parties hereto of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement (an
"Indemnified Party") shall promptly (and, in the event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party for whom indemnification is sought (the "Indemnifying
Party) of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of Damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve any
Indemnifying Party of its obligations to any Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within thirty (30) days
after receipt of any Claim Notice (the "Election Period"), the Indemnifying
Party shall notify the Indemnified Party (x) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XIV
with respect to such Third Party Claim and (y) whether the Indemnifying Party
desires, at the sole cost and expense of such Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set forth
in Section 14.3(f) below, the Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. The
Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 14.3(b) and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may
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employ separate counsel at the expense of the Indemnifying Party, and upon
written notification thereof, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 14.3(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 14.3(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes their potential liability to the Indemnified
Party under this Article XIV and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 14.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Article XIV relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice period
or (ii) the expiration of the period
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for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
agrees to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding any provision herein to the contrary, the
obligation of an Indemnifying Party to provide indemnification to an Indemnified
Party for breach of any representation or warranty as provided in Sections
14.1(a) or 14.2(a) hereof shall not take effect unless and until the Damages
asserted against or incurred in the aggregate and on a collective basis by the
Indemnified Parties pursuant to either Section 14.1 or 14.2 (as applicable) as a
result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the
Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual agreement
of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or any Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any Stockholder
fails to comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(c) at any time prior to the Effective Date by the Company if any
representation or warranty of APP contained in this Agreement or in any
certificate or other document executed and delivered by APP pursuant to this
Agreement is or becomes untrue in any material respect of if APP fails to comply
in any material respect with any covenant or agreement contained herein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
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(d) at any time prior to the Effective Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in Section 16.3,
in the event this Agreement is terminated pursuant to this Article XV, this
Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo recognize
and acknowledge that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP that is
valuable, special and a unique asset of such entity's business. APP acknowledges
that it had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of the Company and NewCo that is
valuable, special and a unique asset of each such business. The Company, NewCo
and APP, severally, agree that they will not disclose such Confidential
Information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
APP, NewCo and the Company and (b) to counsel and other advisers to APP, NewCo
and the Company provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 16.1, unless (i) such information
becomes available to or known by the public generally through no fault of the
Company, NewCo or APP, as the case may be, (ii) disclosure is required by law or
the order of any governmental authority under color of law, provided, that prior
to disclosing any information pursuant to this clause (ii) the Company, NewCo or
APP, as the case may be, shall, if possible, give prior written notice thereof
to the Company, NewCo or APP and provide the Company or APP with the opportunity
to contest such disclosure, (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party, or (iv) the disclosing party is the sole and exclusive
owner of such Confidential Information as a result of the Merger or otherwise.
In the event of a breach or threatened breach by the Company, on the one hand,
and APP, on the other hand, of the provisions of this Section, APP, NewCo and
the Company shall be entitled to an injunction restraining the other party, as
the case may be, from disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting any of such
parties from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
Section 16.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, NewCo and the Company agree that, in the event of
a breach by either of them of the foregoing covenant, the covenant may be
enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this Article
XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
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Section 17.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP acknowledges
and agrees that the rights and remedies of the Company under this Agreement will
be directly available to the Stockholders as third party beneficiaries of the
rights and remedies of the Company under this Agreement, including, without
limitation, the rights and remedies under Article 14 hereof to indemnification
from APP against Damages incurred by the Stockholders resulting from a breach by
APP of any representation, warranty or covenant of APP contained herein. Except
as provided in the preceding sentence or as otherwise provided herein, neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder or APP
pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder and APP. Notwithstanding any
provision in this Agreement to the contrary, the representations and warranties
contained herein shall survive the Closing until the second anniversary of the
Closing Date except that (a) the representations and warranties set forth in
Section 3.21 with respect to environmental matters shall survive for a period of
ten (10) years, (b) the representations and warranties set forth in Section 3.30
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.27 and Section 3.33 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 14.1(c) and Section 14.2(c), and solely to
the extent that any party to be indemnified pursuant to such provisions actually
incurs liability under the Securities Act, the Exchange Act or any other federal
or state securities law, the representations and warranties set forth therein
shall survive until the expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
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Section 17.9 Gender and Number. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Mid Rockland Imaging Associates
18 Squadron Boulevard
New City, New York 10956
Fax No.: (914) 634-6254
Attn: Joel Rosenberg, CPA
A-751
<PAGE> 1113
with a copy to: Drake, Sommers, Loeb, Tarshis & Catania, P.C.
1 Corwin Court, P.O. Box 1479
Newburgh, New York 12550
Fax. No.: (914) 565-1999
Attn: Steven L. Tarshis, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B, Exhibit
C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure Schedules
attached hereto with their initial letter capitalized and not otherwise defined
therein shall have the meanings as assigned to such terms in this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
A-752
<PAGE> 1114
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
---------------------------------------------------
Gregory L. Solomon, President
THE COMPANY:
ADVANCED IMAGING OF ORANGE COUNTY, P.C.
By:
---------------------------------------------------
Herbert Z. Geller, M.D.
Its: President
A-753
<PAGE> 1115
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-754
<PAGE> 1116
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-755
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EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-756
<PAGE> 1118
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-757
<PAGE> 1119
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
A-758
<PAGE> 1120
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
A-759
<PAGE> 1121
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-760
<PAGE> 1122
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth therein are
delivered in connection with that certain Agreement and Plan of Reorganization
and Merger dated ____________, 1997, by and between American Physician Partners,
Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules correspond
to the section numbers in the Agreement. If disclosures made pursuant to one
section number can reasonably be interpreted by other parties to be a disclosure
to another section number, such disclosure shall constitute disclosure for
purposes of such additional section number. Capitalized terms used herein have
the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain exceptions to the
representations and warranties set forth in Article III of the Agreement, the
inclusion of an item on these Disclosure Schedules shall not be deemed an
admission by American Physician Partners, Inc. that such item is material to
American Physician Partners, Inc., the Company, NewCo or any Company Subsidiary
or that it will have a material adverse effect on American Physician Partners,
Inc., the Company, NewCo or any Company Subsidiary.
A-761
<PAGE> 1123
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and ADVANCED
IMAGING OF ORANGE COUNTY, a New York professional corporation (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not have
been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
ADVANCED IMAGING OF ORANGE COUNTY, P.C.
By:_________________________________
Its:________________________________
A-762
<PAGE> 1124
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and between
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)
and
CENTRAL IMAGING ASSOCIATES, P.C.
(a New York professional corporation)
================================================================================
A-763
<PAGE> 1125
TABLE OF CONTENTS
<TABLE>
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ARTICLE I Definitions..................................................................................... 2
Section 1.1 Definitions........................................................... 2
Section 1.2 Rules Of Interpretation............................................... 6
ARTICLE II The Merger..................................................................................... 6
Section 2.1 The Merger............................................................ 6
Section 2.2 The Closing........................................................... 6
Section 2.3 Effective Time........................................................ 6
Section 2.4 Certificate of Incorporation of Surviving Corporation................. 6
Section 2.5 Bylaws of Surviving Corporation....................................... 7
Section 2.6 Directors of the Surviving Corporation................................ 7
Section 2.7 Officers of the Surviving Corporation................................. 7
Section 2.8 Conversion of Company Common Stock.................................... 7
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock.......................................................... 7
Section 2.10 Fractional Shares..................................................... 8
ARTICLE III Representations and Warranties of the Company................................................. 8
Section 3.1 Organization and Good Standing; Qualification......................... 8
Section 3.2 Authorization and Validity............................................ 8
Section 3.3 Governmental Authorization............................................ 8
Section 3.4 Capitalization........................................................ 9
Section 3.5 Transactions in Capital Stock......................................... 9
Section 3.6 Continuity of Business Enterprise..................................... 9
Section 3.7 Subsidiaries and Investments.......................................... 9
Section 3.8 Absence of Conflicting Agreements or Required Consents................ 9
Section 3.9 Intentionally omitted................................................. 9
Section 3.10 Absence of Changes.................................................... 10
Section 3.11 No Undisclosed Liabilities............................................ 10
Section 3.12 Litigation and Claims................................................. 11
Section 3.13 No Violation of Law................................................... 11
Section 3.14 Lease Agreements...................................................... 11
Section 3.15 Real and Personal Property............................................ 11
Section 3.16 Indebtedness for Borrowed Money....................................... 12
Section 3.17 Contracts and Commitments............................................. 12
Section 3.18 Employee Matters...................................................... 13
Section 3.19 Labor Relations....................................................... 13
Section 3.20 Employee Benefit Plans................................................ 14
Section 3.21 Environmental Matters................................................. 15
Section 3.22 Filing Reports........................................................ 16
Section 3.23 Insurance Policies.................................................... 16
Section 3.24 Accounts Receivable; Payors........................................... 17
Section 3.25 Accounts Payable; Suppliers........................................... 17
Section 3.26 Inventory............................................................. 17
Section 3.27 Licenses, Authorization and Provider Programs......................... 18
Section 3.28 Inspections and Investigations........................................ 18
</TABLE>
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Section 3.29 Proprietary Rights and Information.................................... 19
Section 3.30 Taxes................................................................. 19
Section 3.31 Related Party Arrangements............................................ 20
Section 3.32 Banking Relations..................................................... 20
Section 3.33 Fraud and Abuse and Self Referral..................................... 21
Section 3.34 Restrictions on Business Activities................................... 21
Section 3.35 Agreements in Full Force and Effect................................... 21
Section 3.36 Statements True and Correct........................................... 21
Section 3.37 Disclosure Schedules.................................................. 21
Section 3.38 Finders' Fees......................................................... 21
ARTICLE IV Representations and Warranties of APP.......................................................... 21
Section 4.1 Organization and Good Standing; Qualification......................... 22
Section 4.2 Authorization and Validity............................................ 22
Section 4.3 Governmental Authorization............................................ 22
Section 4.4 Capitalization........................................................ 22
Section 4.5 Subsidiaries and Investments.......................................... 23
Section 4.6 Absence of Conflicting Agreements or Required Consents................ 23
Section 4.7 Absence of Changes.................................................... 23
Section 4.8 No Undisclosed Liabilities............................................ 23
Section 4.9 Litigation and Claims................................................. 23
Section 4.10 No Violation of Law................................................... 23
Section 4.11 Employee Matters...................................................... 23
Section 4.12 Taxes................................................................. 24
Section 4.13 Related Party Arrangements............................................ 25
Section 4.14 Statements True and Correct........................................... 25
Section 4.15 Disclosure Schedules.................................................. 25
Section 4.16 Finder's Fees......................................................... 25
Section 4.17 Agreements in Full Force and Effect................................... 25
ARTICLE V Closing Date Representations and Warranties of the Company...................................... 25
Section 5.1 Organization and Good Standing; Qualification......................... 25
Section 5.2 Capitalization........................................................ 25
Section 5.3 Corporate Records..................................................... 26
Section 5.4 Authorization and Validity............................................ 26
Section 5.5 No Violation.......................................................... 26
Section 5.6 No Business, Agreements, Assets or Liabilities........................ 26
Section 5.7 Compliance with Laws.................................................. 26
ARTICLE VI Intentionally Omitted.......................................................................... 26
ARTICLE VII Covenants of the Company...................................................................... 26
Section 7.1 Conduct of The Company................................................ 26
Section 7.2 Title to Assets; Indebtedness......................................... 28
Section 7.3 Access................................................................ 28
Section 7.4 Acquisition Proposals................................................. 28
Section 7.5 Compliance With Obligations........................................... 29
Section 7.6 Notice of Certain Events.............................................. 29
</TABLE>
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Section 7.7 Intentionally omitted................................................. 29
Section 7.8 Stockholders' Consent................................................. 29
Section 7.9 Obligations of Company and Stockholders............................... 29
Section 7.10 Funding of Accrued Employee Benefits.................................. 29
Section 7.11 Accounting and Tax Matters............................................ 30
Section 7.12 Spin-Off Transaction.................................................. 30
Section 7.13 "F" Reorganization.................................................... 30
ARTICLE VIII Covenants of APP............................................................................. 30
Section 8.1 Consummation of Agreement............................................. 30
Section 8.2 Requirements to Effect the Merger and Acquisitions.................... 31
Section 8.3 Access................................................................ 31
Section 8.4 Notification of Certain Matters....................................... 31
Section 8.5 Qualified Retirement Plans............................................ 31
ARTICLE IX Covenants of APP and the Company............................................................... 31
Section 9.1 Filings; Other Action................................................. 31
Section 9.2 Amendments of Schedules............................................... 32
Section 9.3 Actions Contrary to Stated Intent..................................... 32
Section 9.4 Public Announcements.................................................. 32
Section 9.5 Expenses.............................................................. 32
Section 9.6 Patient Confidentiality............................................... 32
Section 9.7 Registration Statements............................................... 33
ARTICLE X Conditions Precedent of APP..................................................................... 33
Section 10.1 Representations and Warranties........................................ 33
Section 10.2 Covenants............................................................. 33
Section 10.3 Legal Opinion......................................................... 33
Section 10.4 Proceedings........................................................... 33
Section 10.5 No Material Adverse Effect............................................ 33
Section 10.6 Government Approvals and Required Consents............................ 33
Section 10.7 Securities Approvals.................................................. 33
Section 10.8 Closing Deliveries.................................................... 33
Section 10.9 Closing of Initial Public Offering.................................... 33
Section 10.10 Closing of Related Acquisitions....................................... 33
Section 10.11 Dissenter's Rights.................................................... 34
Section 10.12 Stockholder Representation Letter; Indemnification Agreement.......... 34
Section 10.13 Transfer of Assets.................................................... 34
ARTICLE XI Conditions Precedent of the Company............................................................ 34
Section 11.1 Representations and Warranties........................................ 34
Section 11.2 Covenants............................................................. 34
Section 11.3 Legal Opinions........................................................ 34
Section 11.4 Proceedings........................................................... 34
Section 11.5 Government Approvals and Required Consents............................ 34
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing.................................. 34
Section 11.7 Closing of Initial Public Offering.................................... 35
Section 11.8 Closing Deliveries.................................................... 35
</TABLE>
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Section 11.9 No Material Adverse Effect............................................ 35
Section 11.10 Service Agreement Analysis............................................ 35
Section 11.11 Tax Opinion........................................................... 35
ARTICLE XII Closing Deliveries............................................................................ 35
Section 12.1 Deliveries of the Company............................................. 35
Section 12.2 Deliveries of APP. ................................................... 36
ARTICLE XIII Post Closing Matters......................................................................... 37
Section 13.1 Further Instruments of Transfer....................................... 37
Section 13.2 Merger Tax Covenant................................................... 37
Section 13.3 Current Public Information............................................ 38
ARTICLE XIV Remedies...................................................................................... 38
Section 14.1 Indemnification by the Company........................................ 38
Section 14.2 Indemnification by APP................................................ 38
Section 14.3 Conditions of Indemnification......................................... 39
Section 14.4 Costs, Expenses and Legal Fees........................................ 41
Section 14.5 Tax Benefits; Insurance Proceeds...................................... 41
ARTICLE XV Termination.................................................................................... 41
Section 15.1 Termination........................................................... 41
Section 15.2 Effect of Termination................................................. 42
ARTICLE XVI Nondisclosure of Confidential Information..................................................... 42
Section 16.1 Non-Disclosure Covenant............................................... 42
Section 16.2 Damages............................................................... 42
Section 16.3 Survival.............................................................. 42
ARTICLE XVII Miscellaneous................................................................................ 42
Section 17.1 Amendment; Waivers.................................................... 42
Section 17.2 Assignment............................................................ 43
Section 17.3 Parties in Interest; No Third Party Beneficiaries..................... 43
Section 17.4 Entire Agreement...................................................... 43
Section 17.5 Severability.......................................................... 43
Section 17.6 Survival of Representations, Warranties and Covenants................. 43
Section 17.7 Governing Law......................................................... 43
Section 17.8 Captions.............................................................. 43
Section 17.9 Gender and Number..................................................... 44
Section 17.10 Intentionally omitted................................................. 44
Section 17.11 Confidentiality; Publicity and Disclosures............................ 44
Section 17.12 Notice................................................................ 44
Section 17.13 No Waiver; Remedies................................................... 45
Section 17.14 Counterparts.......................................................... 45
Section 17.15 Defined Terms......................................................... 45
</TABLE>
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EXHIBITS
Exhibit A - List of Target Companies..................................................................... A-1
Exhibit B - Merger Consideration......................................................................... B-1
Exhibit C - Stockholder Representation Letter............................................................ C-1
Exhibit D - Indemnification Agreement.................................................................... D-1
Exhibit E - Physician Employment Agreement .............................................................. E-1
Exhibit F - Service Agreement............................................................................ F-1
Exhibit G - Stockholder Release.......................................................................... G-1
Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
</TABLE>
A-768
<PAGE> 1130
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP") and CENTRAL IMAGING ASSOCIATES,
P.C., a New York professional corporation (the "Company").
RECITALS
A. The Company owns and operates (i) a professional medical
practice(s) specializing in radiology and (ii) diagnostic imaging centers. All
of the shares of the common stock of the Company (the "Company Common Stock")
are owned beneficially and of record by the Stockholders.
B. APP is engaged in the business of owning, operating and acquiring
the assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that the
Company be merged with and into APP, and that APP be the sole surviving
corporation (sometimes referred to hereinafter as the "Surviving Corporation"),
and the Company be the disappearing corporation (sometimes referred to
hereinafter as the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) the Company will merge
with and into APP upon the terms and conditions set forth herein and in
accordance with the laws of the State of New York and (ii) the outstanding
shares of the Company Common Stock shall be converted at such time into cash and
shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein.
E. Prior to the Merger, the Company intends to transfer certain of
its assets most of which relate solely to the practice of medicine to a [newly
formed professional corporation] ("NewCo") in exchange for all of the capital
stock of NewCo and to thereafter distribute such NewCo stock to the Stockholders
(the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Stockholders, the "Target Interest Holders")
of each of the entities listed on Exhibit A (together with the Company, the
"Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Sections 351 and 368 of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder, as applicable.
A-769
<PAGE> 1131
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals
to this Agreement.
"APP Group" shall mean APP, NewCo and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed in Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the
recitals to this Agreement.
"Company Current Balance Sheet" shall mean the unaudited
consolidated balance sheet of Company and its Subsidiaries as of March 31, 1997.
A-770
<PAGE> 1132
"Company Current Financial Statements" shall mean the Company
Current Balance Sheet and the related statements of income, stockholders' equity
and statements of cash flows of Company and the Company Subsidiaries for the
_____ (__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section
3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section
3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as
of the date hereof or otherwise delivered by any party hereto pursuant to the
terms hereof, as such may be amended or supplemented from time to time pursuant
to the provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement
is declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section
14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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<PAGE> 1133
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering of
APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a
party to this Agreement or an Other Agreement that has not been terminated prior
to Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section
14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of
APP Common Stock received by APP before underwriting commissions, discounts or
other fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section
3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on
the assets, properties, business, operations, condition (financial or
otherwise), liabilities or results of operations of the Person or Persons being
referred to, taken as a whole (including its consolidated subsidiaries, if any),
in consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA SectionSection 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA SectionSection 1401
et seq., (iv) The Occupational Safety and Health Act, 29 USCA SectionSection 651
et seq., (v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
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<PAGE> 1134
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock[, $_____ par value
per share,] of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section
8.5.
"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals
to this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.
"Physician Employee" shall mean each radiologist employed by the
Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth
in Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the
recitals to this Agreement.
"Stockholders" shall mean the stockholders of the Company
immediately prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
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"Target Companies" shall have the meaning set forth in the recitals
to this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder,"
"hereof," "hereinabove," "hereinafter" and other equivalent words refer to this
Agreement and not solely to the particular Article, Section or subdivision
hereof in which such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed to
be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into APP
in accordance with this Agreement and the separate corporate existence of the
Disappearing Corporation shall thereupon cease (the "Merger"). APP shall be the
Surviving Corporation in the Merger and shall continue to be governed by the
laws of the State of New York, and the separate corporate existence of the
Company with all its rights, privileges, powers, immunities, purposes and
franchises shall continue unaffected by the Merger, except as set forth herein.
The Surviving Corporation may, at any time concurrent with and/or after the
Effective Time, take any action in the name of or on behalf of the Disappearing
Corporation in order to effectuate the transactions contemplated by this
Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take
place at 10:00 a.m., local time, at the offices of APP located at 2301
NationsBank Plaza, 901 Main Street, Dallas, Texas on the day on which the
transactions contemplated by the Initial Public Offering are consummated. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
Section 2.3 Effective Time. If all the conditions to the Merger set
forth in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section 904
of the New York Business Corporation Law. The Merger shall become effective at
the time of the filing of such documents with the Secretary of State of the
State of New York, in accordance with such law or at such later time which the
parties hereto have theretofore agreed upon and designated in such filings as
the effective time of the Merger (the "Effective Time").
Section 2.4 Certificate of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Certificate of Incorporation of the Company
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation without any amendment or modification
as a result of the Merger.
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Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger.
Section 2.6 Directors of the Surviving Corporation. The persons who
are directors of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time.
Section 2.7 Officers of the Surviving Corporation. The persons who
are officers of the Company immediately prior to the Effective Time shall submit
a written resignation in form and substance acceptable to APP, effective as of
the Effective Time.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the
part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time
shall be terminated and cancelled, without payment of any consideration
therefor, and shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged and
remain outstanding as a validly issued, fully paid and nonassessable share of
APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the
Company Common Stock.
(a) At or after the Effective Time and at the Closing (i)
the Stockholders, as holders of a certificate or certificates representing
shares of the Company's Common Stock, shall upon surrender of each certificate
or certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until each
certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at the
Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees
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to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to such Company Common Stock or with
respect to the stock powers accompanying any Company Common Stock. Upon such
delivery (or completion of appropriate affidavit of lost certificate and
indemnity), each Stockholder shall receive in exchange therefor the Merger
Consideration pursuant to Exhibit B and Section 2.10 hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of APP Common Stock will be issued and any
Stockholder otherwise entitled to receive a fractional share of APP Common Stock
as part of the Merger Consideration hereunder shall receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to
consummate the Merger and except as set forth in the Disclosure Schedules
attached hereto and incorporated herein by this reference, the Company
represents and warrants to APP both as of the date hereof and as of the
Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, with all requisite corporate power
and authority to own, operate and lease its assets and properties and to carry
on its business as currently conducted. The Company and each Company Subsidiary
is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all
requisite corporate power to enter into this Agreement and all other agreements
entered into in connection with the transactions contemplated hereby and to
consummate the transactions contemplated hereby. The execution, delivery and,
subject to approval of this Agreement and the Merger by the Stockholders,
performance by the Company of this Agreement and the agreements contemplated
herein, and the consummation by the Company of the transactions contemplated
hereby and thereby are within the Company's respective corporate powers and have
been duly authorized by all necessary action on the part of the Company's Board
of Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby to which the Company is
a party constitute, or upon execution will constitute, valid and binding
agreements of the Company, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting the enforcement of creditors' rights generally, or by general
equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying with
the provisions of the applicable state corporate laws regarding the approval of
the Merger and the filing of the Certificates of Merger (as contemplated by
Section 2.3) and any other required documents related to the Merger, and other
than consents, filings or notifications required to be made or obtained solely
by APP (including,
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without limitation, in connection with the Initial Public Offering, Form S-4 or
any Hart-Scott-Rodino filing to be made by APP, if any), the execution, delivery
and performance by the Company of this Agreement and the agreements provided for
herein, and the consummation of the transactions contemplated hereby and thereby
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority.
Section 3.4 Capitalization. The authorized capital stock of the
Company consists of 200 shares of the Company Common Stock, of which 130 shares
are issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the Company has no securities, bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
Section 3.5 Transactions in Capital Stock. There exist no Company
Rights. The Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership of shares
among any of its Stockholders has been altered or changed in contemplation of
the Merger within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been
any sale, distribution or spin-off of significant assets of the Company or any
of its Affiliates other than in the ordinary course of business within the (2)
two years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, require any notice under, or accelerate or modify, or permit any
person to accelerate or modify, any performance required by the terms of any
agreement, instrument, license or permit, to which the Company is a party or by
which the Company or any of its properties are subject or bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on the Company; and (v) except as
contemplated by this Agreement, will not create any Encumbrance or restriction
upon the Company Common Stock or any of the assets or properties of the Company.
Section 3.9 Intentionally omitted.
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Section 3.10 Absence of Changes. Except as permitted or contemplated
by this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent
with past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any
of its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable, mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee benefits
for any employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends or
other distributions to any Stockholder or any other holder of capital stock of
the Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its
knowledge, the Company does not have any liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected or reserved against
in the Company's Current Balance Sheet.
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Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder, the Physician Employees or any other licensed professional or other
individual affiliated with the Company affecting or that would reasonably be
likely to affect the Company Common Stock or the operations, business condition,
(financial or otherwise), or results of operations of the Company which (i) if
successful, may, individually or in the aggregate, have a Material Adverse
Effect on the Company or (ii) could adversely affect the ability of the Company
or any Company Subsidiary to effect the transactions contemplated hereby, and to
the knowledge of the Company there is no basis for any such action or any state
of facts or occurrence of any event which would reasonably be likely to give
rise to the foregoing. There are no unsatisfied judgments against the Company or
any Company Subsidiary or any licensed professional or other individual
affiliated with the Company or any Company Subsidiary relating to services
provided on behalf of the Company or any Company Subsidiary or any consent
decrees to which any of the foregoing is subject. Each of the matters, if any,
set forth in this Section 3.12 is fully covered by policies of insurance of the
Company or any Company Subsidiary as in effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any
Company Subsidiary has been, nor shall be as of the Effective Time (by virtue of
any action, omission to act, contract to which it is a party or any occurrence
or state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a
true, accurate and complete list of all the lease agreements and license
agreements to which the Company or any Company Subsidiary is a party and
pursuant to which the Company or any Company Subsidiary leases (whether as
lessor or lessee) or licenses (whether as licensor or licensee) any real or
personal property related to the operation of its business and which requires
payments in excess of $12,000 per year (the "Lease Agreements"). The Company has
delivered to APP true and complete copies of all of the Lease Agreements. Each
Lease Agreement is valid, effective and in full force in accordance with its
terms, and there is not under any such lease (i) any existing or claimed
material default by the Company or any Company Subsidiary (as applicable) or
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by the Company or any Company Subsidiary (as
applicable) and, individually or in the aggregate, may reasonably result in a
Material Adverse Effect on the Company, or, (ii) to the knowledge of the
Company, any existing material default by any other party under any of the Lease
Agreements or any event of material default or event which with notice or lapse
of time, or both, would constitute a material default by any such party. To the
knowledge of the Company, there is no pending or threatened reassessment of any
property covered by the Lease Agreements. The Company or any Company Subsidiary
will use reasonable good faith efforts to obtain, prior to the Effective Time,
the consent of each landlord or lessor whose consent is required to the
assignment of the Lease Agreements and will use reasonable good faith efforts to
deliver to APP in writing such consents as are necessary to effect a valid and
binding transfer or assignment of the Company's or any Company Subsidiary's
rights thereunder. The Company has a good, clear, valid and enforceable
leasehold interest under each of the Lease Agreements. The Lease Agreements
comply with the exceptions to ownership interests and compensation arrangements
set out in 42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar
applicable state law safe harbor or other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein
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which it purports to own including, without limitation, all the property and
assets reflected in the Company Current Financial Statements; and (ii) owns such
rights, interests, assets and property free and clear of all Encumbrances, title
defects or objections (except for taxes not yet due and payable). The personal
property presently used in connection with the operation of the business of the
Company and the Company Subsidiaries constitutes the necessary personal property
assets to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, the Company does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000 in
any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP of the assets and
properties to be acquired by APP from the Company, or which could inhibit or
prevent the Company from transferring to or vesting in APP good and sufficient
title to the assets and properties to be acquired by APP and the Surviving
Corporation except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, the Company
shall, on or before the Closing Date, use reasonable good faith efforts to
obtain and deliver to APP in writing, effective as of the Closing Date, such
consents as are necessary to enable the Surviving Corporation to enjoy all of
the rights now enjoyed by the Company under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to APP
any contracts or agreements relating to the provision of professional medical
services or other such agreements and contracts that APP consents to in writing
to be transferred to NewCo in the Spin-off Transaction. No contract with a
health care provider or Payor has been materially amended or terminated within
the last twelve (12) months.
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(b) The Company (i) has not received notice of any plan or
intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument required to be disclosed pursuant to Section
3.17(a), and to the knowledge of the Company there are no fact(s) that would
justify the exercise of such a right; and (ii) does not currently contemplate,
or have reason to believe any other Person currently contemplates, any amendment
or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a party
to any employment contract (except for oral employment agreements which are
terminable at will), consulting or collective bargaining contracts, deferred
compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected to
receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for it
to the date hereof or amounts required to be reimbursed to such employees. Upon
termination of employment of any employee or Physician Employee, no severance or
other payments will become due and the Company has no policy, past practice or
plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair
labor practice, charge or complaint or any other employment-related matter
against or involving the Company pending or threatened before the National Labor
Relations Board or any federal, state or local agency, authority or court;
(c) To the knowledge of the Company, there are no charges,
investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the
Immigration Reform and Control Act of 1986, as amended, and all applicable
regulations promulgated thereunder; and
(e) To the knowledge of the Company, there are no inquiries,
investigations or monitoring activities of any licensed, registered, or
certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
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Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof (the "Employee Benefit Plans"). The Company has
provided to APP copies of all plan documents (as they may have been amended to
the date hereof), determination letters, pending determination letter
applications, trust instruments, insurance contracts or policies related to an
Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee Benefit
Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any notice
that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach of
any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or other
liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the Company's
knowledge, threatened, claims, suits or other proceedings exist with respect to
any Employee Benefit Plan other than normal benefit claims filed by participants
or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or 501(c)(9)
of the Code and/or tax-exempt within the meaning of Section 501(a) of the Code
and, to the best knowledge of the Company and each Stockholder, has been
continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation of
any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency
(within the meaning of Section 412 of the Code), whether waived or unwaived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Code) in which the Company is a member (a "Controlled Group"). With respect to
each Employee Benefit Plan subject to Title IV of ERISA, the assets of each such
plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. With respect to each
Employee Benefit Plan described in Section 501(c)(9) of the Code, the assets of
each such plan are at least equal in value to the present value of accrued
benefits, based upon the most recent actuarial valuation as of a date no more
than ninety (90) days prior to the date hereof. The Disclosure Schedules
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contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any member
of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section 412
of the Code.
(j) PBGC. No facts or circumstances are known to the Company
that would result in the imposition of liability against APP or any of its
Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result of
any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any Employee
Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable provisions of ERISA.
(l) Other Compensation Arrangements. Neither the Company
nor, to the Company's knowledge, any Stockholder or Physician Employee is a
party to any compensation or debt arrangement with any Person relating to the
provision of health care related services other than arrangements with the
Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has,
within the five (5) years preceding the date hereof, through the Effective Time,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of the Company no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by the Company of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by the Company to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Schedule 3.21(b) discloses any known presence of asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises. To the knowledge of the
Company, there is no friable asbestos in or on the Company's or any Company
Subsidiary's owned or leased premises.
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(c) To the knowledge of the Company, no soil or water in or
under any assets currently or formerly held for use or sale by the Company or
any Company Subsidiary is or has been contaminated by any Hazardous Substance
while such assets or premises were owned, leased, operated or managed, directly
or indirectly by the Company or any Company Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on the
Company.
(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of the
Company, concerning the Company or any Company Subsidiary within the five (5)
years preceding the date hereof through the Effective Time with respect to any
real property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following
terms have the following meanings:
"Environmental Laws" shall mean any federal, state or
local laws, ordinances, codes, regulations, rules, policies and
orders (including without limitation, Medical Waste Laws) that are
intended to assure the protection of the environment, or that
classify, regulate, call for the remediation of, require reporting
with respect to, or list or define air, water, groundwater, solid
waste, hazardous, toxic, or radioactive substances, materials,
wastes, pollutants or contaminants, or which are intended to assure
the safety of employees, workers or other persons, including the
public in each case as in effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities
of the Company or any Company Subsidiary, whether contingent or
fixed, which (i) have arisen, or would reasonably be likely to
arise, under Environmental Laws and (ii) relate to actions occurring
or conditions existing on or prior to the date hereof or the
Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation,
treatment, storage, recycling, transportation, disposal or release
of any Hazardous Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings
of any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and
briefly describe the Company's policies of insurance to which the Company or any
Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by the
Company or any Company Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
the Company and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as the Company
and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which the Company or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies
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of all Insurance Policies have been provided to APP. Neither the Company nor any
Company Subsidiary nor any officer or director thereof has received any notice
or other written communication from any issuer of any Current Policy cancelling
such policy, materially increasing any deductibles or retained amounts
thereunder, or materially increasing the annual or other premiums payable
thereunder and, to the knowledge of the Company, no such cancellation or
increase of deductibles, retainages or premiums is threatened. There are no
outstanding claims, settlements or premiums owed against any Insurance Policy,
and all required notices have been given and all known potential or actual
claims under any Insurance Policy have been presented in due and timely fashion.
Within the five (5) years preceding the Agreement, neither the Company nor any
Company Subsidiary has filed a written application for any professional
liability insurance coverage which has been denied by an insurance agency or
carrier. The Disclosure Schedules also set forth a list of all claims under any
Insurance Policy in excess of $10,000 per occurrence filed by the Company or any
Company Subsidiary during the immediately preceding three-year period. Each
Physician Employee has, at all times while a Physician Employee, maintained or
been covered by professional malpractice insurance in such types and amounts as
are customary for such a physician practicing the same type of medicine in the
same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of
all accounts receivable of the Company as of March 31, 1997, which list is
complete, true and accurate in all material respects. All such accounts
receivable arose in the ordinary course of business and have not been previously
written off as bad debts and, are, to the extent still uncollected, to the
knowledge of the Company collectible in the ordinary course of business, net of
reserves for doubtful and uncollectible accounts shown in the Company Financial
Statements or on the accounting records of the Company (which reserves are
calculated consistent with generally accepted accounting principles and past
practice).
(b) The Disclosure Schedules set forth (i) a true, correct
and complete list of the names and addresses of each Payor of the Company as of
such date, which accounted for more than 5% of the revenues of the Company in
the fiscal year ended December 31, 1996, or which is reasonably expected to
account for more than 5% of the revenues of the Company for the fiscal year to
end December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete
(i) list of the accounts payable of the Company as of March 31, 1997, and (ii)
list of each individual indebtedness owed by the Company of $5,000 or more,
setting forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company
Current Balance Sheet contained in the Company Financial Statements consisted,
and all such items on hand on the date of this Agreement consist, and all such
items on hand at the Effective Time will consist, net of all applicable reserves
with respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory
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are not materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or practice his or her specialty and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which the Company is eligible and which are listed in the Disclosure Schedules
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any private
insurance program) under which the Company is presently receiving payments
directly or indirectly from any Payor for patient care provided by such
Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to APP.
No violation, default, order or deficiency exists with respect to any of the
items listed in the Disclosure Schedules except for such violations, defaults,
orders or deficiencies which would not be reasonably likely to have a Material
Adverse Effect on the Company, and there is no action pending or to the
Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program, and
no event has occurred which, with or without notice or lapse of time, or both,
would constitute grounds for a violation, order or deficiency with respect to
any of the items listed in the Disclosure Schedules to revoke, withdraw or
suspend any material license to operate its business as is presently being
conducted by it. To the knowledge of the Company, there has been no decision not
to renew any existing agreement with any provider or Payor relating to the
Company's business as presently being conducted by it. Neither the Company nor
any Physician Employee (i) has had his/her/its professional license, Drug
Enforcement Agency number, Medicare/Medicaid provider status or staff privileges
at any hospital or diagnostic imaging center suspended, relinquished, terminated
or revoked (including orders that have been entered by any such entities but
stayed), (ii) has been reprimanded in writing, sentenced, or disciplined by any
licensing board, state agency, regulatory body or authority, hospital, Payor or
specialty board (including orders that have been entered by any such entities
but stayed), or (iii) is the subject of an initial or final determination by any
federal or state authority that could result in any demand or reimbursement
under the Medicare, Medicaid or Government Programs or any exclusion or which
monetary penalty under federal or state law or (iv) has had a final judgment or
settlement entered against him/her/it in connection with a malpractice or
similar action.
(b) The Company is not required, or for the 72-month period
prior to the Effective Time was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of
the Company, or any Physician Employee, nor the right of any licensed
professional or other individual affiliated with the Company to receive
reimbursements pursuant to any Governmental Program or Private Program has been
terminated or otherwise materially and adversely affected as a result of any
investigation or action whether by any federal or state governmental regulatory
authority or other third party. No Physician Employee, licensed professional or
other individual affiliated with the business has, during the past three (3)
years prior to the Effective Time, had their professional license or staff
privileges limited, suspended or revoked by any governmental regulatory
authority or agency, hospital, integrated delivery system, trade association,
professional review organization, accrediting organization or certifying agency
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(including orders that have been entered by any such entities but stayed). True,
correct and complete copies of all reports, correspondence, notices and other
documents relating to any matter described or referenced in this Section 3.28
have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v) other
similar agreements relating to the foregoing to which the Company or any Company
Subsidiary is a party (including expiration date if applicable) (collectively,
the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate
list and summary description of all agreements relating to technology, trade
secrets, know-how or processes that the Company is licensed or authorized to use
by others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of the Company, no
claim has been asserted by any person to the ownership of or for infringement by
the Company of any Proprietary Right of any other Person, and neither the
Company nor any Stockholder is aware of any valid basis for any such claim. To
the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company
may be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) the Company has paid all
taxes, penalties, assessments and interest that have become due with respect to
any Tax Returns that it has filed and has properly accrued on its books and
records in accordance with generally accepted accounting principles for all of
the same that have not yet become due and payable and (ii) the Company is not
delinquent in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
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assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated any
applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not
granted an extension to any taxing authority of the statute of limitation period
during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Code and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of
the Company constitutes property that the Company, APP or any Affiliate of APP,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties of
the Company are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated
in or cooperated with any international boycott as defined in Section 999 of the
Code.
(k) Parachute Payments. No payment required or contemplated
to be made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election to
be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has
not been a personal holding company within the meaning of Section 542 of the
Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to the
Company's business. There is no commitment to, and no income reflected in the
Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such
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as checking account, borrowing arrangements, safe deposit box, etc.) and the
Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the Company
nor any Company Subsidiary has engaged and, to the knowledge of the Company,
neither the Company's officers and directors nor the Physician Employees or
other Persons and entities providing professional services for or on behalf of
the Company have engaged, in any activities which are prohibited under 42 U.S.C.
Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Sections 24, 287, 371, 664, 669, 1001, 1027,
1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no
material agreement, judgment, injunction, order or decree binding upon the
Company, any Company Subsidiary or officer, director or key employee of the
Company or Company Subsidiary, which has or reasonably could be expected to have
the effect of prohibiting or materially impairing the current medical practice
of the Company or any Company Subsidiary or the continuation of that medical
practice in the future by NewCo, any acquisition of property by the Company, any
Company Subsidiary or the conduct of business by the Company or any Company
Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of the Company, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by the Company or any other party thereto. No
contract with a Physician Employee has been terminated in the last twelve (12)
months.
Section 3.36 Statements True and Correct. No representation or
warranty made herein by the Company or any Stockholder, nor any statement,
certificate, information, exhibit or instrument to be furnished by the Company
or any Stockholder to APP or any of its respective representatives pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required
by Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of any
of the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
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Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the Merger
and the transactions contemplated hereby, all of which have been or will be made
available to the Company for review, are true, correct and complete as in effect
on the date of this Agreement and accurately reflect all material proceedings of
the stockholders and directors of APP (and all committees thereof) regarding the
Merger and the transactions contemplated hereby. The stock record books of APP,
which have been or will be made available to the Company for review, contain
true, complete and accurate records of the stock ownership of APP and the
transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and the Other Agreements
and to consummate the Merger and the transactions contemplated hereby. The
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, including the Other Agreements and the consummation by APP
of the transactions contemplated hereby and thereby are within APP's corporate
powers and have been duly authorized by all necessary action on the part of
APP's Board of Directors. This Agreement has and the Other Agreements have been
duly executed by APP. This Agreement and all other agreements and obligations
entered into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements of APP, enforceable against it in
accordance with their respective terms, except as may be limited by bankruptcy
or other laws affecting creditors' rights generally, or by general equity
principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with
the provisions of the applicable state corporate laws regarding the approval of
the Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the Merger and the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of [20,000,000] shares of APP Common Stock, of which [2,000,000] shares
are issued and outstanding and [10,000,000] shares of APP Preferred Stock, none
of which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
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Section 4.5 Subsidiaries and Investments. APP does not own, directly
or indirectly, any capital stock or other equity, ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture or
other entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents.
The execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated
by this Agreement, since March 31, 1997, there has not been (i) any change in
the working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the
Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as
of the Effective Time (by virtue of any action, omission to act, contract to
which it is a party or any occurrence or state of facts whatsoever), in
violation of any applicable local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any governmental body,
agency or authority or court binding on it, or relating to its property or
business or its advertising, sales or pricing practices, except for violations
which are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4,
APP does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
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Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted
an extension to any taxing authority of the limitation period during which any
tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated
to be made by APP will be characterized as an "excess parachute payment" within
the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed
as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
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Section 4.13 Related Party Arrangements. The Disclosure Schedules or
Form S-4 sets forth a description of any interest held, directly or indirectly,
by any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to the Company or a Stockholder
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules required
by Article IV hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to such
agreements, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true
and correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo is
a professional corporation duly organized, validly existing and in good standing
under the laws of its state of organization, with all requisite corporate power
and authority to carry on the business in which it intends to engage, to own the
properties it intends to own, and to execute and deliver the Service Agreement,
the Security Agreement and the Physician Employment Agreements and consummate
the transactions and perform the services contemplated thereby. NewCo is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its intended business makes such qualification
necessary, which jurisdictions are listed in the Disclosure Schedules, except
where the failure to be so qualified shall not have a Material Adverse Effect on
NewCo.
Section 5.2 Capitalization. The authorized capital stock of NewCo
consists of [_____] shares of NewCo Common Stock, of which [______] shares are
issued and outstanding, and no shares of capital stock of NewCo are held in
treasury. The Stockholders own all of the issued and outstanding shares of NewCo
Common Stock, free and clear of any Encumbrance. Each outstanding share of NewCo
Common Stock has been legally and validly issued and is fully paid and
nonassessable. There exist no options, warrants, subscriptions or other rights
to purchase, or securities convertible into or exchangeable for, any of the
authorized or outstanding securities of NewCo. No shares of capital stock of
NewCo have been issued or disposed of in violation of the preemptive rights,
rights of first refusal or similar rights of any of NewCo's stockholders.
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Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and complete
copies thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery and
performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict with
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities. NewCo
has not commenced business since its incorporation. Other than its articles or
certificate of incorporation and bylaws, and as of the Closing Date, the Service
Agreement, the Security Agreement, the Physician Employment Agreements, and the
other contracts and agreements assigned to NewCo as part of the Spin-Off
Transaction, NewCo is not a party to or subject to any agreement, indenture or
other instrument. NewCo does not own any assets (tangible or intangible) other
than the consideration received upon the issuance of shares of its capital stock
or pursuant to the Spin-Off Transaction, and NewCo does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted) other than those assumed pursuant to the Spin-Off Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure to
so comply or file would not, individually or in the aggregate, have a Material
Adverse Effect on NewCo.
ARTICLE VI
Intentionally Omitted.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant to
the Spin-Off Transaction or the "F" Reorganization, from the date hereof until
the Effective Time, the Company shall, in all material respects, conduct its
business in the ordinary and usual course consistent with past practices and
shall use reasonable efforts to:
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(a) preserve intact its business and its relationships with
Payors, referral sources, customers, suppliers, patients, employees and others
having business relations with it;
(b) maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the conduct
of the business of the Company;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of incorporation
or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not limited to, by way of
stock split, dividend, recapitalization or other reclassification) or any
subscriptions, options, warrants, rights or convertible securities, or enter
into any agreements or commitments of any character obligating it to issue or
sell any such securities;
(3) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or any option, warrant or other
right to purchase or acquire any such shares;
(4) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its capital stock
(except as expressly contemplated herein);
(5) voluntarily sell, transfer, surrender, abandon or
dispose of any of its assets or property rights (tangible or intangible) other
than the sale of inventory, if any, in the ordinary course of business
consistent with past practices;
(6) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge or encumbrance of
any kind, except liens for taxes not currently due and except for liens which
arise by operation of law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary course of
business or which is reasonably necessary for the conduct of its business;
(8) make or commit to make any capital expenditures
which are not reasonably necessary for the conduct of its business;
(9) grant any increase in the compensation payable or to
become payable to directors, officers, consultants or employees other than merit
increases to employees of the Company who are not directors or officers of the
Company, except in the ordinary course of business and consistent with past
practices;
(10) change in any manner any accounting principles or
methods other than changes which are consistent with generally accepted
accounting principles;
(11) enter into any material commitment or transaction
other than in the ordinary course of business;
(12) take any action which could reasonably be expected
to have a Material Adverse Effect on the Company;
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(13) apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any Affiliate of the Company, other than in
the ordinary course and consistent with past practices;
(14) agree, whether in writing or otherwise, to do any
of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise affect the prior
corporate approval and effectiveness of this Agreement or any of the agreements
attached as exhibits hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time,
the Company shall (i) except for sales of assets held as inventory, if any, in
the ordinary course of business prior to the Effective Time and except as
otherwise specifically described in the Disclosure Schedules to this Agreement,
have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or indirect
indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations in
the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, share certificate books, share registers,
accounts, tax returns, financial statements and all other data that, in the
reasonable opinion of APP, are required for APP to make such investigation as it
may desire of the properties and business of the Company. APP shall also be
allowed full access upon reasonable prior notice and during regular business
hours (and at such other times as the parties may reasonably agree) to consult
with the officers, employees (after announcement by the Company of the Merger to
its employees which shall occur no later than three (3) days subsequent to
execution hereof by the Company), accountants, counsel and agents of the Company
in connection with such investigation of the properties and business of the
Company. No investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall be
conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall
cause each of its directors, officers, employees or agents not to directly or
indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or capital stock of the
Company, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of the Company, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of the Company. If the Company receives any
offer or proposal after the date hereof, written or otherwise, of the type
referred to above, the Company shall promptly inform APP of such offer or
proposal, decline such offer and furnish APP with a copy thereof if such offer
or proposal is in writing.
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Section 7.5 Compliance With Obligations. Prior to the Effective
Time, the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly
notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting the Company which, if pending on the date of this Agreement,
would have been required to have been disclosed to APP hereunder or which relate
to the consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best
efforts to obtain the unanimous approval of its Stockholders to the Merger. In
seeking the approval of its Stockholders, the Company shall provide each
Stockholder with the Form S-4 which shall include information as may be required
by applicable law or as APP shall deem appropriate. The Board of Directors of
the Company shall recommend the approval of the Merger by the Stockholders of
the Company. If the Stockholders' approval is not unanimous, the Company shall
give notice to the nonconsenting Stockholders of the action taken by the
consenting Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to
Section 7.8 hereof, the Company will take all action reasonably necessary to
cause the Company to perform its obligations under this Agreement and all
related agreements and to consummate the Merger and other transactions
contemplated hereby and thereby on the terms and conditions set forth in this
Agreement and such agreements; provided, however, that this covenant shall not
require the Company to make any expenditures that are not expressly set forth in
this Agreement or otherwise contemplated herein.
Section 7.10 Funding of Accrued Employee Benefits. The Company
hereby covenants and agrees that it will take whatever steps are necessary to
pay for or fund completely any accrued benefits,
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where applicable, or vested accrued benefits for which the Company or any entity
might have any liability whatsoever arising from any tax-qualified plan as
required under applicable law. The Company acknowledges that the purpose and
intent of this covenant is to assure that APP shall have no liability whatsoever
at any time after the Closing Date with respect to any such tax-qualified plan,
unless such plan is merged with a plan sponsored by APP.
Section 7.11 Accounting and Tax Matters. The Company will not change
in any material respect the accounting methods or practices followed by the
Company (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. The Company will
not make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment or consent to any tax
claim or assessment or any waiver of the statute of limitations for any such
claim or assessment. The Company will duly, accurately and timely (without
regard to any extensions of time) file all returns, information statements and
other documents relating to taxes of the Company required to be filed by it, and
pay all taxes required to be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form, organize
and incorporate NewCo in the state of New York, and the articles or certificate
of incorporation and bylaws of NewCo shall be in form and substance reasonably
satisfactory to APP. Except for consummating the Spin-Off Transaction, NewCo
shall not commence business until the Closing Date. On or prior to the Closing,
the Company shall take all actions and execute all documents, agreements or
instruments necessary pursuant to and in compliance with applicable law to
effect the Spin-Off Transaction, including without limitation, the following:
Prior to the Closing, the Company shall transfer to NewCo good, valid and
marketable title to all of the Company's right, title and interest in and to the
Employee Benefit Plans, all contracts and agreements and other assets listed on
the Disclosure Schedules (to be delivered by the Company prior to Closing, which
schedule will be subject to the approval of APP, which approval shall not be
unreasonably withheld) which by law either cannot be acquired or cannot be used
by APP because they relate to the practice of medicine or radiology, and shall
contribute to NewCo such other consideration and assets of the Company as may be
required under applicable law, in exchange for the issuance by NewCo of shares
of NewCo Common Stock, such shares being all of the issued and outstanding
shares of NewCo Common Stock. The Company shall then distribute the shares of
NewCo Common Stock to the Stockholders in proportion to their respective
ownership interest in the Company.
Section 7.13 "F" Reorganization. The Company shall convert its
corporate status from that of a professional medical corporation to that of a
general business corporation in a transaction which will qualify as a tax-free
transaction under Section 368(a)(2)(F) of the Code (the "F" Reorganization").
The Company shall prepare and execute all documents necessary to effectuate the
"F" Reorganization prior to the Closing. At or prior to the Closing, the Company
shall cause an amendment to this Agreement to be executed which will reflect the
changes which result from the "F" Reorganization.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Merger; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
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Section 8.2 Requirements to Effect the Merger and Acquisitions. APP
will use its best efforts to take, or cause to be taken, all actions necessary
to effect the Merger under applicable law, including without limitation the
filing with the appropriate government officials of all necessary documents in
form approved by counsel for the parties to this Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and their authorized representatives to inspect
and, at the Company's sole expense, make copies of all documents, records and
information with respect to the affairs of APP as the Company and their
representatives may reasonably request, all for the sole purpose of permitting
the Company to become familiar with the business and assets and liabilities of
APP. No investigation by the Company or the Stockholders shall diminish or
otherwise affect any of the representations, warranties, covenants or agreements
of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly
inform the Company in writing of (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by APP subsequent to the date of this Agreement
and prior to the Effective Time under any contract, agreement or investment
material to APP's condition (financial or otherwise), operations, assets,
liabilities or business and to which it is subject; (b) any material adverse
change in APP's condition (financial or otherwise), operations, assets,
liabilities or business or (c) defaults or disputes regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP shall use its best
efforts to establish a qualified plan and trust for NewCo, within the meaning of
Section 401(a) and 501(a), respectively, of the Code ("New Qualified Plan") that
will provide benefits comparable (as determined under Section 401(a)(4) of the
Code) to the benefits provided under the qualified plans referenced in the
Disclosure Schedules, if any, sponsored by the Company as of March 31, 1997. APP
will file for a favorable determination letter from the IRS on the New Qualified
Plan and request a favorable determination from the IRS that NewCo is not a
member of an affiliated service group (as defined in Section 414(m) of the Code)
or a recipient organization of leased employee services (as defined in Section
414(n) of the Code). Any benefits provided under the New Qualified Plan shall be
conditioned on a favorable determination letter from the IRS. Costs associated
with the establishment and design of the New Qualified Plan shall be paid by
APP. The NewCo shall be responsible for funding any contributions to, or any
ongoing administrative costs of, the New Qualified Plan.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and
file with the SEC the Registration Statements on Form S-1 and Form S-4 (or other
appropriate Forms) to be filed by APP in connection with its Initial Public
Offering and offering of the shares of APP Common Stock to the Target Interest
Holders pursuant to the transactions contemplated by this Agreement and the
Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. The Company shall cooperate with APP in the
preparation of the Registration Statements and shall furnish all information
concerning the Company and NewCo as may be reasonably requested in connection
with any such action in a timely manner.
(b) The Company and APP and each separately represent and warrant
that (i) in the case of the Company, none of the written information or
documents supplied or to be supplied by it specifically
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for inclusion in the Registration Statements, by exhibit or otherwise and (ii)
in the case of APP, will, at the time the Registration Statements and each
amendment and supplement thereto, if any, becomes effective under the Securities
Act, none of them contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Company shall be entitled to review the Registration
Statements and each of the amendments thereto, if any, prior to the time each
becomes effective under the Securities Act. The Company shall have no
responsibility for information contained in the Registration Statements except
for information provided by the Company specifically for inclusion therein. The
Company's review of the Registration Statements shall not diminish or otherwise
affect the representations, covenants and warranties of APP contained in this
Agreement.
(c) The Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners,
Stockholders and NewCo, and such other matters as may be reasonably requested by
APP in connection with the preparation of the Registration Statements and each
of the amendments or supplements thereto, or any other statement, filing, notice
or application made by or on behalf of each such party or any of its
subsidiaries to any governmental entity in connection with the Merger and the
other transactions contemplated by this Agreement.
Section 9.2 Amendments of Schedules. Each party hereto agrees that,
with respect to the representations and warranties of such party contained in
this Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly the Disclosure Schedules with respect to
any matter that would have been or would be required to be set forth or
described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on the Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Disclosure Schedule that constitutes or reflects a Material Adverse Effect on
APP may be made unless the Company consents to such amendment or supplement. For
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have been
fulfilled, the Disclosure Schedules hereto shall be deemed to be the Disclosure
Schedules as amended or supplemented pursuant to this Section 9.2. In the event
that the Company seeks to amend or supplement a Disclosure Schedule pursuant to
this Section 9.2 and APP does not consent to such amendment or supplement, or
APP seeks to amend or supplement a Disclosure Schedule pursuant to this Section
9.2, and the Company does not consent, this Agreement shall be deemed terminated
by mutual consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Sections
351 or 368 of the Code, as applicable.
Section 9.4 Public Announcements. The parties hereto will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and,
except as may be required by applicable law, will not issue any such press
release or make any such public statement prior to such consultation, although
the foregoing shall not apply to any disclosure by APP in any filing with the
DOJ, FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company and NewCo in connection with the Merger
shall be paid by the Company Stockholders in full immediately prior to the
Closing and such expenses shall be the sole responsibility of the Stockholders
following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all
records and information regarding the patients of the Company and NewCo
confidential in accordance with all applicable laws.
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Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as delivered pursuant to Section 10.12
hereof) shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Effective
Date.
Section 10.2 Covenants. The Company shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have
delivered to APP their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse Effect
on the Company shall have occurred since March 31, 1997, whether or not such
change shall have been caused by the deliberate act or omission of the Company
or any Stockholder.
Section 10.6 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, statements, rule, regulation or ordinance to
consummate the transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
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Section 10.11 Dissenter's Rights. The Company shall have satisfied
each of its obligations to its Stockholders regarding dissenters or related
rights under New York Business Corporation Law, and the sum of the amount which
may become due to the Stockholders who have dissented to the Merger and have
indicated their intent to seek appraisal rights plus the cash portion of the
Merger Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties
of the Company and its related entities to be transferred to NewCo pursuant to
the Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician
Employee and such other radiologists whose names are set forth on the Disclosure
Schedules shall have entered into a Physician Employment Agreement between NewCo
and each such Physician Employee in a form reasonably consistent to the form
attached as Exhibit E and satisfactory to APP in its sole discretion (the
"Physician Employment Agreements").
Section 10.15 Completion of "F" Reorganization. The Company shall
have (1) completed the "F" Reorganization, and all transfers and dissolutions
related thereto, and (2) amended this Agreement to reflect changes resulting
from the "F" Reorganization.
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations
of the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered to
the Company their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, contracts or any statute, rule, regulation or
ordinances to consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the
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Registration Statements shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC. At or prior to the
Effective Date, APP shall have received all state securities and "Blue Sky"
permits necessary to consummate the transactions contemplated hereby. At or
prior to the Effective Date, the APP Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to the Company referred to in Section 12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect
on APP shall have occurred since __________, 1997, whether or not such change
shall have been caused by the deliberate act or omission of APP.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its analysis and opinion, in a
form satisfactory to the Company, that the terms of the Service Agreement are
fair and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from
Haynes and Boone, L.L.P., an opinion regarding the tax consequences of the
transactions contemplated by this Agreement and the other Agreements,
substantially in the form set forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Effective
Date, the Company shall deliver to APP the following, all of which shall be in a
form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
and the Service Agreement and all related documents and agreements and
consummation of the Merger, each certified by the Secretary of the Company as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of NewCo
authorizing the execution, delivery and performance of the Service Agreement,
the Security Agreement and the Physician Employment Agreements each certified by
the Secretary of NewCo as being true and correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of the Company dated the
Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the
Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by the
Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and officers
of such corporation and as to the signatures of such directors and officers who
have executed documents delivered at the Closing on behalf of that corporation;
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(f) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretary of State of New York for the Company and NewCo
establishing that each such corporation is in existence, has paid all franchise
or similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in the state of New York;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the form
attached hereto as Exhibit F, as revised in accordance with changes reasonably
deemed necessary or advisable by legal counsel retained by APP, the Company and
NewCo in the State of New York to address regulatory and compliance issues (the
"Service Agreement");
(k) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to
in Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty
of perjury and dated as of the Closing Date, to the effect that such Stockholder
is a United States citizen or a resident alien (and thus not a foreign person)
and providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit G (the "Stockholder Release");
(n) intentionally omitted; and
(o) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of this
Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective Date,
APP shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) Intentionally omitted;
(c) a certificate of the President of APP dated the Closing
Date as to the truth and correctness of the representations and warranties of
APP contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the Closing
Date, (i) as to the performance and compliance by APP with all covenants
contained herein on and as of the Effective Date and (ii) certifying that all
conditions precedent required to be satisfied by APP shall have been satisfied;
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(e) a certificate of the Secretary of APP certifying as to
the incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the
Effective Date, of the secretary of state of incorporation establishing that APP
is in existence, has paid all franchise or similar taxes, if any, and otherwise
is in good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten
(10) days prior to the Effective Date, of the Secretaries of State of the states
in which APP is qualified to do business, to the effect that APP is qualified to
do business and is in good standing as a foreign corporation in such state;
(h) the executed Service Agreement as revised in accordance
with the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II
and Exhibit B hereof; and
(k) such other instrument or instruments of transfer
prepared by the Company as shall be necessary or appropriate, as the Company or
its counsel shall reasonably request, to carry out and effect the purpose and
intent of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing,
at the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing, at
the request of NewCo and at NewCo's sole cost and expense, APP or the Surviving
Corporation shall deliver any further instruments of transfer and take all
reasonable action as may be necessary and appropriate to carry out the purpose
and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report
the Merger as a Reorganization and such opinion either is furnished prior to the
Effective Time or is based on facts or events not known at the Effective Time.
Each party shall provide to each other party such tax information, reports,
returns, or schedules as may be reasonably required to assist such party in
accounting for and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any
taxes incurred by the Company and for which APP has successor liability therefor
which arise solely as a result of the Merger or the consummation of the
transactions contemplated hereby; provided that the foregoing shall not limit
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or otherwise be deemed a waiver of any right of indemnification under Section
14.1 for a breach of any representation, warranty or covenant of the Company or
any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms
and conditions of this Article XIV, the Company agrees to indemnify, defend and
hold APP and its respective directors, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates harmless from and against all
losses, claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, reasonable attorneys' fees and expenses (including, without
limitation, all costs of experts and all costs incidental to or in connection
with any appellate process) (collectively, "Damages") asserted against or
incurred by such individuals and/or entities arising out of or resulting from:
(a) a breach by the Company of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of the
Company contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company
and/or any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statement
of material fact in any Registration Statement or any prospectus forming or part
thereof, or any amendment thereof or supplement thereto relating to the Company
(including any Company Subsidiary) or NewCo required to be stated therein or
(ii) failure to state information necessary to make the statements therein not
misleading, which untrue statement or failure to state information arises or
results solely from information provided in writing to APP or its counsel by the
Company or any Stockholder or their agents specifically for inclusion in any
such Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP. Subject to the terms and
conditions of this Article XIV, APP hereby agrees to indemnify, defend and hold
the Stockholders, the Company and NewCo and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and Affiliates
harmless from and against all Damages asserted against or incurred by such
individuals and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of APP contained in
this Agreement or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon
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any untrue statements of material fact in any Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or required to be stated therein or failure to state information
necessary to make the statements therein not misleading (except for any
liability based upon any actual or alleged untrue statement of material fact or
an omission to state a material fact relating to NewCo, the Company or any
Stockholder which was derived from any information provided in writing by the
Company or a Company Subsidiary or any of their agents contained in the
representations and warranties set forth in this Agreement or any certificate,
exhibit, schedule or instrument required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or 14.2
herein to the contrary, nothing contained in this Agreement shall relieve any of
the parties hereto of any liability or limit any liability that it may have in
the case of fraud in connection with the transactions contemplated by this
Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement
(an "Indemnified Party") shall promptly (and, in the event, at least ten (10)
days prior to the due date for any responsive pleadings, filings or other
documents) (i) notify the party for whom indemnification is sought (the
"Indemnifying Party) of any third-party claim or claims asserted against the
Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying Party
a written notice ("Claim Notice") describing in reasonable detail the nature of
the Third Party Claim, a copy of all papers served with respect to such claim
(if any), an estimate of the amount of Damages attributable to the Third Party
Claim and the basis of the Indemnified Party's request for indemnification under
this Agreement. The failure to promptly deliver a Claim Notice shall not relieve
any Indemnifying Party of its obligations to any Indemnified Party with respect
to the related Third Party Claim except to the extent that the resulting delay
is materially prejudicial to the defense of such claim. Within thirty (30) days
after receipt of any Claim Notice (the "Election Period"), the Indemnifying
Party shall notify the Indemnified Party (x) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XIV
with respect to such Third Party Claim and (y) whether the Indemnifying Party
desires, at the sole cost and expense of such Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set forth
in Section 14.3(f) below, the Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. The
Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 14.3(b) and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may
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employ separate counsel at the expense of the Indemnifying Party, and upon
written notification thereof, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 14.3(b), or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
14.3(b) but fails diligently and promptly to prosecute or settle the Third Party
Claim, then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party (if the Indemnified Party is entitled
to indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes their potential liability to the Indemnified
Party under this Article XIV and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 14.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Article XIV relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice period
or (ii) the expiration of the period
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for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or compromise
a Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
agrees to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding any provision herein to the contrary,
the obligation of an Indemnifying Party to provide indemnification to an
Indemnified Party for breach of any representation or warranty as provided in
Sections 14.1(a) or 14.2(a) hereof shall not take effect unless and until the
Damages asserted against or incurred in the aggregate and on a collective basis
by the Indemnified Parties pursuant to either Section 14.1 or 14.2 (as
applicable) as a result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of
any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the
Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or any Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any Stockholder
fails to comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(c) at any time prior to the Effective Date by the Company
if any representation or warranty of APP contained in this Agreement or in any
certificate or other document executed and delivered by APP pursuant to this
Agreement is or becomes untrue in any material respect of if APP fails to comply
in any material respect with any covenant or agreement contained herein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
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<PAGE> 1171
(d) at any time prior to the Effective Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in Section
16.3, in the event this Agreement is terminated pursuant to this Article XV,
this Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo
recognize and acknowledge that each has in the past, currently has, and in the
future may possibly have, access to certain Confidential Information of APP that
is valuable, special and a unique asset of such entity's business. APP
acknowledges that it had in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of the Company and
NewCo that is valuable, special and a unique asset of each such business. The
Company, NewCo and APP, severally, agree that they will not disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to authorized
representatives of APP, NewCo and the Company and (b) to counsel and other
advisers to APP, NewCo and the Company provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 16.1, unless
(i) such information becomes available to or known by the public generally
through no fault of the Company, NewCo or APP, as the case may be, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii) the Company, NewCo or APP, as the case may be, shall, if
possible, give prior written notice thereof to the Company, NewCo or APP and
provide the Company or APP with the opportunity to contest such disclosure,
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, or
(iv) the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Merger or otherwise. In the event of a breach or
threatened breach by the Company, on the one hand, and APP, on the other hand,
of the provisions of this Section, APP, NewCo and the Company shall be entitled
to an injunction restraining the other party, as the case may be, from
disclosing, in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting any of such parties from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages.
Section 16.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, NewCo and the Company agree that,
in the event of a breach by either of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
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Section 17.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto, except
by APP to a wholly owned subsidiary of APP; provided that any such assignment
shall not relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP acknowledges
and agrees that the rights and remedies of the Company under this Agreement will
be directly available to the Stockholders as third party beneficiaries of the
rights and remedies of the Company under this Agreement, including, without
limitation, the rights and remedies under Article 14 hereof to indemnification
from APP against Damages incurred by the Stockholders resulting from a breach by
APP of any representation, warranty or covenant of APP contained herein. Except
as provided in the preceding sentence or as otherwise provided herein, neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants.
The representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder or APP
pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder and APP. Notwithstanding any
provision in this Agreement to the contrary, the representations and warranties
contained herein shall survive the Closing until the second anniversary of the
Closing Date except that (a) the representations and warranties set forth in
Section 3.21 with respect to environmental matters shall survive for a period of
ten (10) years, (b) the representations and warranties set forth in Section 3.30
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.27 and Section 3.33 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 14.1(c) and Section 14.2(c), and solely to
the extent that any party to be indemnified pursuant to such provisions actually
incurs liability under the Securities Act, the Exchange Act or any other federal
or state securities law, the representations and warranties set forth therein
shall survive until the expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
A-811
<PAGE> 1173
Section 17.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and neuter
and the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Mid Rockland Imaging Associates
18 Squadron Boulevard
New City, New York 10956
Fax No.: (914) 634-6254
Attn: Joel Rosenberg, CPA
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<PAGE> 1174
with a copy to: Drake, Sommers, Loeb, Tarshis & Catania, P.C.
1 Corwin Court, P.O. Box 1479
Newburgh, New York 12550
Fax. No.: (914) 565-1999
Attn: Steven L. Tarshis, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
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<PAGE> 1175
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
----------------------------------
Gregory L. Solomon, President
THE COMPANY:
CENTRAL IMAGING ASSOCIATES, P.C.
By:
----------------------------------
Herbert Z. Geller, M.D.
Its: President
A-814
<PAGE> 1176
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-815
<PAGE> 1177
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-816
<PAGE> 1178
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-817
<PAGE> 1179
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-818
<PAGE> 1180
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
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<PAGE> 1181
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
A-820
<PAGE> 1182
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-821
<PAGE> 1183
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth therein are
delivered in connection with that certain Agreement and Plan of Reorganization
and Merger dated ____________, 1997, by and between American Physician Partners,
Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules correspond
to the section numbers in the Agreement. If disclosures made pursuant to one
section number can reasonably be interpreted by other parties to be a disclosure
to another section number, such disclosure shall constitute disclosure for
purposes of such additional section number. Capitalized terms used herein have
the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain exceptions to the
representations and warranties set forth in Article III of the Agreement, the
inclusion of an item on these Disclosure Schedules shall not be deemed an
admission by American Physician Partners, Inc. that such item is material to
American Physician Partners, Inc., the Company, NewCo or any Company Subsidiary
or that it will have a material adverse effect on American Physician Partners,
Inc., the Company, NewCo or any Company Subsidiary.
A-822
<PAGE> 1184
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and CENTRAL
IMAGING ASSOCIATES, P.C., a New York professional corporation (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not have
been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
CENTRAL IMAGING ASSOCIATES, P.C.
By:_________________________________
Its:________________________________
A-823
<PAGE> 1185
===============================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and between
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)
and
MID ROCKLAND IMAGING ASSOCIATES, P.C.
(a New York professional corporation)
===============================================================================
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<PAGE> 1186
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Rules Of Interpretation . . . . . . . . . . . . . 6
ARTICLE II The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . 6
Section 2.2 The Closing . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Effective Time . . . . . . . . . . . . . . . . . 6
Section 2.4 Certificate of Incorporation of Surviving
Corporation . . . . . . . . . . . . . . . . . . . 6
Section 2.5 Bylaws of Surviving Corporation . . . . . . . . . 7
Section 2.6 Directors of the Surviving Corporation . . . . . 7
Section 2.7 Officers of the Surviving Corporation . . . . . . 7
Section 2.8 Conversion of Company Common Stock . . . . . . . 7
Section 2.9 Exchange of Certificates Representing Shares
of the Company Common Stock . . . . . . . . . . . 7
Section 2.10 Fractional Shares . . . . . . . . . . . . . . . . 8
ARTICLE III Representations and Warranties of the Company . . . . . . . . . 8
Section 3.1 Organization and Good Standing;
Qualification . . . . . . . . . . . . . . . . . . 8
Section 3.2 Authorization and Validity . . . . . . . . . . . 8
Section 3.3 Governmental Authorization . . . . . . . . . . . 8
Section 3.4 Capitalization . . . . . . . . . . . . . . . . . 9
Section 3.5 Transactions in Capital Stock . . . . . . . . . . 9
Section 3.6 Continuity of Business Enterprise . . . . . . . . 9
Section 3.7 Subsidiaries and Investments . . . . . . . . . . 9
Section 3.8 Absence of Conflicting Agreements
or Required Consents . . . . . . . . . . . . . . 9
Section 3.9 Intentionally omitted . . . . . . . . . . . . . . 9
Section 3.10 Absence of Changes . . . . . . . . . . . . . . . 10
Section 3.11 No Undisclosed Liabilities . . . . . . . . . . . 10
Section 3.12 Litigation and Claims . . . . . . . . . . . . . . 11
Section 3.13 No Violation of Law . . . . . . . . . . . . . . . 11
Section 3.14 Lease Agreements . . . . . . . . . . . . . . . . 11
Section 3.15 Real and Personal Property . . . . . . . . . . . 11
Section 3.16 Indebtedness for Borrowed Money . . . . . . . . . 12
Section 3.17 Contracts and Commitments . . . . . . . . . . . . 12
Section 3.18 Employee Matters . . . . . . . . . . . . . . . . 13
Section 3.19 Labor Relations . . . . . . . . . . . . . . . . . 13
Section 3.20 Employee Benefit Plans . . . . . . . . . . . . . 14
Section 3.21 Environmental Matters . . . . . . . . . . . . . . 15
Section 3.22 Filing Reports . . . . . . . . . . . . . . . . . 16
Section 3.23 Insurance Policies . . . . . . . . . . . . . . . 16
Section 3.24 Accounts Receivable; Payors . . . . . . . . . . . 17
Section 3.25 Accounts Payable; Suppliers . . . . . . . . . . . 17
Section 3.26 Inventory . . . . . . . . . . . . . . . . . . . . 17
Section 3.27 Licenses, Authorization and Provider Programs . . 18
Section 3.28 Inspections and Investigations . . . . . . . . . 18
</TABLE>
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<PAGE> 1187
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 3.29 Proprietary Rights and Information . . . . . . . 19
Section 3.30 Taxes . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.31 Related Party Arrangements . . . . . . . . . . . 20
Section 3.32 Banking Relations . . . . . . . . . . . . . . . . 20
Section 3.33 Fraud and Abuse and Self Referral . . . . . . . . 21
Section 3.34 Restrictions on Business Activities . . . . . . . 21
Section 3.35 Agreements in Full Force and Effect . . . . . . . 21
Section 3.36 Statements True and Correct . . . . . . . . . . . 21
Section 3.37 Disclosure Schedules . . . . . . . . . . . . . . 21
Section 3.38 Finders' Fees . . . . . . . . . . . . . . . . . . 21
ARTICLE IV Representations and Warranties of APP . . . . . . . . . . . . . 21
Section 4.1 Organization and Good Standing;
Qualification . . . . . . . . . . . . . . . . . . 22
Section 4.2 Authorization and Validity. . . . . . . . . . . . 22
Section 4.3 Governmental Authorization . . . . . . . . . . . 22
Section 4.4 Capitalization . . . . . . . . . . . . . . . . . 22
Section 4.5 Subsidiaries and Investments . . . . . . . . . . 23
Section 4.6 Absence of Conflicting Agreements or
Required Consents . . . . . . . . . . . . . . . . 23
Section 4.7 Absence of Changes . . . . . . . . . . . . . . . 23
Section 4.8 No Undisclosed Liabilities . . . . . . . . . . . 23
Section 4.9 Litigation and Claims . . . . . . . . . . . . . . 23
Section 4.10 No Violation of Law . . . . . . . . . . . . . . . 23
Section 4.11 Employee Matters . . . . . . . . . . . . . . . . 23
Section 4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.13 Related Party Arrangements . . . . . . . . . . . 25
Section 4.14 Statements True and Correct . . . . . . . . . . . 25
Section 4.15 Disclosure Schedules . . . . . . . . . . . . . . 25
Section 4.16 Finder's Fees . . . . . . . . . . . . . . . . . . 25
Section 4.17 Agreements in Full Force and Effect . . . . . . . 25
ARTICLE V Closing Date Representations and Warranties of the Company . . . 25
Section 5.1 Organization and Good Standing; Qualification . . 25
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . 25
Section 5.3 Corporate Records . . . . . . . . . . . . . . . . 26
Section 5.4 Authorization and Validity . . . . . . . . . . . 26
Section 5.5 No Violation . . . . . . . . . . . . . . . . . . 26
Section 5.6 No Business, Agreements, Assets or Liabilities. . 26
Section 5.7 Compliance with Laws . . . . . . . . . . . . . . 26
ARTICLE VI Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VII Covenants of the Company . . . . . . . . . . . . . . . . . . . 26
Section 7.1 Conduct of The Company . . . . . . . . . . . . . 26
Section 7.2 Title to Assets; Indebtedness . . . . . . . . . . 28
Section 7.3 Access . . . . . . . . . . . . . . . . . . . . . 28
Section 7.4 Acquisition Proposals . . . . . . . . . . . . . . 28
Section 7.5 Compliance With Obligations . . . . . . . . . . . 29
Section 7.6 Notice of Certain Events . . . . . . . . . . . . 29
</TABLE>
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Section 7.7 Intentionally omitted . . . . . . . . . . . . . . 29
Section 7.8 Stockholders' Consent . . . . . . . . . . . . . . 29
Section 7.9 Obligations of Company and Stockholders . . . . . 29
Section 7.10 Funding of Accrued Employee Benefits . . . . . . 29
Section 7.11 Accounting and Tax Matters . . . . . . . . . . . 30
Section 7.12 Spin-Off Transaction . . . . . . . . . . . . . . 30
Section 7.13 "F" Reorganization . . . . . . . . . . . . . . . 30
ARTICLE VIII Covenants of APP . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.1 Consummation of Agreement . . . . . . . . . . . . 30
Section 8.2 Requirements to Effect the Merger
and Acquisitions . . . . . . . . . . . . . . . . 31
Section 8.3 Access . . . . . . . . . . . . . . . . . . . . . 31
Section 8.4 Notification of Certain Matters . . . . . . . . . 31
Section 8.5 Qualified Retirement Plans. . . . . . . . . . . . 31
ARTICLE IX Covenants of APP and the Company . . . . . . . . . . . . . . . . 31
Section 9.1 Filings; Other Action . . . . . . . . . . . . . . 31
Section 9.2 Amendments of Schedules . . . . . . . . . . . . . 32
Section 9.3 Actions Contrary to Stated Intent . . . . . . . . 32
Section 9.4 Public Announcements . . . . . . . . . . . . . . 32
Section 9.5 Expenses . . . . . . . . . . . . . . . . . . . . 32
Section 9.6 Patient Confidentiality . . . . . . . . . . . . . 32
Section 9.7 Registration Statements. . . . . . . . . . . . . 33
ARTICLE X Conditions Precedent of APP . . . . . . . . . . . . . . . . . . . 33
Section 10.1 Representations and Warranties . . . . . . . . . 33
Section 10.2 Covenants . . . . . . . . . . . . . . . . . . . . 33
Section 10.3 Legal Opinion . . . . . . . . . . . . . . . . . . 33
Section 10.4 Proceedings . . . . . . . . . . . . . . . . . . . 33
Section 10.5 No Material Adverse Effect . . . . . . . . . . . 33
Section 10.6 Government Approvals and Required Consents . . . 33
Section 10.7 Securities Approvals . . . . . . . . . . . . . . 33
Section 10.8 Closing Deliveries . . . . . . . . . . . . . . . 33
Section 10.9 Closing of Initial Public Offering . . . . . . . 33
Section 10.10 Closing of Related Acquisitions . . . . . . . . . 33
Section 10.11 Dissenter's Rights . . . . . . . . . . . . . . . 34
Section 10.12 Stockholder Representation Letter;
Indemnification Agreement . . . . . . . . . . . . 34
Section 10.13 Transfer of Assets . . . . . . . . . . . . . . . 34
ARTICLE XI Conditions Precedent of the Company . . . . . . . . . . . . . . 34
Section 11.1 Representations and Warranties . . . . . . . . . 34
Section 11.2 Covenants . . . . . . . . . . . . . . . . . . . . 34
Section 11.3 Legal Opinions . . . . . . . . . . . . . . . . . 34
Section 11.4 Proceedings . . . . . . . . . . . . . . . . . . . 34
Section 11.5 Government Approvals and Required Consents . . . 34
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing . . . . . . 34
Section 11.7 Closing of Initial Public Offering . . . . . . . 35
Section 11.8 Closing Deliveries . . . . . . . . . . . . . . . 35
</TABLE>
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Section 11.9 No Material Adverse Effect . . . . . . . . . . . 35
Section 11.10 Service Agreement Analysis . . . . . . . . . . . 35
Section 11.11 Tax Opinion . . . . . . . . . . . . . . . . . . . 35
ARTICLE XII Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.1 Deliveries of the Company . . . . . . . . . . . . 35
Section 12.2 Deliveries of APP. . . . . . . . . . . . . . . . 36
ARTICLE XIII Post Closing Matters . . . . . . . . . . . . . . . . . . . . . 37
Section 13.1 Further Instruments of Transfer . . . . . . . . . 37
Section 13.2 Merger Tax Covenant . . . . . . . . . . . . . . . 37
Section 13.3 Current Public Information . . . . . . . . . . . 38
ARTICLE XIV Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.1 Indemnification by the Company . . . . . . . . . 38
Section 14.2 Indemnification by APP . . . . . . . . . . . . . 38
Section 14.3 Conditions of Indemnification . . . . . . . . . . 39
Section 14.4 Costs, Expenses and Legal Fees . . . . . . . . . 41
Section 14.5 Tax Benefits; Insurance Proceeds . . . . . . . . 41
ARTICLE XV Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 15.1 Termination . . . . . . . . . . . . . . . . . . . 41
Section 15.2 Effect of Termination . . . . . . . . . . . . . . 42
ARTICLE XVI Nondisclosure of Confidential Information . . . . . . . . . . . 42
Section 16.1 Non-Disclosure Covenant . . . . . . . . . . . . . 42
Section 16.2 Damages . . . . . . . . . . . . . . . . . . . . . 42
Section 16.3 Survival . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XVII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 17.1 Amendment; Waivers . . . . . . . . . . . . . . . 42
Section 17.2 Assignment . . . . . . . . . . . . . . . . . . . 43
Section 17.3 Parties in Interest; No Third
Party Beneficiaries . . . . . . . . . . . . . . . 43
Section 17.4 Entire Agreement . . . . . . . . . . . . . . . . 43
Section 17.5 Severability . . . . . . . . . . . . . . . . . . 43
Section 17.6 Survival of Representations, Warranties
and Covenants . . . . . . . . . . . . . . . . . . 43
Section 17.7 Governing Law . . . . . . . . . . . . . . . . . . 43
Section 17.8 Captions . . . . . . . . . . . . . . . . . . . . 43
Section 17.9 Gender and Number . . . . . . . . . . . . . . . . 44
Section 17.10 Intentionally omitted. . . . . . . . . . . . . . 44
Section 17.11 Confidentiality; Publicity and Disclosures . . . 44
Section 17.12 Notice . . . . . . . . . . . . . . . . . . . . . 44
Section 17.13 No Waiver; Remedies . . . . . . . . . . . . . . . 45
Section 17.14 Counterparts . . . . . . . . . . . . . . . . . . 45
Section 17.15 Defined Terms . . . . . . . . . . . . . . . . . . 45
</TABLE>
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EXHIBITS
Exhibit A - List of Target Companies . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Merger Consideration . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Stockholder Representation Letter . . . . . . . . . . . . . . . C-1
Exhibit D - Indemnification Agreement . . . . . . . . . . . . . . . . . . . D-1
Exhibit E - Physician Employment Agreement . . . . . . . . . . . . . . . . E-1
Exhibit F - Service Agreement . . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit G - Stockholder Release . . . . . . . . . . . . . . . . . . . . . . G-1
Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
</TABLE>
A-829
<PAGE> 1191
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP") and MID ROCKLAND IMAGING
ASSOCIATES, P.C., a New York professional corporation (the "Company").
RECITALS
A. The Company owns and operates (i) a professional medical
practice(s) specializing in radiology and (ii) diagnostic imaging centers. All
of the shares of the common stock of the Company (the "Company Common Stock")
are owned beneficially and of record by the Stockholders.
B. APP is engaged in the business of owning, operating and
acquiring the assets of, and managing the non-medical aspects of, radiology
practices and diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that
the Company be merged with and into APP, and that APP be the sole surviving
corporation (sometimes referred to hereinafter as the "Surviving Corporation"),
and the Company be the disappearing corporation (sometimes referred to
hereinafter as the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) the Company will merge
with and into APP upon the terms and conditions set forth herein and in
accordance with the laws of the State of New York and (ii) the outstanding
shares of the Company Common Stock shall be converted at such time into cash
and shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein.
E. Prior to the Merger, the Company intends to transfer certain
of its assets most of which relate solely to the practice of medicine to a
[newly formed professional corporation] ("NewCo") in exchange for all of the
capital stock of NewCo and to thereafter distribute such NewCo stock to the
Stockholders (the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement
with interest holders (together with the Stockholders, the "Target Interest
Holders") of each of the entities listed on Exhibit A (together with the
Company, the "Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Sections 351 and 368 of
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder, as applicable.
A-830
<PAGE> 1192
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, NewCo and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed in Exhibit 1.1, director or executive officer of such
entity after reasonable investigation and inquiry by the executive officers of
such entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director
or executive officer of the Company actually possesses without the necessity of
any special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the
recitals to this Agreement.
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
A-831
<PAGE> 1193
"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section
3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person,
including, but not limited to, information derived from reports, processes,
data, know-how, software programs, improvements, inventions, strategies,
compensation structures, reports, investigations, research, work in progress,
codes, marketing and sales programs and plans, financial projections, cost
summaries, formulae, contract analyses, financial information, forecasts,
confidential filings with any state or federal agency, and all other
confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section
3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the
terms hereof, as such may be amended or supplemented from time to time pursuant
to the provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement
is declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
A-832
<PAGE> 1194
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering
of APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section
14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or
other fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred
to, taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste,
(xi) any substance, pollutant, material, or contaminant listed or regulated
under any Medical Waste Law, and (xii) other biological waste and discarded
materials contaminated with or exposed to blood, excretion, or secretions from
human beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651 et seq.,
(v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
A-833
<PAGE> 1195
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock [, $_____ par value
per share,] of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.
"Physician Employee" shall mean each radiologist employed by the
Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the
recitals to this Agreement.
"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
A-834
<PAGE> 1196
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth
in Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in
which such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed
to be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time, the Company shall be merged with and
into APP in accordance with this Agreement and the separate corporate existence
of the Disappearing Corporation shall thereupon cease (the "Merger"). APP
shall be the Surviving Corporation in the Merger and shall continue to be
governed by the laws of the State of New York, and the separate corporate
existence of the Company with all its rights, privileges, powers, immunities,
purposes and franchises shall continue unaffected by the Merger, except as set
forth herein. The Surviving Corporation may, at any time concurrent with
and/or after the Effective Time, take any action in the name of or on behalf of
the Disappearing Corporation in order to effectuate the transactions
contemplated by this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take
place at 10:00 a.m., local time, at the offices of APP located at 2301
NationsBank Plaza, 901 Main Street, Dallas, Texas on the day on which the
transactions contemplated by the Initial Public Offering are consummated. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
Section 2.3 Effective Time. If all the conditions to the Merger
set forth in Articles XI and XII shall have been fulfilled or waived in
accordance herewith and this Agreement shall not have been terminated in
accordance with Article XVI, the parties hereto shall cause to be properly
executed and filed on the Closing Date, Certificates of Merger meeting the
requirements of Section 904 of the New York Business Corporation Law. The
Merger shall become effective at the time of the filing of such documents with
the Secretary of State of the State of New York, in accordance with such law or
at such later time which the parties hereto have theretofore agreed upon and
designated in such filings as the effective time of the Merger (the "Effective
Time").
Section 2.4 Certificate of Incorporation of Surviving
Corporation. Effective at the Effective Time, the Certificate of Incorporation
of the Company in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation without any amendment
or modification as a result of the Merger.
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Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP
in effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger.
Section 2.6 Directors of the Surviving Corporation. The persons
who are directors of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time.
Section 2.7 Officers of the Surviving Corporation. The persons
who are officers of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on
the part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the
Company's treasury, if any, at the Effective Time, by virtue of the Merger,
shall be cancelled and retired without payment of any consideration therefor
and shall cease to exist.
(c) Each Company Right outstanding at the Effective Time
shall be terminated and cancelled, without payment of any consideration
therefor, and shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged
and remain outstanding as a validly issued, fully paid and nonassessable share
of APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the
Company Common Stock.
(a) At or after the Effective Time and at the Closing (i)
the Stockholders, as holders of a certificate or certificates representing
shares of the Company's Common Stock, shall upon surrender of each certificate
or certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until
each certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at
the Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing
the certificates representing Company Common Stock owned by him, her or it,
duly endorsed in blank by the Stockholder, or accompanied by duly executed
stock powers in blank, and with all necessary transfer tax and other revenue
stamps, acquired at the Stockholder's expense, affixed and cancelled. Each
Stockholder agrees
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to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to such Company Common Stock or with
respect to the stock powers accompanying any Company Common Stock. Upon such
delivery (or completion of appropriate affidavit of lost certificate and
indemnity), each Stockholder shall receive in exchange therefor the Merger
Consideration pursuant to Exhibit B and Section 2.10 hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other
provision herein, no fractional shares of APP Common Stock will be issued and
any Stockholder otherwise entitled to receive a fractional share of APP Common
Stock as part of the Merger Consideration hereunder shall receive a cash
payment in lieu thereof reflecting such Stockholder's proportionate interest in
a share of APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to consummate
the Merger and except as set forth in the Disclosure Schedules attached hereto
and incorporated herein by this reference, the Company represents and warrants
to APP both as of the date hereof and as of the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, with all requisite corporate
power and authority to own, operate and lease its assets and properties and to
carry on its business as currently conducted. The Company and each Company
Subsidiary is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in
good standing would not have a Material Adverse Effect on the Company. Copies
of the articles or certificates of incorporation and all amendments thereto of
the Company and each Company Subsidiary and the bylaws of the Company and each
Company Subsidiary, as amended, and copies of the corporate minutes of the
Company, all of which have been or will be made available to APP for review,
are true and complete as in effect on the date of this Agreement, and in the
case of the corporate minutes, accurately reflect all material proceedings of
the Stockholders and directors of the Company (and all committees thereof).
The stock record books of the Company, which have been or will be made
available to APP for review, contain true, complete and accurate records of the
stock ownership of record of the Company and the transfer record of the shares
of its capital stock.
Section 3.2 Authorization and Validity. The Company has all
requisite corporate power to enter into this Agreement and all other agreements
entered into in connection with the transactions contemplated hereby and to
consummate the transactions contemplated hereby. The execution, delivery and,
subject to approval of this Agreement and the Merger by the Stockholders,
performance by the Company of this Agreement and the agreements contemplated
herein, and the consummation by the Company of the transactions contemplated
hereby and thereby are within the Company's respective corporate powers and
have been duly authorized by all necessary action on the part of the Company's
Board of Directors. Subject to the approval of this Agreement and the Merger
by the Stockholders, this Agreement has been duly executed by the Company, and
this Agreement and all other agreements and obligations entered into and
undertaken in connection with the transactions contemplated hereby to which the
Company is a party constitute, or upon execution will constitute, valid and
binding agreements of the Company, enforceable against it in accordance with
their respective terms, except as enforceability may be limited by bankruptcy
or other laws affecting the enforcement of creditors' rights generally, or by
general equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger (as
contemplated by Section 2.3) and any other required documents related to the
Merger, and other than consents, filings or notifications required to be made
or obtained solely by APP (including,
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without limitation, in connection with the Initial Public Offering, Form S-4 or
any Hart-Scott-Rodino filing to be made by APP, if any), the execution,
delivery and performance by the Company of this Agreement and the agreements
provided for herein, and the consummation of the transactions contemplated
hereby and thereby by the Company require no action by or in respect of, or
filing with, any governmental body, agency, official or authority.
Section 3.4 Capitalization. The authorized capital stock of the
Company consists of 200 shares of the Company Common Stock, of which 130 shares
are issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common
Stock are owned by the Company in treasury. No shares of Company Common Stock
have been issued or disposed of in violation of any preemptive rights, rights
of first refusal or similar rights of any of the Stockholders. Other than
Company Common Stock, the Company has no securities, bonds, debentures, notes
or other obligations the holders of which have the right to vote (or are
convertible into or exercisable for securities having the right to vote) with
the Stockholders on any matter.
Section 3.5 Transactions in Capital Stock. There exist no
Company Rights. The Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Company nor the relative
ownership of shares among any of its Stockholders has been altered or changed
in contemplation of the Merger within the two (2) years preceding the date of
this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not
been any sale, distribution or spin-off of significant assets of the Company or
any of its Affiliates other than in the ordinary course of business within the
(2) two years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not
own, directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required
Consents. Subject to approval of this Agreement and the Merger by the
Stockholders of the Company, the execution, delivery and performance by the
Company of this Agreement and any other documents contemplated hereby (with or
without the giving of notice, the lapse of time, or both): (i) do not require
the consent of any governmental or regulatory body or authority or any other
third party except for such consents, for which the failure to obtain would not
result in a Material Adverse Effect on the Company; (ii) will not conflict with
or result in a violation of any provision of the Company's articles or
certificate of incorporation or bylaws, (iii) will not conflict with, result in
a violation of, or constitute a default under any law, rule, ordinance,
regulation or any ruling, decree, determination, award, judgment, order or
injunction of any court or governmental instrumentality which is applicable to
the Company or by which the Company or its properties are subject or bound;
(iv) will not conflict with, constitute grounds for termination of, result in a
breach of, constitute a default under, require any notice under, or accelerate
or modify, or permit any person to accelerate or modify, any performance
required by the terms of any agreement, instrument, license or permit, to which
the Company is a party or by which the Company or any of its properties are
subject or bound except for such conflict, termination, breach or default, the
occurrence of which would not result in a Material Adverse Effect on the
Company; and (v) except as contemplated by this Agreement, will not create any
Encumbrance or restriction upon the Company Common Stock or any of the assets
or properties of the Company.
Section 3.9 Intentionally omitted.
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Section 3.10 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, the Company has conducted
its business only in the ordinary course and has not:
(a) suffered any change or changes in its working
capital, condition (financial or otherwise), assets, liabilities, reserves,
business or operations (whether or not covered by insurance) that individually
or in the aggregate has had or could reasonably be expected to have a Material
Adverse Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business;
(c) written off as uncollectible any receivable, except
for write-offs in the ordinary course of business;
(d) except in the ordinary course of business and
consistent with past practice, cancelled or compromised any debts or waived or
permitted to lapse any claims or rights or sold, transferred or otherwise
disposed of any of its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment
policies;
(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject,
any of its assets, tangible or intangible, to any claim or Encumbrance, except
for liens for current personal property taxes not yet due and payable,
mechanics, landlords, materialmen, and other statutory liens, purchase money
security interests, sale-leaseback interests granted and all other Encumbrances
granted in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee
benefits for any employee of the Company, except in the ordinary course of
business and consistent with past practice;
(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends
or other distributions to any Stockholder or any other holder of capital stock
of the Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its
knowledge, the Company does not have any liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected or reserved against
in the Company's Current Balance Sheet.
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Section 3.12 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of the
Company, threatened against, or affecting the Company, any Company Subsidiary,
any Stockholder, the Physician Employees or any other licensed professional or
other individual affiliated with the Company affecting or that would reasonably
be likely to affect the Company Common Stock or the operations, business
condition, (financial or otherwise), or results of operations of the Company
which (i) if successful, may, individually or in the aggregate, have a Material
Adverse Effect on the Company or (ii) could adversely affect the ability of the
Company or any Company Subsidiary to effect the transactions contemplated
hereby, and to the knowledge of the Company there is no basis for any such
action or any state of facts or occurrence of any event which would reasonably
be likely to give rise to the foregoing. There are no unsatisfied judgments
against the Company or any Company Subsidiary or any licensed professional or
other individual affiliated with the Company or any Company Subsidiary relating
to services provided on behalf of the Company or any Company Subsidiary or any
consent decrees to which any of the foregoing is subject. Each of the matters,
if any, set forth in this Section 3.12 is fully covered by policies of
insurance of the Company or any Company Subsidiary as in effect on the date
hereof.
Section 3.13 No Violation of Law. Neither the Company nor any
Company Subsidiary has been, nor shall be as of the Effective Time (by virtue
of any action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever), in violation of any applicable local,
state or federal law, ordinance, regulation, order, injunction or decree, or
any other requirement of any governmental body, agency, authority or court
binding on it, or relating to its properties, assets or business or its
advertising, sales or pricing practices, except for violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a
true, accurate and complete list of all the lease agreements and license
agreements to which the Company or any Company Subsidiary is a party and
pursuant to which the Company or any Company Subsidiary leases (whether as
lessor or lessee) or licenses (whether as licensor or licensee) any real or
personal property related to the operation of its business and which requires
payments in excess of $12,000 per year (the "Lease Agreements"). The Company
has delivered to APP true and complete copies of all of the Lease Agreements.
Each Lease Agreement is valid, effective and in full force in accordance with
its terms, and there is not under any such lease (i) any existing or claimed
material default by the Company or any Company Subsidiary (as applicable) or
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by the Company or any Company Subsidiary
(as applicable) and, individually or in the aggregate, may reasonably result in
a Material Adverse Effect on the Company, or, (ii) to the knowledge of the
Company, any existing material default by any other party under any of the
Lease Agreements or any event of material default or event which with notice or
lapse of time, or both, would constitute a material default by any such party.
To the knowledge of the Company, there is no pending or threatened reassessment
of any property covered by the Lease Agreements. The Company or any Company
Subsidiary will use reasonable good faith efforts to obtain, prior to the
Effective Time, the consent of each landlord or lessor whose consent is
required to the assignment of the Lease Agreements and will use reasonable good
faith efforts to deliver to APP in writing such consents as are necessary to
effect a valid and binding transfer or assignment of the Company's or any
Company Subsidiary's rights thereunder. The Company has a good, clear, valid
and enforceable leasehold interest under each of the Lease Agreements. The
Lease Agreements comply with the exceptions to ownership interests and
compensation arrangements set out in 42 U.S.C. Section 1395nn, 42 C.F.R.
Section 1001.952, and any similar applicable state law safe harbor or other
exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns
any interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein
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<PAGE> 1202
which it purports to own including, without limitation, all the property and
assets reflected in the Company Current Financial Statements; and (ii) owns
such rights, interests, assets and property free and clear of all Encumbrances,
title defects or objections (except for taxes not yet due and payable). The
personal property presently used in connection with the operation of the
business of the Company and the Company Subsidiaries constitutes the necessary
personal property assets to continue operation of the Company and any Company
Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, the Company does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in
any manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies,
of each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate
(other than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000
in any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is
with unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP of the assets and
properties to be acquired by APP from the Company, or which could inhibit or
prevent the Company from transferring to or vesting in APP good and sufficient
title to the assets and properties to be acquired by APP and the Surviving
Corporation except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, the
Company shall, on or before the Closing Date, use reasonable good faith efforts
to obtain and deliver to APP in writing, effective as of the Closing Date, such
consents as are necessary to enable the Surviving Corporation to enjoy all of
the rights now enjoyed by the Company under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to
APP any contracts or agreements relating to the provision of professional
medical services or other such agreements and contracts that APP consents to in
writing to be transferred to NewCo in the Spin-off Transaction. No contract
with a health care provider or Payor has been materially amended or terminated
within the last twelve (12) months.
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<PAGE> 1203
(b) The Company (i) has not received notice of any plan
or intention of any other party to exercise any right to cancel or terminate
any contract, agreement or instrument required to be disclosed pursuant to
Section 3.17(a), and to the knowledge of the Company there are no fact(s) that
would justify the exercise of such a right; and (ii) does not currently
contemplate, or have reason to believe any other Person currently contemplates,
any amendment or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a
party to any employment contract (except for oral employment agreements which
are terminable at will), consulting or collective bargaining contracts,
deferred compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit
sharing, bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected
to receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
Upon termination of employment of any employee or Physician Employee, no
severance or other payments will become due and the Company has no policy, past
practice or plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair
labor practice, charge or complaint or any other employment-related matter
against or involving the Company pending or threatened before the National Labor
Relations Board or any federal, state or local agency, authority or court;
(c) To the knowledge of the Company, there are no
charges, investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or
court against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the
Immigration Reform and Control Act of 1986, as amended, and all applicable
regulations promulgated thereunder; and
(e) To the knowledge of the Company, there are no
inquiries, investigations or monitoring activities of any licensed, registered,
or certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
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Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided to APP copies of all plan documents (as they may have been
amended to the date hereof), determination letters, pending determination
letter applications, trust instruments, insurance contracts or policies related
to an Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee
Benefit Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any
notice that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach
of any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or
other liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the
Company's knowledge, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or
501(c)(9) of the Code and/or tax-exempt within the meaning of Section 501(a) of
the Code and, to the best knowledge of the Company and each Stockholder, has
been continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation
of any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency
(within the meaning of Section 412 of the Code), whether waived or unwaived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Code) in which the Company is a member (a "Controlled Group"). With respect to
each Employee Benefit Plan subject to Title IV of ERISA, the assets of each
such plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. With respect to each
Employee Benefit Plan described in Section 501(c)(9) of the Code, the assets of
each such plan are at least equal in value to the present value of accrued
benefits, based upon the most recent actuarial valuation as of a date no more
than ninety (90) days prior to the date hereof. The Disclosure Schedules
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<PAGE> 1205
contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of
a Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any
member of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section
412 of the Code.
(j) PBGC. No facts or circumstances are known to the
Company that would result in the imposition of liability against APP or any of
its Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result
of any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any
Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or
commitment to provide medical, dental or life insurance benefits to or on
behalf of any of its employees who may retire or any of its former employees
who have retired except as may be required pursuant to the continuation of
coverage provisions of Section 4980B of the Code and the applicable provisions
of ERISA.
(l) Other Compensation Arrangements. Neither the Company
nor, to the Company's knowledge, any Stockholder or Physician Employee is a
party to any compensation or debt arrangement with any Person relating to the
provision of health care related services other than arrangements with the
Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has,
within the five (5) years preceding the date hereof, through the Effective
Time, received from any federal, state or local governmental body, agency,
authority or entity, or any other Person, any written notice, demand, citation,
summons, complaint or order or any notice of any penalty, lien or assessment,
and to the knowledge of the Company no investigation or review is pending by
any governmental entity, with respect to any (i) alleged violation by the
Company of any Environmental Law (as defined in subsection (e) below) (ii)
alleged failure by the Company to have any environmental permit, certificate,
license, approval, registration or authorization required pursuant to any
Environmental Law in connection with the conduct of its business; or (iii)
alleged illegal Regulated Activity (as defined in subsection (e) below) by the
Company.
(b) Neither the Company nor any Company Subsidiary has
used, transported, disposed of or arranged for the disposal of (as those terms
are defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein)
that would be reasonably likely to give rise to any Environmental Liabilities
(as defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Schedule 3.21(b) discloses any known presence of asbestos in or on the
Company's or any Company Subsidiary's owned or leased premises. To the
knowledge of the Company, there is no friable asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises.
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(c) To the knowledge of the Company, no soil or water in
or under any assets currently or formerly held for use or sale by the Company
or any Company Subsidiary is or has been contaminated by any Hazardous
Substance while such assets or premises were owned, leased, operated or
managed, directly or indirectly by the Company or any Company Subsidiary, where
such contamination had, or would be reasonably likely to have, a Material
Adverse Effect on the Company.
(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of the
Company, concerning the Company or any Company Subsidiary within the five (5)
years preceding the date hereof through the Effective Time with respect to any
real property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following
terms have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended
to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect
to, or list or define air, water, groundwater, solid waste, hazardous,
toxic, or radioactive substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public in each case as in
effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
Section 3.22 Filing Reports. All returns, reports, plans and
filings of any kind or nature necessary to be filed by the Company with any
governmental agency or authority have been properly completed and timely filed
in compliance with all applicable requirements, except where failure to so file
would not have a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list
and briefly describe the Company's policies of insurance to which the Company
or any Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and
enforceable policies, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies and all premiums with respect thereto which
are due and payable are currently paid. All Insurance Policies currently
maintained by the Company or any Company Subsidiary ("Current Policies") taken
together, (i) provide adequate insurance coverage for the assets, properties
and operations of the Company and its Affiliates for all risks normally insured
against by a Person carrying on a substantially similar business or businesses
as the Company and its Affiliates, (ii) are sufficient for compliance with
legal and contractual requirements to which the Company or any of its
Affiliates is a party or by which any of them may be bound, and (iii) shall be
maintained in force (including the payment of all premiums and compliance with
their terms) without interruption up to and including the Closing Date. True,
complete and correct copies
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of all Insurance Policies have been provided to APP. Neither the Company nor
any Company Subsidiary nor any officer or director thereof has received any
notice or other written communication from any issuer of any Current Policy
cancelling such policy, materially increasing any deductibles or retained
amounts thereunder, or materially increasing the annual or other premiums
payable thereunder and, to the knowledge of the Company, no such cancellation
or increase of deductibles, retainages or premiums is threatened. There are no
outstanding claims, settlements or premiums owed against any Insurance Policy,
and all required notices have been given and all known potential or actual
claims under any Insurance Policy have been presented in due and timely
fashion. Within the five (5) years preceding the Agreement, neither the
Company nor any Company Subsidiary has filed a written application for any
professional liability insurance coverage which has been denied by an insurance
agency or carrier. The Disclosure Schedules also set forth a list of all
claims under any Insurance Policy in excess of $10,000 per occurrence filed by
the Company or any Company Subsidiary during the immediately preceding
three-year period. Each Physician Employee has, at all times while a Physician
Employee, maintained or been covered by professional malpractice insurance in
such types and amounts as are customary for such a physician practicing the
same type of medicine in the same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging
of all accounts receivable of the Company as of March 31, 1997, which list is
complete, true and accurate in all material respects. All such accounts
receivable arose in the ordinary course of business and have not been
previously written off as bad debts and, are, to the extent still uncollected,
to the knowledge of the Company collectible in the ordinary course of business,
net of reserves for doubtful and uncollectible accounts shown in the Company
Financial Statements or on the accounting records of the Company (which
reserves are calculated consistent with generally accepted accounting
principles and past practice).
(b) The Disclosure Schedules set forth (i) a true,
correct and complete list of the names and addresses of each Payor of the
Company as of such date, which accounted for more than 5% of the revenues of
the Company in the fiscal year ended December 31, 1996, or which is reasonably
expected to account for more than 5% of the revenues of the Company for the
fiscal year to end December 31, 1997, and (ii) a single line item listing for
all private-pay patients in the aggregate of the Company. The Company has
satisfactory relations with such Payors set forth in (i) above and none of such
Payors has notified the Company that it intends to discontinue its relationship
with the Company or to deny any payments due from, or any claims for payment
submitted to any such party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and
complete (i) list of the accounts payable of the Company as of March 31, 1997,
and (ii) list of each individual indebtedness owed by the Company of $5,000 or
more, setting forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct
and complete list of the names and addresses of each of the providers/suppliers
of products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company
Current Balance Sheet contained in the Company Financial Statements consisted,
and all such items on hand on the date of this Agreement consist, and all such
items on hand at the Effective Time will consist, net of all applicable
reserves with respect thereto (calculated consistent with past practice), of
items of a quality and a quantity usable and saleable in the ordinary course of
the Company's business and conform to generally accepted standards in the
industry of which the Company is a part. The value of the inventories
reflected on the Company Current Balance Sheet contained in the Company
Financial Statements are net of adequate reserves for damaged, excess, and
unusable items. Purchase commitments of the Company for inventory
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are not materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or practice his or her specialty and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which the Company is eligible and which are listed in the Disclosure Schedules
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any
private insurance program) under which the Company is presently receiving
payments directly or indirectly from any Payor for patient care provided by
such Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to
APP. No violation, default, order or deficiency exists with respect to any of
the items listed in the Disclosure Schedules except for such violations,
defaults, orders or deficiencies which would not be reasonably likely to have a
Material Adverse Effect on the Company, and there is no action pending or to
the Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program,
and no event has occurred which, with or without notice or lapse of time, or
both, would constitute grounds for a violation, order or deficiency with
respect to any of the items listed in the Disclosure Schedules to revoke,
withdraw or suspend any material license to operate its business as is
presently being conducted by it. To the knowledge of the Company, there has
been no decision not to renew any existing agreement with any provider or Payor
relating to the Company's business as presently being conducted by it. Neither
the Company nor any Physician Employee (i) has had his/her/its professional
license, Drug Enforcement Agency number, Medicare/Medicaid provider status or
staff privileges at any hospital or diagnostic imaging center suspended,
relinquished, terminated or revoked (including orders that have been entered by
any such entities but stayed), (ii) has been reprimanded in writing, sentenced,
or disciplined by any licensing board, state agency, regulatory body or
authority, hospital, Payor or specialty board (including orders that have been
entered by any such entities but stayed), or (iii) is the subject of an initial
or final determination by any federal or state authority that could result in
any demand or reimbursement under the Medicare, Medicaid or Government Programs
or any exclusion or which monetary penalty under federal or state law or (iv)
has had a final judgment or settlement entered against him/her/it in connection
with a malpractice or similar action.
(b) The Company is not required, or for the 72-month
period prior to the Effective Time was not required, to file any cost reports
or other reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of
the Company, or any Physician Employee, nor the right of any licensed
professional or other individual affiliated with the Company to receive
reimbursements pursuant to any Governmental Program or Private Program has been
terminated or otherwise materially and adversely affected as a result of any
investigation or action whether by any federal or state governmental regulatory
authority or other third party. No Physician Employee, licensed professional
or other individual affiliated with the business has, during the past three (3)
years prior to the Effective Time, had their professional license or staff
privileges limited, suspended or revoked by any governmental regulatory
authority or agency, hospital, integrated delivery system, trade association,
professional review organization, accrediting organization or certifying agency
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(including orders that have been entered by any such entities but stayed).
True, correct and complete copies of all reports, correspondence, notices and
other documents relating to any matter described or referenced in this Section
3.28 have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete
and accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v)
other similar agreements relating to the foregoing to which the Company or any
Company Subsidiary is a party (including expiration date if applicable)
(collectively, the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and
accurate list and summary description of all agreements relating to technology,
trade secrets, know-how or processes that the Company is licensed or authorized
to use by others (other than technology, know-how or processes generally
available to other health care providers) or which it licenses or authorizes
others to use, true, correct and complete copies of which have been provided to
APP. There are no outstanding and, to the Company's knowledge, any threatened
disputes or disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and
the Proprietary Rights are freely transferable. To the knowledge of the
Company, no claim has been asserted by any person to the ownership of or for
infringement by the Company of any Proprietary Right of any other Person, and
neither the Company nor any Stockholder is aware of any valid basis for any
such claim. To the best knowledge of the Company, no proceedings have been
threatened which challenge the Proprietary Rights of the Company. The Company
has the right to use, free and clear of any adverse claims or rights of others,
all trade secrets, customer lists and proprietary information required for the
performance and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and
timely filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All
such Tax Returns or reports are complete and accurate in all material respects
and properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the
Company may be disputing in good faith by proceedings in compliance with
applicable law, which are described in the Disclosure Schedules, (i) the
Company has paid all taxes, penalties, assessments and interest that have
become due with respect to any Tax Returns that it has filed and has properly
accrued on its books and records in accordance with generally accepted
accounting principles for all of the same that have not yet become due and
payable and (ii) the Company is not delinquent in the payment of any tax,
assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
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assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to
be asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated
any applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has
not granted an extension to any taxing authority of the statute of limitation
period during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for
all income, social security, unemployment insurance, sales, excise, use, and
other taxes have been collected or withheld and paid to the respective
governmental agencies.
(f) Foreign Person. Neither the Company nor any
Stockholder is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets
of the Company constitutes property that the Company, APP or any Affiliate of
APP, will be required to treat as being owned by another person pursuant to the
"Safe Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal
by the Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties
of the Company are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any
time consented to have the provisions of Section 341(f)(2) of the Code apply to
it.
(j) Boycotts. The Company has not at any time
participated in or cooperated with any international boycott as defined in
Section 999 of the Code.
(k) Parachute Payments. No payment required or
contemplated to be made by the Company will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election
to be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or
has not been a personal holding company within the meaning of Section 542 of
the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to
the Company's business. There is no commitment to, and no income reflected in
the Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such
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as checking account, borrowing arrangements, safe deposit box, etc.) and the
Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the
Company nor any Company Subsidiary has engaged and, to the knowledge of the
Company, neither the Company's officers and directors nor the Physician
Employees or other Persons and entities providing professional services for or
on behalf of the Company have engaged, in any activities which are prohibited
under 42 U.S.C. Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject
to the exceptions or safe harbor provisions set forth in such legislation), or
the regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Sections 24, 287, 371, 664, 669, 1001, 1027,
1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no
material agreement, judgment, injunction, order or decree binding upon the
Company, any Company Subsidiary or officer, director or key employee of the
Company or Company Subsidiary, which has or reasonably could be expected to
have the effect of prohibiting or materially impairing the current medical
practice of the Company or any Company Subsidiary or the continuation of that
medical practice in the future by NewCo, any acquisition of property by the
Company, any Company Subsidiary or the conduct of business by the Company or
any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are
valid and binding, and are in full force and effect and are enforceable in
accordance with their terms, except to the extent that the validity or
enforceability thereof may be limited by bankruptcy or other laws affecting the
enforcement of creditors' rights generally, or by general equity principles, or
by public policy. There is no pending or, to the knowledge of the Company,
threatened bankruptcy, insolvency or similar proceeding with respect to any
other party to such agreements, and no event has occurred which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder by the Company or any other party
thereto. No contract with a Physician Employee has been terminated in the last
twelve (12) months.
Section 3.36 Statements True and Correct. No representation or
warranty made herein by the Company or any Stockholder, nor any statement,
certificate, information, exhibit or instrument to be furnished by the Company
or any Stockholder to APP or any of its respective representatives pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules
required by Article III hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
any of the Stockholders or the Company who is entitled to any fee or commission
upon consummation of the transactions contemplated by this Agreement or
referred to herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
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Section 4.1 Organization and Good Standing; Qualification. APP
is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. APP is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where such failure to be so
qualified or in good standing would not have a Material Adverse Effect on APP.
Copies of the certificate of incorporation and all amendments thereto of APP
and the bylaws of APP, as amended, and copies of the corporate minutes of APP
regarding the Merger and the transactions contemplated hereby, all of which
have been or will be made available to the Company for review, are true,
correct and complete as in effect on the date of this Agreement and accurately
reflect all material proceedings of the stockholders and directors of APP (and
all committees thereof) regarding the Merger and the transactions contemplated
hereby. The stock record books of APP, which have been or will be made
available to the Company for review, contain true, complete and accurate
records of the stock ownership of APP and the transfer of the shares of its
capital stock.
Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and the Other Agreements
and to consummate the Merger and the transactions contemplated hereby. The
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, including the Other Agreements and the consummation by APP
of the transactions contemplated hereby and thereby are within APP's corporate
powers and have been duly authorized by all necessary action on the part of
APP's Board of Directors. This Agreement has and the Other Agreements have
been duly executed by APP. This Agreement and all other agreements and
obligations entered into and undertaken in connection with the Merger and the
transactions contemplated hereby to which APP is a party constitute, or upon
execution will constitute, valid and binding agreements of APP, enforceable
against it in accordance with their respective terms, except as may be limited
by bankruptcy or other laws affecting creditors' rights generally, or by
general equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger and any
other required documents related to the Merger, and other than consents,
filings or notifications required to be made or obtained solely by the Company,
the execution, delivery and performance by APP of this Agreement and the
agreements provided for herein, and the consummation of the Merger and the
transactions contemplated hereby and thereby by APP requires no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of [20,000,000] shares of APP Common Stock, of which [2,000,000]
shares are issued and outstanding and [10,000,000] shares of APP Preferred
Stock, none of which are outstanding. Each outstanding share of APP Common
Stock has been legally and validly issued and is fully paid and nonassessable,
and was issued pursuant to a valid exemption from registration under (i) the
Securities Act of 1933, as amended, and (ii) all applicable state securities
laws. No shares of capital stock are owned by APP in treasury. No shares of
capital stock of APP have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any
stockholders of APP. APP has no bonds, debentures, notes or other obligations
the holders of which have the right to vote (or are convertible into or
exercisable for securities having the right to vote) with the stockholders of
APP on any matter. There exist no options, warrants, subscriptions, calls,
commitments or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of APP and no
option, warrant, subscription, call, or commitment or commission right of any
kind exists which obligates APP to issue any of its authorized but unissued
capital stock. APP has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
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Section 4.5 Subsidiaries and Investments. APP does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance of this Agreement by APP and
any other documents contemplated hereby (with or without the giving of notice,
the lapse of time, or both): (i) does not require the consent of any
governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on APP; (ii) will not conflict with any provision of
APP's certificate of incorporation or bylaws; (iii) will not conflict with,
result in a violation of, or constitute a default under any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or governmental
instrumentality to which APP is a party or by which APP or its properties are
subject or bound; (iv) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, require any
notice under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit, material
to this transaction, to which APP is a party or by which APP or any of its
properties are bound except for such conflict, termination, breach or default,
the occurrence of which would not result in a Material Adverse Effect on APP;
and (v) will not create any Encumbrance or restriction upon APP Common Stock or
any of the assets or properties of APP. The financial statements of APP
contained in the Registration Statements (a) have been prepared in accordance
with generally accepted accounting principles consistently applied (except as
may be indicated therein or in the notes thereto), (b) present fairly the
financial position of APP and APP Subsidiaries as of the dates indicated and
present fairly the results of APP's and APP Subsidiaries' operations for the
periods then ended, and (c) are in accordance with the books and records of APP
and APP Subsidiaries, which have been properly maintained and are complete and
correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, there has not been (i)
any change in the working capital, condition (financial or otherwise), assets,
liabilities, reserves, business or operations of APP that has had or is
reasonably likely to have a Material Adverse Effect on APP; or (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in
the Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.
Section 4.9 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of APP,
threatened against, or affecting APP. There are no unsatisfied judgments
against APP or any consent decrees to which APP is subject. Each of the
matters, if any, set forth in the Disclosure Schedules are fully covered by
policies of insurance of APP as in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be
as of the Effective Time (by virtue of any action, omission to act, contract to
which it is a party or any occurrence or state of facts whatsoever), in
violation of any applicable local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any governmental body,
agency or authority or court binding on it, or relating to its property or
business or its advertising, sales or pricing practices, except for violations
which are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form
S-4, APP does not have any material arrangements, agreements or plans with any
person with respect to the employment by APP of such person or whereby such
person is to serve as an officer or director of APP.
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Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any
Tax Returns that it has filed and has properly accrued on its books and records
for all of the same that have not yet become due and (ii) APP is not delinquent
in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. APP has not received any notice that any tax deficiency or
delinquency has been asserted against APP. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of APP that could be asserted by any taxing authority. There is
no taxing authority audit of APP pending, or to the knowledge of APP,
threatened, and the results of any completed audits are properly reflected in
the financial statements of APP. APP has not violated any federal, state,
local or foreign tax law.
(d) No Extension of Limitation Period. APP has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Code.
(j) Parachute Payments. No payment required or
contemplated to be made by APP will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
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Section 4.13 Related Party Arrangements. The Disclosure Schedules
or Form S-4 sets forth a description of any interest held, directly or
indirectly, by any officer, director or other Affiliate of APP in any property,
real or personal or mixed, tangible or intangible, used in or pertaining to
APP's business and any arrangement or agreement with any such person concerning
the provision of goods or services or other matters pertaining to APP's
business.
Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to the Company or a Stockholder
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules
required by Article IV hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
APP who is entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true
and correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo
is a professional corporation duly organized, validly existing and in good
standing under the laws of its state of organization, with all requisite
corporate power and authority to carry on the business in which it intends to
engage, to own the properties it intends to own, and to execute and deliver the
Service Agreement, the Security Agreement and the Physician Employment
Agreements and consummate the transactions and perform the services
contemplated thereby. NewCo is duly qualified and licensed to do business and
is in good standing in all jurisdictions where the nature of its intended
business makes such qualification necessary, which jurisdictions are listed in
the Disclosure Schedules, except where the failure to be so qualified shall not
have a Material Adverse Effect on NewCo.
Section 5.2 Capitalization. The authorized capital stock of
NewCo consists of [_____] shares of NewCo Common Stock, of which [______]
shares are issued and outstanding, and no shares of capital stock of NewCo are
held in treasury. The Stockholders own all of the issued and outstanding
shares of NewCo Common Stock, free and clear of any Encumbrance. Each
outstanding share of NewCo Common Stock has been legally and validly issued and
is fully paid and nonassessable. There exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of NewCo. No
shares of capital stock of NewCo have been issued or disposed of in violation
of the preemptive rights, rights of first refusal or similar rights of any of
NewCo's stockholders.
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Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and
complete copies thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery
and performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict
with any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities.
NewCo has not commenced business since its incorporation. Other than its
articles or certificate of incorporation and bylaws, and as of the Closing
Date, the Service Agreement, the Security Agreement, the Physician Employment
Agreements, and the other contracts and agreements assigned to NewCo as part of
the Spin-Off Transaction, NewCo is not a party to or subject to any agreement,
indenture or other instrument. NewCo does not own any assets (tangible or
intangible) other than the consideration received upon the issuance of shares
of its capital stock or pursuant to the Spin-Off Transaction, and NewCo does
not have any liabilities, accrued, contingent or otherwise (known or unknown
and asserted or unasserted) other than those assumed pursuant to the Spin-Off
Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure
to so comply or file would not, individually or in the aggregate, have a
Material Adverse Effect on NewCo.
ARTICLE VI
Intentionally Omitted.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant
to the Spin-Off Transaction or the "F" Reorganization, from the date hereof
until the Effective Time, the Company shall, in all material respects, conduct
its business in the ordinary and usual course consistent with past practices
and shall use reasonable efforts to:
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(a) preserve intact its business and its relationships
with Payors, referral sources, customers, suppliers, patients, employees and
others having business relations with it;
(b) maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the
conduct of the business of the Company;
(c) continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof. In addition, without the written consent of APP, the Company shall
not:
(1) amend its articles or certificate of
incorporation or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or
sale, shares of any class of its securities (including, but
not limited to, by way of stock split, dividend,
recapitalization or other reclassification) or any
subscriptions, options, warrants, rights or convertible
securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such securities;
(3) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such
shares;
(4) declare or pay any dividend or other
distribution (whether in cash, stock or other property) with
respect to its capital stock (except as expressly contemplated
herein);
(5) voluntarily sell, transfer, surrender,
abandon or dispose of any of its assets or property rights
(tangible or intangible) other than the sale of inventory, if
any, in the ordinary course of business consistent with past
practices;
(6) grant or make any mortgage or pledge or
subject itself or any of its properties or assets to any lien,
charge or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital
expenditures which are not reasonably necessary for the
conduct of its business;
(9) grant any increase in the compensation
payable or to become payable to directors, officers,
consultants or employees other than merit increases to
employees of the Company who are not directors or officers of
the Company, except in the ordinary course of business and
consistent with past practices;
(10) change in any manner any accounting
principles or methods other than changes which are consistent
with generally accepted accounting principles;
(11) enter into any material commitment or
transaction other than in the ordinary course of business;
(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;
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(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;
(14) agree, whether in writing or otherwise, to do
any of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective
Time, the Company shall (i) except for sales of assets held as inventory, if
any, in the ordinary course of business prior to the Effective Time and except
as otherwise specifically described in the Disclosure Schedules to this
Agreement, have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or indirect
indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations
in the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.
Section 7.3 Access. At all times prior to the Effective Time,
APP's employees, attorneys, accountants, agents and other authorized and
designated representatives will be allowed full access upon reasonable prior
notice and during regular business hours (and at such other times as the
parties may reasonably agree) to the properties, books and records of the
Company, including, without limitation, deeds, title documents, leases, patient
lists, insurance policies, minute books, share certificate books, share
registers, accounts, tax returns, financial statements and all other data that,
in the reasonable opinion of APP, are required for APP to make such
investigation as it may desire of the properties and business of the Company.
APP shall also be allowed full access upon reasonable prior notice and during
regular business hours (and at such other times as the parties may reasonably
agree) to consult with the officers, employees (after announcement by the
Company of the Merger to its employees which shall occur no later than three
(3) days subsequent to execution hereof by the Company), accountants, counsel
and agents of the Company in connection with such investigation of the
properties and business of the Company. No investigation by APP shall diminish
or otherwise affect any of the representations, warranties, covenants or
agreements of the Company under this Agreement. Any access or investigation
referred to in this Section 7.3 shall be conducted in such a manner as to
minimize the disruption to the Company's ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and
shall cause each of its directors, officers, employees or agents not to
directly or indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire
all or a substantial portion of the business, properties or capital stock of
the Company, whether by merger, consolidation, share exchange, business
combination, purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of the Company, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of the Company. If the Company receives any
offer or proposal after the date hereof, written or otherwise, of the type
referred to above, the Company shall promptly inform APP of such offer or
proposal, decline such offer and furnish APP with a copy thereof if such offer
or proposal is in writing.
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Section 7.5 Compliance With Obligations. Prior to the Effective
Time, the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all
material agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly
notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to
terminate employment received from, any salaried or non-hourly, skilled
employee of the Company;
(d) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting the Company which, if pending on the date of this
Agreement, would have been required to have been disclosed to APP hereunder or
which relate to the consummation of the transactions contemplated by this
Agreement;
(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a
material deterioration in the relationship with any Payor or supplier or key
employee of the Company and, if requested by APP, will exert its reasonable
best efforts to restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its
best efforts to obtain the unanimous approval of its Stockholders to the
Merger. In seeking the approval of its Stockholders, the Company shall provide
each Stockholder with the Form S-4 which shall include information as may be
required by applicable law or as APP shall deem appropriate. The Board of
Directors of the Company shall recommend the approval of the Merger by the
Stockholders of the Company. If the Stockholders' approval is not unanimous,
the Company shall give notice to the nonconsenting Stockholders of the action
taken by the consenting Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to
Section 7.8 hereof, the Company will take all action reasonably necessary to
cause the Company to perform its obligations under this Agreement and all
related agreements and to consummate the Merger and other transactions
contemplated hereby and thereby on the terms and conditions set forth in this
Agreement and such agreements; provided, however, that this covenant shall not
require the Company to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein.
Section 7.10 Funding of Accrued Employee Benefits. The Company
hereby covenants and agrees that it will take whatever steps are necessary to
pay for or fund completely any accrued benefits,
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where applicable, or vested accrued benefits for which the Company or any entity
might have any liability whatsoever arising from any tax-qualified plan as
required under applicable law. The Company acknowledges that the purpose and
intent of this covenant is to assure that APP shall have no liability whatsoever
at any time after the Closing Date with respect to any such tax-qualified plan,
unless such plan is merged with a plan sponsored by APP.
Section 7.11 Accounting and Tax Matters. The Company will not
change in any material respect the accounting methods or practices followed by
the Company (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. The Company will
not make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment or consent to any tax
claim or assessment or any waiver of the statute of limitations for any such
claim or assessment. The Company will duly, accurately and timely (without
regard to any extensions of time) file all returns, information statements and
other documents relating to taxes of the Company required to be filed by it,
and pay all taxes required to be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form,
organize and incorporate NewCo in the state of New York, and the articles or
certificate of incorporation and bylaws of NewCo shall be in form and substance
reasonably satisfactory to APP. Except for consummating the Spin-Off
Transaction, NewCo shall not commence business until the Closing Date. On or
prior to the Closing, the Company shall take all actions and execute all
documents, agreements or instruments necessary pursuant to and in compliance
with applicable law to effect the Spin-Off Transaction, including without
limitation, the following: Prior to the Closing, the Company shall transfer to
NewCo good, valid and marketable title to all of the Company's right, title and
interest in and to the Employee Benefit Plans, all contracts and agreements and
other assets listed on the Disclosure Schedules (to be delivered by the Company
prior to Closing, which schedule will be subject to the approval of APP, which
approval shall not be unreasonably withheld) which by law either cannot be
acquired or cannot be used by APP because they relate to the practice of
medicine or radiology, and shall contribute to NewCo such other consideration
and assets of the Company as may be required under applicable law, in exchange
for the issuance by NewCo of shares of NewCo Common Stock, such shares being
all of the issued and outstanding shares of NewCo Common Stock. The Company
shall then distribute the shares of NewCo Common Stock to the Stockholders in
proportion to their respective ownership interest in the Company.
Section 7.13 "F" Reorganization. The Company shall convert its
corporate status from that of a professional medical corporation to that of a
general business corporation in a transaction which will qualify as a tax-free
transaction under Section 368(a)(2)(F) of the Code (the "F" Reorganization").
The Company shall prepare and execute all documents necessary to effectuate the
"F" Reorganization prior to the Closing. At or prior to the Closing, the
Company shall cause an amendment to this Agreement to be executed which will
reflect the changes which result from the "F" Reorganization.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Merger; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
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Section 8.2 Requirements to Effect the Merger and Acquisitions.
APP will use its best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and their authorized representatives to
inspect and, at the Company's sole expense, make copies of all documents,
records and information with respect to the affairs of APP as the Company and
their representatives may reasonably request, all for the sole purpose of
permitting the Company to become familiar with the business and assets and
liabilities of APP. No investigation by the Company or the Stockholders shall
diminish or otherwise affect any of the representations, warranties, covenants
or agreements of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly
inform the Company in writing of (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by APP subsequent to the date of this
Agreement and prior to the Effective Time under any contract, agreement or
investment material to APP's condition (financial or otherwise), operations,
assets, liabilities or business and to which it is subject; (b) any material
adverse change in APP's condition (financial or otherwise), operations, assets,
liabilities or business or (c) defaults or disputes regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP shall use its best
efforts to establish a qualified plan and trust for NewCo, within the meaning
of Section 401(a) and 501(a), respectively, of the Code ("New Qualified Plan")
that will provide benefits comparable (as determined under Section 401(a)(4) of
the Code) to the benefits provided under the qualified plans referenced in the
Disclosure Schedules, if any, sponsored by the Company as of March 31, 1997.
APP will file for a favorable determination letter from the IRS on the New
Qualified Plan and request a favorable determination from the IRS that NewCo is
not a member of an affiliated service group (as defined in Section 414(m) of
the Code) or a recipient organization of leased employee services (as defined
in Section 414(n) of the Code). Any benefits provided under the New Qualified
Plan shall be conditioned on a favorable determination letter from the IRS.
Costs associated with the establishment and design of the New Qualified Plan
shall be paid by APP. The NewCo shall be responsible for funding any
contributions to, or any ongoing administrative costs of, the New Qualified
Plan.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and
file with the SEC the Registration Statements on Form S-1 and Form S-4 (or
other appropriate Forms) to be filed by APP in connection with its Initial
Public Offering and offering of the shares of APP Common Stock to the Target
Interest Holders pursuant to the transactions contemplated by this Agreement
and the Other Agreements (including the prospectus constituting parts thereof,
the "Registration Statements"). APP shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. The Company shall cooperate with
APP in the preparation of the Registration Statements and shall furnish all
information concerning the Company and NewCo as may be reasonably requested in
connection with any such action in a timely manner.
(b) The Company and APP and each separately represent and warrant
that (i) in the case of the Company, none of the written information or
documents supplied or to be supplied by it specifically
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for inclusion in the Registration Statements, by exhibit or otherwise and (ii)
in the case of APP, will, at the time the Registration Statements and each
amendment and supplement thereto, if any, becomes effective under the
Securities Act, none of them contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Company shall be entitled to review the
Registration Statements and each of the amendments thereto, if any, prior to
the time each becomes effective under the Securities Act. The Company shall
have no responsibility for information contained in the Registration Statements
except for information provided by the Company specifically for inclusion
therein. The Company's review of the Registration Statements shall not
diminish or otherwise affect the representations, covenants and warranties of
APP contained in this Agreement.
(c) The Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners,
Stockholders and NewCo, and such other matters as may be reasonably requested
by APP in connection with the preparation of the Registration Statements and
each of the amendments or supplements thereto, or any other statement, filing,
notice or application made by or on behalf of each such party or any of its
subsidiaries to any governmental entity in connection with the Merger and the
other transactions contemplated by this Agreement.
Section 9.2 Amendments of Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to supplement or amend promptly the Disclosure Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on the Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Disclosure Schedule that constitutes or reflects a Material Adverse Effect on
APP may be made unless the Company consents to such amendment or supplement.
For purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have
been fulfilled, the Disclosure Schedules hereto shall be deemed to be the
Disclosure Schedules as amended or supplemented pursuant to this Section 9.2.
In the event that the Company seeks to amend or supplement a Disclosure
Schedule pursuant to this Section 9.2 and APP does not consent to such
amendment or supplement, or APP seeks to amend or supplement a Disclosure
Schedule pursuant to this Section 9.2, and the Company does not consent, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto
will knowingly, either before or after the Merger, take any action that would
prevent the Merger from qualifying as a tax-free exchange within the meaning of
Sections 351 or 368 of the Code, as applicable.
Section 9.4 Public Announcements. The parties hereto will
consult with each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable law, will not issue any
such press release or make any such public statement prior to such
consultation, although the foregoing shall not apply to any disclosure by APP
in any filing with the DOJ, FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be
solely responsible for their own fees and expenses with respect to the
transactions contemplated herein including, without limitation, the fees
charged by attorneys, accountants and financial advisors retained by such
parties. The fees and expenses incurred by the Company and NewCo in connection
with the Merger shall be paid by the Company Stockholders in full immediately
prior to the Closing and such expenses shall be the sole responsibility of the
Stockholders following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all
records and information regarding the patients of the Company and NewCo
confidential in accordance with all applicable laws.
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Section 9.7 Registration Statements. APP shall prepare and file
the Registration Statements with the SEC, and shall use its reasonable good
faith efforts to cause the Registration Statements to become effective under
the Securities Act and take any action required to be taken under the
applicable state Blue Sky or other securities laws in connection with the
issuance of the shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations
and warranties of the Company contained herein and each Stockholder contained
in the Stockholders Representation Letter (as delivered pursuant to Section
10.12 hereof) shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects as of the
Effective Date.
Section 10.2 Covenants. The Company shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have
delivered to APP their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse
Effect on the Company shall have occurred since March 31, 1997, whether or not
such change shall have been caused by the deliberate act or omission of the
Company or any Stockholder.
Section 10.6 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, statements, rule, regulation or ordinance to
consummate the transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statements shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate
the transactions contemplated hereby. The APP Common Stock shall have been
approved for listing on the Nasdaq National Market, subject only to official
notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
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Section 10.11 Dissenter's Rights. The Company shall have satisfied
each of its obligations to its Stockholders regarding dissenters or related
rights under New York Business Corporation Law, and the sum of the amount which
may become due to the Stockholders who have dissented to the Merger and have
indicated their intent to seek appraisal rights plus the cash portion of the
Merger Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties
of the Company and its related entities to be transferred to NewCo pursuant to
the Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician
Employee and such other radiologists whose names are set forth on the
Disclosure Schedules shall have entered into a Physician Employment Agreement
between NewCo and each such Physician Employee in a form reasonably consistent
to the form attached as Exhibit E and satisfactory to APP in its sole
discretion (the "Physician Employment Agreements").
Section 10.15 Completion of "F" Reorganization. The Company shall
have (1) completed the "F" Reorganization, and all transfers and dissolutions
related thereto, and (2) amended this Agreement to reflect changes resulting
from the "F" Reorganization.
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations
and warranties of APP contained herein shall be true and correct in all
material respects when initially made and shall be true and correct in all
material respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in
all material respects with all covenants and conditions required by this
Agreement to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered
to the Company their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, contracts or any statute, rule, regulation or
ordinances to consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The
Registration Statements shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the
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Registration Statements shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC. At or prior to the
Effective Date, APP shall have received all state securities and "Blue Sky"
permits necessary to consummate the transactions contemplated hereby. At or
prior to the Effective Date, the APP Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
Section 11.7 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received
all Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to the Company referred to in Section
12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse
Effect on APP shall have occurred since __________, 1997, whether or not such
change shall have been caused by the deliberate act or omission of APP.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its analysis and opinion, in a
form satisfactory to the Company, that the terms of the Service Agreement are
fair and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from
Haynes and Boone, L.L.P., an opinion regarding the tax consequences of the
transactions contemplated by this Agreement and the other Agreements,
substantially in the form set forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the
Effective Date, the Company shall deliver to APP the following, all of which
shall be in a form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of
the Company authorizing the execution, delivery and performance of this
Agreement and the Service Agreement and all related documents and agreements
and consummation of the Merger, each certified by the Secretary of the Company
as being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of
NewCo authorizing the execution, delivery and performance of the Service
Agreement, the Security Agreement and the Physician Employment Agreements each
certified by the Secretary of NewCo as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(c) a certificate of the President of the Company dated
the Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated
the Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by
the Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and
officers of such corporation and as to the signatures of such directors and
officers who have executed documents delivered at the Closing on behalf of that
corporation;
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(f) certificates, dated within ten (10) days prior to
the Effective Date, of the Secretary of State of New York for the Company and
NewCo establishing that each such corporation is in existence, has paid all
franchise or similar taxes, if any, and, if applicable, otherwise is in good
standing to transact business in the state of New York;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the
form attached hereto as Exhibit F, as revised in accordance with changes
reasonably deemed necessary or advisable by legal counsel retained by APP, the
Company and NewCo in the State of New York to address regulatory and compliance
issues (the "Service Agreement");
(k) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Code, of each Stockholder, signed under a
penalty of perjury and dated as of the Closing Date, to the effect that such
Stockholder is a United States citizen or a resident alien (and thus not a
foreign person) and providing such Stockholder's United States taxpayer
identification number;
(m) an executed Stockholder Release by the Stockholders
in substantially the form attached hereto as Exhibit G (the "Stockholder
Release");
(n) intentionally omitted; and
(o) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of
this Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective
Date, APP shall deliver to the Company the following, all of which shall be in
a form reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of
APP authorizing the execution, delivery and performance of this Agreement, and
all related documents and agreements, certified by APP's Secretary as being
true and correct copies of the originals thereof subject to no modifications or
amendments;
(b) Intentionally omitted;
(c) a certificate of the President of APP dated the
Closing Date as to the truth and correctness of the representations and
warranties of APP contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the
Closing Date, (i) as to the performance and compliance by APP with all
covenants contained herein on and as of the Effective Date and (ii) certifying
that all conditions precedent required to be satisfied by APP shall have been
satisfied;
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(e) a certificate of the Secretary of APP certifying as
to the incumbency and to the signatures of the officers of APP who have
executed documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to
the Effective Date, of the secretary of state of incorporation establishing
that APP is in existence, has paid all franchise or similar taxes, if any, and
otherwise is in good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within
ten (10) days prior to the Effective Date, of the Secretaries of State of the
states in which APP is qualified to do business, to the effect that APP is
qualified to do business and is in good standing as a foreign corporation in
such state;
(h) the executed Service Agreement as revised in
accordance with the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article
II and Exhibit B hereof; and
(k) such other instrument or instruments of transfer
prepared by the Company as shall be necessary or appropriate, as the Company or
its counsel shall reasonably request, to carry out and effect the purpose and
intent of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the
Closing, at the request of APP or the Surviving Corporation and at APP's sole
cost and expense, the Stockholders and the Company shall deliver any further
instruments of transfer and take all reasonable action as may be necessary or
appropriate to carry out the purpose and intent of this Agreement. Following
the Closing, at the request of NewCo and at NewCo's sole cost and expense, APP
or the Surviving Corporation shall deliver any further instruments of transfer
and take all reasonable action as may be necessary and appropriate to carry out
the purpose and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Code, to
report the Merger as a Reorganization and such opinion either is furnished
prior to the Effective Time or is based on facts or events not known at the
Effective Time. Each party shall provide to each other party such tax
information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Merger as a
Reorganization.
(c) The parties agree that no Stockholder shall be liable for any
taxes incurred by the Company and for which APP has successor liability
therefor which arise solely as a result of the Merger or the consummation of
the transactions contemplated hereby; provided that the foregoing shall not
limit
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or otherwise be deemed a waiver of any right of indemnification under Section
14.1 for a breach of any representation, warranty or covenant of the Company or
any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms
and conditions of this Article XIV, the Company agrees to indemnify, defend and
hold APP and its respective directors, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates harmless from and against all
losses, claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, reasonable attorneys' fees and expenses (including, without
limitation, all costs of experts and all costs incidental to or in connection
with any appellate process) (collectively, "Damages") asserted against or
incurred by such individuals and/or entities arising out of or resulting from:
(a) a breach by the Company of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of the
Company contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company
and/or any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons
in which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any (i) untrue
statement of material fact in any Registration Statement or any prospectus
forming or part thereof, or any amendment thereof or supplement thereto
relating to the Company (including any Company Subsidiary) or NewCo required to
be stated therein or (ii) failure to state information necessary to make the
statements therein not misleading, which untrue statement or failure to state
information arises or results solely from information provided in writing to
APP or its counsel by the Company or any Stockholder or their agents
specifically for inclusion in any such Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP. Subject to the terms and
conditions of this Article XIV, APP hereby agrees to indemnify, defend and hold
the Stockholders, the Company and NewCo and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and
Affiliates harmless from and against all Damages asserted against or incurred
by such individuals and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of APP contained in
this Agreement or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon
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any untrue statements of material fact in any Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or required to be stated therein or failure to state information
necessary to make the statements therein not misleading (except for any
liability based upon any actual or alleged untrue statement of material fact or
an omission to state a material fact relating to NewCo, the Company or any
Stockholder which was derived from any information provided in writing by the
Company or a Company Subsidiary or any of their agents contained in the
representations and warranties set forth in this Agreement or any certificate,
exhibit, schedule or instrument required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
any of the parties hereto of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the
Agreement (an "Indemnified Party") shall promptly (and, in the event, at least
ten (10) days prior to the due date for any responsive pleadings, filings or
other documents) (i) notify the party for whom indemnification is sought (the
"Indemnifying Party) of any third-party claim or claims asserted against the
Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying
Party a written notice ("Claim Notice") describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), an estimate of the amount of Damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. The failure to promptly deliver a Claim
Notice shall not relieve any Indemnifying Party of its obligations to any
Indemnified Party with respect to the related Third Party Claim except to the
extent that the resulting delay is materially prejudicial to the defense of
such claim. Within thirty (30) days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(x) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article XIV with respect to such Third Party Claim
and (y) whether the Indemnifying Party desires, at the sole cost and expense of
such Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim.
(b) If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall have
the right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set
forth in Section 14.3(f) below, the Indemnifying Party shall have full control
of such defense and proceedings, including any compromise or settlement
thereof. The Indemnified Party is hereby authorized, at the sole cost and
expense of the Indemnifying Party (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period,
any motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party and not prejudicial to the Indemnifying Party. If requested by the
Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Party, to cooperate with the Indemnifying Party and their
counsel in contesting any Third Party Claim that the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 14.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may
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employ separate counsel at the expense of the Indemnifying Party, and upon
written notification thereof, the Indemnifying Party shall not have the right
to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm
of attorneys at any time for the Indemnified Party, which firm shall be
designated in writing by the Indemnified Party. Notwithstanding the foregoing,
the Indemnifying Party shall be prohibited from confessing or settling any
criminal allegations brought against the Indemnified Party without the express
written consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 14.3(b), or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
14.3(b) but fails diligently and promptly to prosecute or settle the Third
Party Claim, then the Indemnified Party shall have the right to defend, at the
sole cost and expense of the Indemnifying Party (if the Indemnified Party is
entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense and proceedings,
provided, however, that the Indemnified Party may not enter into, without the
Indemnifying Party's consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes their
potential liability to the Indemnified Party under this Article XIV and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all costs and expenses of such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
Section 14.3(c), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation; provided, however, that if the
named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnifying Party
has been advised by counsel that there may be one or more legal defenses
available to it that are different from or additional to those available to the
Indemnified Party, then the Indemnifying Party may employ separate counsel and
upon written notification thereof, the Indemnified Party shall not have the
right to assume the defense of such action on behalf of the Indemnifying Party.
(d) In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder that does not involve a Third
Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the
Indemnified Party within sixty (60) days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes such claim, the claim specified by
the Indemnified Party in the Indemnity Notice shall be deemed a liability of
the Indemnifying Party hereunder. If the Indemnifying Party has timely
disputed such claim, as provided above, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction if the parties do
not reach a settlement of such dispute within thirty (30) days after notice of
a dispute is given.
(e) Payments of all amounts owing by any Indemnifying
Party pursuant to this Article XIV relating to a Third Party Claim shall be
made within thirty (30) days after the latest of (i) the settlement of such
Third Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice
period or (ii) the expiration of the period
A-869
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for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or
compromise a Third Party Claim against an Indemnified Party. If a firm offer
is made to settle such a claim solely by the payment of money damages and the
Indemnifying Party notifies the Indemnified Party in writing that the
Indemnifying Party agrees to such settlement, but the Indemnified Party elects
not to accept and agree to it, the Indemnified Party may continue to contest or
defend such Third Party Claim and, in such event, the total maximum liability
of the Indemnifying Party to indemnify or otherwise reimburse the Indemnified
Party hereunder with respect to such a claim shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable out-of-pocket costs
and reasonable expenses (including reasonable attorneys' fees and
disbursements) to the date of notice that the Indemnifying Party desired to
accept such settlement.
(g) Notwithstanding any provision herein to the contrary,
the obligation of an Indemnifying Party to provide indemnification to an
Indemnified Party for breach of any representation or warranty as provided in
Sections 14.1(a) or 14.2(a) hereof shall not take effect unless and until the
Damages asserted against or incurred in the aggregate and on a collective basis
by the Indemnified Parties pursuant to either Section 14.1 or 14.2 (as
applicable) as a result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount
of any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and
the Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and
delivered by the Company or any Stockholder pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or any
Stockholder fails to comply in any material respect with any material covenant
or agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within thirty (30) days after receipt
of written notice thereof;
(c) at any time prior to the Effective Date by the
Company if any representation or warranty of APP contained in this Agreement or
in any certificate or other document executed and delivered by APP pursuant to
this Agreement is or becomes untrue in any material respect of if APP fails to
comply in any material respect with any covenant or agreement contained herein,
and any such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
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(d) at any time prior to the Effective Date by APP if, as
a result of the conduct of due diligence and regulatory compliance procedures,
APP deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have
been consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in
Section 16.3, in the event this Agreement is terminated pursuant to this
Article XV, this Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo
recognize and acknowledge that each has in the past, currently has, and in the
future may possibly have, access to certain Confidential Information of APP
that is valuable, special and a unique asset of such entity's business. APP
acknowledges that it had in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of the Company and
NewCo that is valuable, special and a unique asset of each such business. The
Company, NewCo and APP, severally, agree that they will not disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to authorized
representatives of APP, NewCo and the Company and (b) to counsel and other
advisers to APP, NewCo and the Company provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 16.1, unless
(i) such information becomes available to or known by the public generally
through no fault of the Company, NewCo or APP, as the case may be, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii) the Company, NewCo or APP, as the case may be, shall, if
possible, give prior written notice thereof to the Company, NewCo or APP and
provide the Company or APP with the opportunity to contest such disclosure,
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, or
(iv) the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Merger or otherwise. In the event of a breach
or threatened breach by the Company, on the one hand, and APP, on the other
hand, of the provisions of this Section, APP, NewCo and the Company shall be
entitled to an injunction restraining the other party, as the case may be, from
disclosing, in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting any of such parties from pursuing any other
available remedy for such breach or threatened breach, including the recovery
of damages.
Section 16.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, NewCo and the Company agree
that, in the event of a breach by either of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
A-871
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Section 17.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by APP to a wholly owned subsidiary of APP; provided that any such
assignment shall not relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP
acknowledges and agrees that the rights and remedies of the Company under this
Agreement will be directly available to the Stockholders as third party
beneficiaries of the rights and remedies of the Company under this Agreement,
including, without limitation, the rights and remedies under Article 14 hereof
to indemnification from APP against Damages incurred by the Stockholders
resulting from a breach by APP of any representation, warranty or covenant of
APP contained herein. Except as provided in the preceding sentence or as
otherwise provided herein, neither this Agreement nor any other agreement
contemplated hereby shall be deemed to confer upon any person not a party
hereto or thereto any rights or remedies hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and
Covenants. The representations, warranties and covenants contained herein
shall survive the Closing and all statements contained in any certificate,
exhibit or other instrument delivered by or on behalf of the Company, any
Stockholder or APP pursuant to this Agreement shall be deemed to have been
representations and warranties by the Company, such Stockholder and APP.
Notwithstanding any provision in this Agreement to the contrary, the
representations and warranties contained herein shall survive the Closing until
the second anniversary of the Closing Date except that (a) the representations
and warranties set forth in Section 3.21 with respect to environmental matters
shall survive for a period of ten (10) years, (b) the representations and
warranties set forth in Section 3.30 with respect to tax matters shall survive
until such time as the limitations period has run for all tax periods ended
prior to the Closing Date, (c) the representations and warranties contained in
Section 3.27 and Section 3.33 with respect to healthcare matters shall survive
for a period of six (6) years and (d) solely for purposes of Section 14.1(c)
and Section 14.2(c), and solely to the extent that any party to be indemnified
pursuant to such provisions actually incurs liability under the Securities Act,
the Exchange Act or any other federal or state securities law, the
representations and warranties set forth therein shall survive until the
expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
A-872
<PAGE> 1234
Section 17.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each
party shall keep this Agreement and its terms confidential, and shall make no
press release or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge and
consent of the other parties hereto; provided that the foregoing shall not
prohibit any disclosure (a) by press release, filing or otherwise that APP has
determined in its good faith judgment and after advice of legal counsel to be
required by federal securities laws or the rules of the National Association of
Securities Dealers, (b) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request
or demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by telex,
telegram or courier service, when delivered to the party to whom notice is
sent, (ii) if delivered by facsimile transmission, when so sent and receipt
acknowledged by receipt or (iii) if delivered by mail (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may
designate by written notice to all other parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Mid Rockland Imaging Associates
18 Squadron Boulevard
New City, New York 10956
Fax No.: (914) 634-6254
Attn: Joel Rosenberg, CPA
A-873
<PAGE> 1235
with a copy to: Drake, Sommers, Loeb, Tarshis &
Catania, P.C.
1 Corwin Court, P.O. Box 1479
Newburgh, New York 12550
Fax. No.: (914) 565-1999
Attn: Steven L. Tarshis, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any
act (except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in
this Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
A-874
<PAGE> 1236
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
------------------------------------
Gregory L. Solomon, President
THE COMPANY:
MID ROCKLAND IMAGING ASSOCIATES, P.C.
By:
------------------------------------
Herbert Z. Geller, M.D.
Its: President
A-875
<PAGE> 1237
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-876
<PAGE> 1238
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-877
<PAGE> 1239
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-878
<PAGE> 1240
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-879
<PAGE> 1241
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
A-880
<PAGE> 1242
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
A-881
<PAGE> 1243
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-882
<PAGE> 1244
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth therein are
delivered in connection with that certain Agreement and Plan of Reorganization
and Merger dated ____________, 1997, by and between American Physician
Partners, Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules correspond
to the section numbers in the Agreement. If disclosures made pursuant to one
section number can reasonably be interpreted by other parties to be a
disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain exceptions to the
representations and warranties set forth in Article III of the Agreement, the
inclusion of an item on these Disclosure Schedules shall not be deemed an
admission by American Physician Partners, Inc. that such item is material to
American Physician Partners, Inc., the Company, NewCo or any Company Subsidiary
or that it will have a material adverse effect on American Physician Partners,
Inc., the Company, NewCo or any Company Subsidiary.
A-883
<PAGE> 1245
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and MID
ROCKLAND IMAGING ASSOCIATES, P.C. (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not have
been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
MID ROCKLAND IMAGING ASSOCIATES, P.C.
By:_________________________________
Its:________________________________
A-884
<PAGE> 1246
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and between
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)
and
NYACK MAGNETIC RESONANCE IMAGING, P.C.
(a New York professional corporation)
================================================================================
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<PAGE> 1247
TABLE OF CONTENTS
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ARTICLE I Definitions.................................................................................. 2
Section 1.1 Definitions................................................................. 2
Section 1.2 Rules Of Interpretation..................................................... 6
ARTICLE II The Merger.................................................................................. 6
Section 2.1 The Merger.................................................................. 6
Section 2.2 The Closing................................................................. 6
Section 2.3 Effective Time.............................................................. 6
Section 2.4 Certificate of Incorporation of Surviving Corporation....................... 6
Section 2.5 Bylaws of Surviving Corporation............................................. 7
Section 2.6 Directors of the Surviving Corporation...................................... 7
Section 2.7 Officers of the Surviving Corporation....................................... 7
Section 2.8 Conversion of Company Common Stock.......................................... 7
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock................................................................ 7
Section 2.10 Fractional Shares........................................................... 8
ARTICLE III Representations and Warranties of the Company.............................................. 8
Section 3.1 Organization and Good Standing; Qualification............................... 8
Section 3.2 Authorization and Validity.................................................. 8
Section 3.3 Governmental Authorization.................................................. 8
Section 3.4 Capitalization.............................................................. 9
Section 3.5 Transactions in Capital Stock............................................... 9
Section 3.6 Continuity of Business Enterprise........................................... 9
Section 3.7 Subsidiaries and Investments................................................ 9
Section 3.8 Absence of Conflicting Agreements or Required Consents...................... 9
Section 3.9 Intentionally omitted....................................................... 9
Section 3.10 Absence of Changes.......................................................... 10
Section 3.11 No Undisclosed Liabilities.................................................. 10
Section 3.12 Litigation and Claims....................................................... 11
Section 3.13 No Violation of Law......................................................... 11
Section 3.14 Lease Agreements............................................................ 11
Section 3.15 Real and Personal Property.................................................. 11
Section 3.16 Indebtedness for Borrowed Money............................................. 12
Section 3.17 Contracts and Commitments................................................... 12
Section 3.18 Employee Matters............................................................ 13
Section 3.19 Labor Relations............................................................. 13
Section 3.20 Employee Benefit Plans...................................................... 14
Section 3.21 Environmental Matters....................................................... 15
Section 3.22 Filing Reports.............................................................. 16
Section 3.23 Insurance Policies.......................................................... 16
Section 3.24 Accounts Receivable; Payors................................................. 17
Section 3.25 Accounts Payable; Suppliers................................................. 17
Section 3.26 Inventory................................................................... 17
Section 3.27 Licenses, Authorization and Provider Programs............................... 18
Section 3.28 Inspections and Investigations.............................................. 18
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Section 3.29 Proprietary Rights and Information.......................................... 19
Section 3.30 Taxes....................................................................... 19
Section 3.31 Related Party Arrangements.................................................. 20
Section 3.32 Banking Relations........................................................... 20
Section 3.33 Fraud and Abuse and Self Referral........................................... 21
Section 3.34 Restrictions on Business Activities......................................... 21
Section 3.35 Agreements in Full Force and Effect......................................... 21
Section 3.36 Statements True and Correct................................................. 21
Section 3.37 Disclosure Schedules........................................................ 21
Section 3.38 Finders' Fees............................................................... 21
ARTICLE IV Representations and Warranties of APP....................................................... 21
Section 4.1 Organization and Good Standing; Qualification............................... 22
Section 4.2 Authorization and Validity.................................................. 22
Section 4.3 Governmental Authorization.................................................. 22
Section 4.4 Capitalization.............................................................. 22
Section 4.5 Subsidiaries and Investments................................................ 23
Section 4.6 Absence of Conflicting Agreements or Required Consents...................... 23
Section 4.7 Absence of Changes.......................................................... 23
Section 4.8 No Undisclosed Liabilities.................................................. 23
Section 4.9 Litigation and Claims....................................................... 23
Section 4.10 No Violation of Law......................................................... 23
Section 4.11 Employee Matters............................................................ 23
Section 4.12 Taxes....................................................................... 24
Section 4.13 Related Party Arrangements.................................................. 25
Section 4.14 Statements True and Correct................................................. 25
Section 4.15 Disclosure Schedules........................................................ 25
Section 4.16 Finder's Fees............................................................... 25
Section 4.17 Agreements in Full Force and Effect......................................... 25
ARTICLE V Closing Date Representations and Warranties of the Company................................... 25
Section 5.1 Organization and Good Standing; Qualification............................... 25
Section 5.2 Capitalization.............................................................. 25
Section 5.3 Corporate Records........................................................... 26
Section 5.4 Authorization and Validity.................................................. 26
Section 5.5 No Violation................................................................ 26
Section 5.6 No Business, Agreements, Assets or Liabilities.............................. 26
Section 5.7 Compliance with Laws........................................................ 26
ARTICLE VI Intentionally Omitted....................................................................... 26
ARTICLE VII Covenants of the Company................................................................... 26
Section 7.1 Conduct of The Company...................................................... 26
Section 7.2 Title to Assets; Indebtedness............................................... 28
Section 7.3 Access...................................................................... 28
Section 7.4 Acquisition Proposals....................................................... 28
Section 7.5 Compliance With Obligations................................................. 29
Section 7.6 Notice of Certain Events.................................................... 29
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Section 7.7 Intentionally omitted....................................................... 29
Section 7.8 Stockholders' Consent....................................................... 29
Section 7.9 Obligations of Company and Stockholders..................................... 29
Section 7.10 Funding of Accrued Employee Benefits........................................ 29
Section 7.11 Accounting and Tax Matters.................................................. 30
Section 7.12 Spin-Off Transaction........................................................ 30
Section 7.13 "F" Reorganization.......................................................... 30
ARTICLE VIII Covenants of APP.......................................................................... 30
Section 8.1 Consummation of Agreement................................................... 30
Section 8.2 Requirements to Effect the Merger and Acquisitions.......................... 31
Section 8.3 Access...................................................................... 31
Section 8.4 Notification of Certain Matters............................................. 31
Section 8.5 Qualified Retirement Plans.................................................. 31
ARTICLE IX Covenants of APP and the Company............................................................ 31
Section 9.1 Filings; Other Action....................................................... 31
Section 9.2 Amendments of Schedules..................................................... 32
Section 9.3 Actions Contrary to Stated Intent........................................... 32
Section 9.4 Public Announcements........................................................ 32
Section 9.5 Expenses.................................................................... 32
Section 9.6 Patient Confidentiality..................................................... 32
Section 9.7 Registration Statements..................................................... 33
ARTICLE X Conditions Precedent of APP.................................................................. 33
Section 10.1 Representations and Warranties.............................................. 33
Section 10.2 Covenants................................................................... 33
Section 10.3 Legal Opinion............................................................... 33
Section 10.4 Proceedings................................................................. 33
Section 10.5 No Material Adverse Effect.................................................. 33
Section 10.6 Government Approvals and Required Consents.................................. 33
Section 10.7 Securities Approvals........................................................ 33
Section 10.8 Closing Deliveries.......................................................... 33
Section 10.9 Closing of Initial Public Offering.......................................... 33
Section 10.10 Closing of Related Acquisitions............................................. 33
Section 10.11 Dissenter's Rights.......................................................... 34
Section 10.12 Stockholder Representation Letter; Indemnification Agreement................ 34
Section 10.13 Transfer of Assets.......................................................... 34
ARTICLE XI Conditions Precedent of the Company......................................................... 34
Section 11.1 Representations and Warranties.............................................. 34
Section 11.2 Covenants................................................................... 34
Section 11.3 Legal Opinions.............................................................. 34
Section 11.4 Proceedings................................................................. 34
Section 11.5 Government Approvals and Required Consents.................................. 34
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing........................................ 34
Section 11.7 Closing of Initial Public Offering.......................................... 35
Section 11.8 Closing Deliveries.......................................................... 35
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Section 11.9 No Material Adverse Effect.................................................. 35
Section 11.10 Service Agreement Analysis.................................................. 35
Section 11.11 Tax Opinion................................................................. 35
ARTICLE XII Closing Deliveries......................................................................... 35
Section 12.1 Deliveries of the Company................................................... 35
Section 12.2 Deliveries of APP. ......................................................... 36
ARTICLE XIII Post Closing Matters...................................................................... 37
Section 13.1 Further Instruments of Transfer............................................. 37
Section 13.2 Merger Tax Covenant......................................................... 37
Section 13.3 Current Public Information.................................................. 38
ARTICLE XIV Remedies................................................................................... 38
Section 14.1 Indemnification by the Company.............................................. 38
Section 14.2 Indemnification by APP...................................................... 38
Section 14.3 Conditions of Indemnification............................................... 39
Section 14.4 Costs, Expenses and Legal Fees.............................................. 41
Section 14.5 Tax Benefits; Insurance Proceeds............................................ 41
ARTICLE XV Termination................................................................................. 41
Section 15.1 Termination................................................................. 41
Section 15.2 Effect of Termination....................................................... 42
ARTICLE XVI Nondisclosure of Confidential Information.................................................. 42
Section 16.1 Non-Disclosure Covenant..................................................... 42
Section 16.2 Damages..................................................................... 42
Section 16.3 Survival.................................................................... 42
ARTICLE XVII Miscellaneous............................................................................. 42
Section 17.1 Amendment; Waivers.......................................................... 42
Section 17.2 Assignment.................................................................. 43
Section 17.3 Parties in Interest; No Third Party Beneficiaries........................... 43
Section 17.4 Entire Agreement............................................................ 43
Section 17.5 Severability................................................................ 43
Section 17.6 Survival of Representations, Warranties and Covenants....................... 43
Section 17.7 Governing Law............................................................... 43
Section 17.8 Captions.................................................................... 43
Section 17.9 Gender and Number........................................................... 44
Section 17.10 Intentionally omitted....................................................... 44
Section 17.11 Confidentiality; Publicity and Disclosures.................................. 44
Section 17.12 Notice...................................................................... 44
Section 17.13 No Waiver; Remedies......................................................... 45
Section 17.14 Counterparts................................................................ 45
Section 17.15 Defined Terms............................................................... 45
</TABLE>
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<TABLE>
<CAPTION>
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EXHIBITS
<S> <C>
Exhibit A - List of Target Companies.................................................................. A-1
Exhibit B - Merger Consideration...................................................................... B-1
Exhibit C - Stockholder Representation Letter......................................................... C-1
Exhibit D - Indemnification Agreement................................................................. D-1
Exhibit E - Physician Employment Agreement ........................................................... E-1
Exhibit F - Service Agreement......................................................................... F-1
Exhibit G - Stockholder Release....................................................................... G-1
</TABLE>
Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP") and NYACK MAGNETIC RESONANCE
IMAGING, P.C., a New York professional corporation (the "Company").
RECITALS
A. The Company owns and operates (i) a professional medical practice(s)
specializing in radiology and (ii) diagnostic imaging centers. All of the shares
of the common stock of the Company (the "Company Common Stock") are owned
beneficially and of record by the Stockholders.
B. APP is engaged in the business of owning, operating and acquiring
the assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that the
Company be merged with and into APP, and that APP be the sole surviving
corporation (sometimes referred to hereinafter as the "Surviving Corporation"),
and the Company be the disappearing corporation (sometimes referred to
hereinafter as the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) the Company will merge
with and into APP upon the terms and conditions set forth herein and in
accordance with the laws of the State of New York and (ii) the outstanding
shares of the Company Common Stock shall be converted at such time into cash and
shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein.
E. Prior to the Merger, the Company intends to transfer certain of its
assets most of which relate solely to the practice of medicine to a [newly
formed professional corporation] ("NewCo") in exchange for all of the capital
stock of NewCo and to thereafter distribute such NewCo stock to the Stockholders
(the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter into,
an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Stockholders, the "Target Interest Holders")
of each of the entities listed on Exhibit A (together with the Company, the
"Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Sections 351 and 368 of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder, as applicable.
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<PAGE> 1253
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, NewCo and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed in Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the recitals
to this Agreement.
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
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"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section 3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section 3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the terms
hereof, as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement is
declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering of
APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section 14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or other
fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA sections 651 et seq.,
(v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
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<PAGE> 1256
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
sections 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock[, $_____ par value per
share,] of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Physician Employee" shall mean each radiologist employed by the
Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the recitals
to this Agreement.
"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
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"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed to
be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into APP
in accordance with this Agreement and the separate corporate existence of the
Disappearing Corporation shall thereupon cease (the "Merger"). APP shall be the
Surviving Corporation in the Merger and shall continue to be governed by the
laws of the State of New York, and the separate corporate existence of the
Company with all its rights, privileges, powers, immunities, purposes and
franchises shall continue unaffected by the Merger, except as set forth herein.
The Surviving Corporation may, at any time concurrent with and/or after the
Effective Time, take any action in the name of or on behalf of the Disappearing
Corporation in order to effectuate the transactions contemplated by this
Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take place
at 10:00 a.m., local time, at the offices of APP located at 2301 NationsBank
Plaza, 901 Main Street, Dallas, Texas on the day on which the transactions
contemplated by the Initial Public Offering are consummated. The date on which
the Closing occurs is hereinafter referred to as the "Closing Date."
Section 2.3 Effective Time. If all the conditions to the Merger set
forth in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section 904
of the New York Business Corporation Law. The Merger shall become effective at
the time of the filing of such documents with the Secretary of State of the
State of New York, in accordance with such law or at such later time which the
parties hereto have theretofore agreed upon and designated in such filings as
the effective time of the Merger (the "Effective Time").
Section 2.4 Certificate of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Certificate of Incorporation of the Company
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation without any amendment or modification
as a result of the Merger.
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Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger.
Section 2.6 Directors of the Surviving Corporation. The persons who are
directors of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time.
Section 2.7 Officers of the Surviving Corporation. The persons who are
officers of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the
part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time shall
be terminated and cancelled, without payment of any consideration therefor, and
shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged and
remain outstanding as a validly issued, fully paid and nonassessable share of
APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock.
(a) At or after the Effective Time and at the Closing (i) the
Stockholders, as holders of a certificate or certificates representing shares of
the Company's Common Stock, shall upon surrender of each certificate or
certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until each
certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at the
Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees
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to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to such Company Common Stock or with
respect to the stock powers accompanying any Company Common Stock. Upon such
delivery (or completion of appropriate affidavit of lost certificate and
indemnity), each Stockholder shall receive in exchange therefor the Merger
Consideration pursuant to Exhibit B and Section 2.10 hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of APP Common Stock will be issued and any
Stockholder otherwise entitled to receive a fractional share of APP Common Stock
as part of the Merger Consideration hereunder shall receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to consummate
the Merger and except as set forth in the Disclosure Schedules attached hereto
and incorporated herein by this reference, the Company represents and warrants
to APP both as of the date hereof and as of the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. The Company and each Company Subsidiary is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all requisite
corporate power to enter into this Agreement and all other agreements entered
into in connection with the transactions contemplated hereby and to consummate
the transactions contemplated hereby. The execution, delivery and, subject to
approval of this Agreement and the Merger by the Stockholders, performance by
the Company of this Agreement and the agreements contemplated herein, and the
consummation by the Company of the transactions contemplated hereby and thereby
are within the Company's respective corporate powers and have been duly
authorized by all necessary action on the part of the Company's Board of
Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby to which the Company is
a party constitute, or upon execution will constitute, valid and binding
agreements of the Company, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting the enforcement of creditors' rights generally, or by general
equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger (as contemplated by Section
2.3) and any other required documents related to the Merger, and other than
consents, filings or notifications required to be made or obtained solely by APP
(including,
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<PAGE> 1260
without limitation, in connection with the Initial Public Offering, Form S-4 or
any Hart-Scott-Rodino filing to be made by APP, if any), the execution, delivery
and performance by the Company of this Agreement and the agreements provided for
herein, and the consummation of the transactions contemplated hereby and thereby
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority.
Section 3.4 Capitalization. The authorized capital stock of the Company
consists of 200 shares of the Company Common Stock, of which 130 shares are
issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the Company has no securities, bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
Section 3.5 Transactions in Capital Stock. There exist no Company
Rights. The Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership of shares
among any of its Stockholders has been altered or changed in contemplation of
the Merger within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the (2) two
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, require any notice under, or accelerate or modify, or permit any
person to accelerate or modify, any performance required by the terms of any
agreement, instrument, license or permit, to which the Company is a party or by
which the Company or any of its properties are subject or bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on the Company; and (v) except as
contemplated by this Agreement, will not create any Encumbrance or restriction
upon the Company Common Stock or any of the assets or properties of the Company.
Section 3.9 Intentionally omitted.
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Section 3.10 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent
with past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or accounting
practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with
past practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable, mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee benefits for
any employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee except
in the ordinary course of business;
(l) declared, set aside or made any payments, dividends or
other distributions to any Stockholder or any other holder of capital stock of
the Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its knowledge,
the Company does not have any liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted except for
liabilities or obligations reflected or reserved against in the Company's
Current Balance Sheet.
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Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder, the Physician Employees or any other licensed professional or other
individual affiliated with the Company affecting or that would reasonably be
likely to affect the Company Common Stock or the operations, business condition,
(financial or otherwise), or results of operations of the Company which (i) if
successful, may, individually or in the aggregate, have a Material Adverse
Effect on the Company or (ii) could adversely affect the ability of the Company
or any Company Subsidiary to effect the transactions contemplated hereby, and to
the knowledge of the Company there is no basis for any such action or any state
of facts or occurrence of any event which would reasonably be likely to give
rise to the foregoing. There are no unsatisfied judgments against the Company or
any Company Subsidiary or any licensed professional or other individual
affiliated with the Company or any Company Subsidiary relating to services
provided on behalf of the Company or any Company Subsidiary or any consent
decrees to which any of the foregoing is subject. Each of the matters, if any,
set forth in this Section 3.12 is fully covered by policies of insurance of the
Company or any Company Subsidiary as in effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any Company
Subsidiary has been, nor shall be as of the Effective Time (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which the Company or any Company Subsidiary is a party and pursuant to which the
Company or any Company Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the operation of its business and which requires payments in excess of
$12,000 per year (the "Lease Agreements"). The Company has delivered to APP true
and complete copies of all of the Lease Agreements. Each Lease Agreement is
valid, effective and in full force in accordance with its terms, and there is
not under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver to
APP in writing such consents as are necessary to effect a valid and binding
transfer or assignment of the Company's or any Company Subsidiary's rights
thereunder. The Company has a good, clear, valid and enforceable leasehold
interest under each of the Lease Agreements. The Lease Agreements comply with
the exceptions to ownership interests and compensation arrangements set out in
42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar applicable
state law safe harbor or other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good title
to all of its properties and assets (real, personal and mixed, tangible and
intangible) and any rights or interests therein
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which it purports to own including, without limitation, all the property and
assets reflected in the Company Current Financial Statements; and (ii) owns such
rights, interests, assets and property free and clear of all Encumbrances, title
defects or objections (except for taxes not yet due and payable). The personal
property presently used in connection with the operation of the business of the
Company and the Company Subsidiaries constitutes the necessary personal property
assets to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, the Company does not have any
direct or indirect indebtedness for borrowed money, including indebtedness by
way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000 in
any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP of the assets and
properties to be acquired by APP from the Company, or which could inhibit or
prevent the Company from transferring to or vesting in APP good and sufficient
title to the assets and properties to be acquired by APP and the Surviving
Corporation except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, the Company
shall, on or before the Closing Date, use reasonable good faith efforts to
obtain and deliver to APP in writing, effective as of the Closing Date, such
consents as are necessary to enable the Surviving Corporation to enjoy all of
the rights now enjoyed by the Company under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to APP
any contracts or agreements relating to the provision of professional medical
services or other such agreements and contracts that APP consents to in writing
to be transferred to NewCo in the Spin-off Transaction. No contract with a
health care provider or Payor has been materially amended or terminated within
the last twelve (12) months.
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(b) The Company (i) has not received notice of any plan or
intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument required to be disclosed pursuant to Section
3.17(a), and to the knowledge of the Company there are no fact(s) that would
justify the exercise of such a right; and (ii) does not currently contemplate,
or have reason to believe any other Person currently contemplates, any amendment
or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a party to
any employment contract (except for oral employment agreements which are
terminable at will), consulting or collective bargaining contracts, deferred
compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected to
receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for it
to the date hereof or amounts required to be reimbursed to such employees. Upon
termination of employment of any employee or Physician Employee, no severance or
other payments will become due and the Company has no policy, past practice or
plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair labor
practice, charge or complaint or any other employment-related matter against or
involving the Company pending or threatened before the National Labor Relations
Board or any federal, state or local agency, authority or court;
(c) To the knowledge of the Company, there are no charges,
investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the Immigration
Reform and Control Act of 1986, as amended, and all applicable regulations
promulgated thereunder; and
(e) To the knowledge of the Company, there are no inquiries,
investigations or monitoring activities of any licensed, registered, or
certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
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Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof (the "Employee Benefit Plans"). The Company has
provided to APP copies of all plan documents (as they may have been amended to
the date hereof), determination letters, pending determination letter
applications, trust instruments, insurance contracts or policies related to an
Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee Benefit
Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any notice that
any Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach of
any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or other
liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the Company's
knowledge, threatened, claims, suits or other proceedings exist with respect to
any Employee Benefit Plan other than normal benefit claims filed by participants
or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or 501(c)(9)
of the Code and/or tax-exempt within the meaning of Section 501(a) of the Code
and, to the best knowledge of the Company and each Stockholder, has been
continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation of
any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency (within
the meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Company is a member (a "Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such plan
are at least equal in value to the present value of accrued benefits determined
on an ongoing basis as of the date hereof. With respect to each Employee Benefit
Plan described in Section 501(c)(9) of the Code, the assets of each such plan
are at least equal in value to the present value of accrued benefits, based upon
the most recent actuarial valuation as of a date no more than ninety (90) days
prior to the date hereof. The Disclosure Schedules
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contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any member of
a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section 412
of the Code.
(j) PBGC. No facts or circumstances are known to the Company
that would result in the imposition of liability against APP or any of its
Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result of
any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any Employee
Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable provisions of ERISA.
(l) Other Compensation Arrangements. Neither the Company nor,
to the Company's knowledge, any Stockholder or Physician Employee is a party to
any compensation or debt arrangement with any Person relating to the provision
of health care related services other than arrangements with the Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has, within
the five (5) years preceding the date hereof, through the Effective Time,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of the Company no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by the Company of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by the Company to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Schedule 3.21(b) discloses any known presence of asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises. To the knowledge of the
Company, there is no friable asbestos in or on the Company's or any Company
Subsidiary's owned or leased premises.
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(c) To the knowledge of the Company, no soil or water in or
under any assets currently or formerly held for use or sale by the Company or
any Company Subsidiary is or has been contaminated by any Hazardous Substance
while such assets or premises were owned, leased, operated or managed, directly
or indirectly by the Company or any Company Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on the
Company.
(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of the Company,
concerning the Company or any Company Subsidiary within the five (5) years
preceding the date hereof through the Effective Time with respect to any real
property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following terms
have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended to
assure the protection of the environment, or that classify, regulate,
call for the remediation of, require reporting with respect to, or list
or define air, water, groundwater, solid waste, hazardous, toxic, or
radioactive substances, materials, wastes, pollutants or contaminants,
or which are intended to assure the safety of employees, workers or
other persons, including the public in each case as in effect on the
date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials and
wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and
briefly describe the Company's policies of insurance to which the Company or any
Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by the
Company or any Company Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
the Company and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as the Company
and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which the Company or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies
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of all Insurance Policies have been provided to APP. Neither the Company nor any
Company Subsidiary nor any officer or director thereof has received any notice
or other written communication from any issuer of any Current Policy cancelling
such policy, materially increasing any deductibles or retained amounts
thereunder, or materially increasing the annual or other premiums payable
thereunder and, to the knowledge of the Company, no such cancellation or
increase of deductibles, retainages or premiums is threatened. There are no
outstanding claims, settlements or premiums owed against any Insurance Policy,
and all required notices have been given and all known potential or actual
claims under any Insurance Policy have been presented in due and timely fashion.
Within the five (5) years preceding the Agreement, neither the Company nor any
Company Subsidiary has filed a written application for any professional
liability insurance coverage which has been denied by an insurance agency or
carrier. The Disclosure Schedules also set forth a list of all claims under any
Insurance Policy in excess of $10,000 per occurrence filed by the Company or any
Company Subsidiary during the immediately preceding three-year period. Each
Physician Employee has, at all times while a Physician Employee, maintained or
been covered by professional malpractice insurance in such types and amounts as
are customary for such a physician practicing the same type of medicine in the
same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of all
accounts receivable of the Company as of March 31, 1997, which list is complete,
true and accurate in all material respects. All such accounts receivable arose
in the ordinary course of business and have not been previously written off as
bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements or
on the accounting records of the Company (which reserves are calculated
consistent with generally accepted accounting principles and past practice).
(b) The Disclosure Schedules set forth (i) a true, correct and
complete list of the names and addresses of each Payor of the Company as of such
date, which accounted for more than 5% of the revenues of the Company in the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for more than 5% of the revenues of the Company for the fiscal year to end
December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i)
list of the accounts payable of the Company as of March 31, 1997, and (ii) list
of each individual indebtedness owed by the Company of $5,000 or more, setting
forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company Current
Balance Sheet contained in the Company Financial Statements consisted, and all
such items on hand on the date of this Agreement consist, and all such items on
hand at the Effective Time will consist, net of all applicable reserves with
respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory
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are not materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or practice his or her specialty and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which the Company is eligible and which are listed in the Disclosure Schedules
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any private
insurance program) under which the Company is presently receiving payments
directly or indirectly from any Payor for patient care provided by such
Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to APP.
No violation, default, order or deficiency exists with respect to any of the
items listed in the Disclosure Schedules except for such violations, defaults,
orders or deficiencies which would not be reasonably likely to have a Material
Adverse Effect on the Company, and there is no action pending or to the
Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program, and
no event has occurred which, with or without notice or lapse of time, or both,
would constitute grounds for a violation, order or deficiency with respect to
any of the items listed in the Disclosure Schedules to revoke, withdraw or
suspend any material license to operate its business as is presently being
conducted by it. To the knowledge of the Company, there has been no decision not
to renew any existing agreement with any provider or Payor relating to the
Company's business as presently being conducted by it. Neither the Company nor
any Physician Employee (i) has had his/her/its professional license, Drug
Enforcement Agency number, Medicare/Medicaid provider status or staff privileges
at any hospital or diagnostic imaging center suspended, relinquished, terminated
or revoked (including orders that have been entered by any such entities but
stayed), (ii) has been reprimanded in writing, sentenced, or disciplined by any
licensing board, state agency, regulatory body or authority, hospital, Payor or
specialty board (including orders that have been entered by any such entities
but stayed), or (iii) is the subject of an initial or final determination by any
federal or state authority that could result in any demand or reimbursement
under the Medicare, Medicaid or Government Programs or any exclusion or which
monetary penalty under federal or state law or (iv) has had a final judgment or
settlement entered against him/her/it in connection with a malpractice or
similar action.
(b) The Company is not required, or for the 72-month period
prior to the Effective Time was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of the
Company, or any Physician Employee, nor the right of any licensed professional
or other individual affiliated with the Company to receive reimbursements
pursuant to any Governmental Program or Private Program has been terminated or
otherwise materially and adversely affected as a result of any investigation or
action whether by any federal or state governmental regulatory authority or
other third party. No Physician Employee, licensed professional or other
individual affiliated with the business has, during the past three (3) years
prior to the Effective Time, had their professional license or staff privileges
limited, suspended or revoked by any governmental regulatory authority or
agency, hospital, integrated delivery system, trade association, professional
review organization, accrediting organization or certifying agency
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(including orders that have been entered by any such entities but stayed). True,
correct and complete copies of all reports, correspondence, notices and other
documents relating to any matter described or referenced in this Section 3.28
have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v) other
similar agreements relating to the foregoing to which the Company or any Company
Subsidiary is a party (including expiration date if applicable) (collectively,
the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate
list and summary description of all agreements relating to technology, trade
secrets, know-how or processes that the Company is licensed or authorized to use
by others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of the Company, no
claim has been asserted by any person to the ownership of or for infringement by
the Company of any Proprietary Right of any other Person, and neither the
Company nor any Stockholder is aware of any valid basis for any such claim. To
the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) the Company has paid all
taxes, penalties, assessments and interest that have become due with respect to
any Tax Returns that it has filed and has properly accrued on its books and
records in accordance with generally accepted accounting principles for all of
the same that have not yet become due and payable and (ii) the Company is not
delinquent in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
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assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated any
applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not
granted an extension to any taxing authority of the statute of limitation period
during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder is
a foreign person, as such term is referred to in Section 1445(f)(3) of the Code
and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of the
Company constitutes property that the Company, APP or any Affiliate of APP, will
be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties of the
Company are subject to a lease to a "tax exempt entity" as such term is defined
in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated in
or cooperated with any international boycott as defined in Section 999 of the
Code.
(k) Parachute Payments. No payment required or contemplated to
be made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to the
Company's business. There is no commitment to, and no income reflected in the
Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure Schedules
is a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such
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as checking account, borrowing arrangements, safe deposit box, etc.) and the
Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the Company nor
any Company Subsidiary has engaged and, to the knowledge of the Company, neither
the Company's officers and directors nor the Physician Employees or other
Persons and entities providing professional services for or on behalf of the
Company have engaged, in any activities which are prohibited under 42 U.S.C.
Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. sections 24, 287, 371, 664, 669, 1001,
1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company, any
Company Subsidiary or officer, director or key employee of the Company or
Company Subsidiary, which has or reasonably could be expected to have the effect
of prohibiting or materially impairing the current medical practice of the
Company or any Company Subsidiary or the continuation of that medical practice
in the future by NewCo, any acquisition of property by the Company, any Company
Subsidiary or the conduct of business by the Company or any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of the Company, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by the Company or any other party thereto. No
contract with a Physician Employee has been terminated in the last twelve (12)
months.
Section 3.36 Statements True and Correct. No representation or warranty
made herein by the Company or any Stockholder, nor any statement, certificate,
information, exhibit or instrument to be furnished by the Company or any
Stockholder to APP or any of its respective representatives pursuant to this
Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required by
Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of any
of the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
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Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the Merger
and the transactions contemplated hereby, all of which have been or will be made
available to the Company for review, are true, correct and complete as in effect
on the date of this Agreement and accurately reflect all material proceedings of
the stockholders and directors of APP (and all committees thereof) regarding the
Merger and the transactions contemplated hereby. The stock record books of APP,
which have been or will be made available to the Company for review, contain
true, complete and accurate records of the stock ownership of APP and the
transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and the Other Agreements and to
consummate the Merger and the transactions contemplated hereby. The execution,
delivery and performance by APP of this Agreement and the agreements provided
for herein, including the Other Agreements and the consummation by APP of the
transactions contemplated hereby and thereby are within APP's corporate powers
and have been duly authorized by all necessary action on the part of APP's Board
of Directors. This Agreement has and the Other Agreements have been duly
executed by APP. This Agreement and all other agreements and obligations entered
into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements of APP, enforceable against it in
accordance with their respective terms, except as may be limited by bankruptcy
or other laws affecting creditors' rights generally, or by general equity
principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the Merger and the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of [20,000,000] shares of APP Common Stock, of which [2,000,000] shares
are issued and outstanding and [10,000,000] shares of APP Preferred Stock, none
of which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
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Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or obligation accrued, contingent or
otherwise, that is reasonably likely to have a Material Adverse Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of
the Effective Time (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever), in violation of
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business or
its advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
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Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted an
extension to any taxing authority of the limitation period during which any tax
liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP Common
Stock is a foreign person, as such term is referred to in Section 1445(f)(3) of
the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated to
be made by APP will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed as
an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
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Section 4.13 Related Party Arrangements. The Disclosure Schedules or
Form S-4 sets forth a description of any interest held, directly or indirectly,
by any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to the Company or a Stockholder pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules required by
Article IV hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to such
agreements, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true and
correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo is a
professional corporation duly organized, validly existing and in good standing
under the laws of its state of organization, with all requisite corporate power
and authority to carry on the business in which it intends to engage, to own the
properties it intends to own, and to execute and deliver the Service Agreement,
the Security Agreement and the Physician Employment Agreements and consummate
the transactions and perform the services contemplated thereby. NewCo is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its intended business makes such qualification
necessary, which jurisdictions are listed in the Disclosure Schedules, except
where the failure to be so qualified shall not have a Material Adverse Effect on
NewCo.
Section 5.2 Capitalization. The authorized capital stock of NewCo
consists of [_____] shares of NewCo Common Stock, of which [______] shares are
issued and outstanding, and no shares of capital stock of NewCo are held in
treasury. The Stockholders own all of the issued and outstanding shares of NewCo
Common Stock, free and clear of any Encumbrance. Each outstanding share of NewCo
Common Stock has been legally and validly issued and is fully paid and
nonassessable. There exist no options, warrants, subscriptions or other rights
to purchase, or securities convertible into or exchangeable for, any of the
authorized or outstanding securities of NewCo. No shares of capital stock of
NewCo have been issued or disposed of in violation of the preemptive rights,
rights of first refusal or similar rights of any of NewCo's stockholders.
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Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and complete
copies thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery and
performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict with
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities. NewCo has
not commenced business since its incorporation. Other than its articles or
certificate of incorporation and bylaws, and as of the Closing Date, the Service
Agreement, the Security Agreement, the Physician Employment Agreements, and the
other contracts and agreements assigned to NewCo as part of the Spin-Off
Transaction, NewCo is not a party to or subject to any agreement, indenture or
other instrument. NewCo does not own any assets (tangible or intangible) other
than the consideration received upon the issuance of shares of its capital stock
or pursuant to the Spin-Off Transaction, and NewCo does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted) other than those assumed pursuant to the Spin-Off Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure to
so comply or file would not, individually or in the aggregate, have a Material
Adverse Effect on NewCo.
ARTICLE VI
Intentionally Omitted.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant to the
Spin-Off Transaction or the "F" Reorganization, from the date hereof until the
Effective Time, the Company shall, in all material respects, conduct its
business in the ordinary and usual course consistent with past practices and
shall use reasonable efforts to:
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(a) preserve intact its business and its relationships with
Payors, referral sources, customers, suppliers, patients, employees and others
having business relations with it;
(b) maintain and keep its properties and assets in good repair
and condition consistent with past practice as is material to the conduct of the
business of the Company;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of
incorporation or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not
limited to, by way of stock split, dividend, recapitalization
or other reclassification) or any subscriptions, options,
warrants, rights or convertible securities, or enter into any
agreements or commitments of any character obligating it to
issue or sell any such securities;
(3) redeem, purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock or any option,
warrant or other right to purchase or acquire any such shares;
(4) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its
capital stock (except as expressly contemplated herein);
(5) voluntarily sell, transfer, surrender, abandon or
dispose of any of its assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the
ordinary course of business consistent with past practices;
(6) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge
or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital expenditures
which are not reasonably necessary for the conduct of its
business;
(9) grant any increase in the compensation payable or
to become payable to directors, officers, consultants or
employees other than merit increases to employees of the
Company who are not directors or officers of the Company,
except in the ordinary course of business and consistent with
past practices;
(10) change in any manner any accounting principles
or methods other than changes which are consistent with
generally accepted accounting principles;
(11) enter into any material commitment or
transaction other than in the ordinary course of business;
(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;
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(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;
(14) agree, whether in writing or otherwise, to do
any of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time,
the Company shall (i) except for sales of assets held as inventory, if any, in
the ordinary course of business prior to the Effective Time and except as
otherwise specifically described in the Disclosure Schedules to this Agreement,
have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or indirect
indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations in
the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, share certificate books, share registers,
accounts, tax returns, financial statements and all other data that, in the
reasonable opinion of APP, are required for APP to make such investigation as it
may desire of the properties and business of the Company. APP shall also be
allowed full access upon reasonable prior notice and during regular business
hours (and at such other times as the parties may reasonably agree) to consult
with the officers, employees (after announcement by the Company of the Merger to
its employees which shall occur no later than three (3) days subsequent to
execution hereof by the Company), accountants, counsel and agents of the Company
in connection with such investigation of the properties and business of the
Company. No investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall be
conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall
cause each of its directors, officers, employees or agents not to directly or
indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or capital stock of the
Company, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of the Company, or, without APP's prior written approval, afford
to any Person other than APP and its agents access to the properties, books or
records of the Company. If the Company receives any offer or proposal after the
date hereof, written or otherwise, of the type referred to above, the Company
shall promptly inform APP of such offer or proposal, decline such offer and
furnish APP with a copy thereof if such offer or proposal is in writing.
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Section 7.5 Compliance With Obligations. Prior to the Effective Time,
the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly notify
APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
the Company which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best
efforts to obtain the unanimous approval of its Stockholders to the Merger. In
seeking the approval of its Stockholders, the Company shall provide each
Stockholder with the Form S-4 which shall include information as may be required
by applicable law or as APP shall deem appropriate. The Board of Directors of
the Company shall recommend the approval of the Merger by the Stockholders of
the Company. If the Stockholders' approval is not unanimous, the Company shall
give notice to the nonconsenting Stockholders of the action taken by the
consenting Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to Section
7.8 hereof, the Company will take all action reasonably necessary to cause the
Company to perform its obligations under this Agreement and all related
agreements and to consummate the Merger and other transactions contemplated
hereby and thereby on the terms and conditions set forth in this Agreement and
such agreements; provided, however, that this covenant shall not require the
Company to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
Section 7.10 Funding of Accrued Employee Benefits. The Company hereby
covenants and agrees that it will take whatever steps are necessary to pay for
or fund completely any accrued benefits,
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where applicable, or vested accrued benefits for which the Company or any entity
might have any liability whatsoever arising from any tax-qualified plan as
required under applicable law. The Company acknowledges that the purpose and
intent of this covenant is to assure that APP shall have no liability whatsoever
at any time after the Closing Date with respect to any such tax-qualified plan,
unless such plan is merged with a plan sponsored by APP.
Section 7.11 Accounting and Tax Matters. The Company will not change in
any material respect the accounting methods or practices followed by the Company
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. The Company will not make
any material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (without regard to any extensions of
time) file all returns, information statements and other documents relating to
taxes of the Company required to be filed by it, and pay all taxes required to
be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form, organize and
incorporate NewCo in the state of New York, and the articles or certificate of
incorporation and bylaws of NewCo shall be in form and substance reasonably
satisfactory to APP. Except for consummating the Spin-Off Transaction, NewCo
shall not commence business until the Closing Date. On or prior to the Closing,
the Company shall take all actions and execute all documents, agreements or
instruments necessary pursuant to and in compliance with applicable law to
effect the Spin-Off Transaction, including without limitation, the following:
Prior to the Closing, the Company shall transfer to NewCo good, valid and
marketable title to all of the Company's right, title and interest in and to the
Employee Benefit Plans, all contracts and agreements and other assets listed on
the Disclosure Schedules (to be delivered by the Company prior to Closing, which
schedule will be subject to the approval of APP, which approval shall not be
unreasonably withheld) which by law either cannot be acquired or cannot be used
by APP because they relate to the practice of medicine or radiology, and shall
contribute to NewCo such other consideration and assets of the Company as may be
required under applicable law, in exchange for the issuance by NewCo of shares
of NewCo Common Stock, such shares being all of the issued and outstanding
shares of NewCo Common Stock. The Company shall then distribute the shares of
NewCo Common Stock to the Stockholders in proportion to their respective
ownership interest in the Company.
Section 7.13 "F" Reorganization. The Company shall convert its
corporate status from that of a professional medical corporation to that of a
general business corporation in a transaction which will qualify as a tax-free
transaction under Section 368(a)(2)(F) of the Code (the "F" Reorganization").
The Company shall prepare and execute all documents necessary to effectuate the
"F" Reorganization prior to the Closing. At or prior to the Closing, the Company
shall cause an amendment to this Agreement to be executed which will reflect the
changes which result from the "F" Reorganization.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Merger; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
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Section 8.2 Requirements to Effect the Merger and Acquisitions. APP
will use its best efforts to take, or cause to be taken, all actions necessary
to effect the Merger under applicable law, including without limitation the
filing with the appropriate government officials of all necessary documents in
form approved by counsel for the parties to this Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and their authorized representatives to inspect
and, at the Company's sole expense, make copies of all documents, records and
information with respect to the affairs of APP as the Company and their
representatives may reasonably request, all for the sole purpose of permitting
the Company to become familiar with the business and assets and liabilities of
APP. No investigation by the Company or the Stockholders shall diminish or
otherwise affect any of the representations, warranties, covenants or agreements
of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly inform
the Company in writing of (a) any notice of, or other communication relating to,
a default or event that, with notice or lapse of time or both, would become a
default, received by APP subsequent to the date of this Agreement and prior to
the Effective Time under any contract, agreement or investment material to APP's
condition (financial or otherwise), operations, assets, liabilities or business
and to which it is subject; (b) any material adverse change in APP's condition
(financial or otherwise), operations, assets, liabilities or business or (c)
defaults or disputes regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP shall use its best efforts
to establish a qualified plan and trust for NewCo, within the meaning of Section
401(a) and 501(a), respectively, of the Code ("New Qualified Plan") that will
provide benefits comparable (as determined under Section 401(a)(4) of the Code)
to the benefits provided under the qualified plans referenced in the Disclosure
Schedules, if any, sponsored by the Company as of March 31, 1997. APP will file
for a favorable determination letter from the IRS on the New Qualified Plan and
request a favorable determination from the IRS that NewCo is not a member of an
affiliated service group (as defined in Section 414(m) of the Code) or a
recipient organization of leased employee services (as defined in Section 414(n)
of the Code). Any benefits provided under the New Qualified Plan shall be
conditioned on a favorable determination letter from the IRS. Costs associated
with the establishment and design of the New Qualified Plan shall be paid by
APP. The NewCo shall be responsible for funding any contributions to, or any
ongoing administrative costs of, the New Qualified Plan.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare
and file with the SEC the Registration Statements on Form S-1 and Form S-4 (or
other appropriate Forms) to be filed by APP in connection with its Initial
Public Offering and offering of the shares of APP Common Stock to the Target
Interest Holders pursuant to the transactions contemplated by this Agreement and
the Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. The Company shall cooperate with APP in the
preparation of the Registration Statements and shall furnish all information
concerning the Company and NewCo as may be reasonably requested in connection
with any such action in a timely manner.
(b) The Company and APP and each separately represent and
warrant that (i) in the case of the Company, none of the written information or
documents supplied or to be supplied by it specifically
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for inclusion in the Registration Statements, by exhibit or otherwise and (ii)
in the case of APP, will, at the time the Registration Statements and each
amendment and supplement thereto, if any, becomes effective under the Securities
Act, none of them contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Company shall be entitled to review the Registration
Statements and each of the amendments thereto, if any, prior to the time each
becomes effective under the Securities Act. The Company shall have no
responsibility for information contained in the Registration Statements except
for information provided by the Company specifically for inclusion therein. The
Company's review of the Registration Statements shall not diminish or otherwise
affect the representations, covenants and warranties of APP contained in this
Agreement.
(c) The Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners,
Stockholders and NewCo, and such other matters as may be reasonably requested by
APP in connection with the preparation of the Registration Statements and each
of the amendments or supplements thereto, or any other statement, filing, notice
or application made by or on behalf of each such party or any of its
subsidiaries to any governmental entity in connection with the Merger and the
other transactions contemplated by this Agreement.
Section 9.2 Amendments of Schedules. Each party hereto agrees that,
with respect to the representations and warranties of such party contained in
this Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly the Disclosure Schedules with respect to
any matter that would have been or would be required to be set forth or
described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on the Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Disclosure Schedule that constitutes or reflects a Material Adverse Effect on
APP may be made unless the Company consents to such amendment or supplement. For
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have been
fulfilled, the Disclosure Schedules hereto shall be deemed to be the Disclosure
Schedules as amended or supplemented pursuant to this Section 9.2. In the event
that the Company seeks to amend or supplement a Disclosure Schedule pursuant to
this Section 9.2 and APP does not consent to such amendment or supplement, or
APP seeks to amend or supplement a Disclosure Schedule pursuant to this Section
9.2, and the Company does not consent, this Agreement shall be deemed terminated
by mutual consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Sections
351 or 368 of the Code, as applicable.
Section 9.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company and NewCo in connection with the Merger
shall be paid by the Company Stockholders in full immediately prior to the
Closing and such expenses shall be the sole responsibility of the Stockholders
following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all
records and information regarding the patients of the Company and NewCo
confidential in accordance with all applicable laws.
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Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as delivered pursuant to Section 10.12
hereof) shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Effective
Date.
Section 10.2 Covenants. The Company shall have performed and complied
in all material respects with all covenants required by this Agreement to be
performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have delivered
to APP their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse Effect on
the Company shall have occurred since March 31, 1997, whether or not such change
shall have been caused by the deliberate act or omission of the Company or any
Stockholder.
Section 10.6 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, statements, rule, regulation or ordinance to consummate the
transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all Disclosure
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
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Section 10.11 Dissenter's Rights. The Company shall have satisfied each
of its obligations to its Stockholders regarding dissenters or related rights
under New York Business Corporation Law, and the sum of the amount which may
become due to the Stockholders who have dissented to the Merger and have
indicated their intent to seek appraisal rights plus the cash portion of the
Merger Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties of
the Company and its related entities to be transferred to NewCo pursuant to the
Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician Employee
and such other radiologists whose names are set forth on the Disclosure
Schedules shall have entered into a Physician Employment Agreement between NewCo
and each such Physician Employee in a form reasonably consistent to the form
attached as Exhibit E and satisfactory to APP in its sole discretion (the
"Physician Employment Agreements").
Section 10.15 Completion of "F" Reorganization. The Company shall have
(1) completed the "F" Reorganization, and all transfers and dissolutions related
thereto, and (2) amended this Agreement to reflect changes resulting from the
"F" Reorganization.
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered to the
Company their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, contracts or any statute, rule, regulation or ordinances to
consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the
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Registration Statements shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC. At or prior to the
Effective Date, APP shall have received all state securities and "Blue Sky"
permits necessary to consummate the transactions contemplated hereby. At or
prior to the Effective Date, the APP Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to the Company referred to in Section 12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect on
APP shall have occurred since __________, 1997, whether or not such change shall
have been caused by the deliberate act or omission of APP.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its analysis and opinion, in a
form satisfactory to the Company, that the terms of the Service Agreement are
fair and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from Haynes
and Boone, L.L.P., an opinion regarding the tax consequences of the transactions
contemplated by this Agreement and the other Agreements, substantially in the
form set forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Effective
Date, the Company shall deliver to APP the following, all of which shall be in a
form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
and the Service Agreement and all related documents and agreements and
consummation of the Merger, each certified by the Secretary of the Company as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of NewCo
authorizing the execution, delivery and performance of the Service Agreement,
the Security Agreement and the Physician Employment Agreements each certified by
the Secretary of NewCo as being true and correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of the Company dated the
Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the
Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by the
Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and officers
of such corporation and as to the signatures of such directors and officers who
have executed documents delivered at the Closing on behalf of that corporation;
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(f) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretary of State of New York for the Company and NewCo
establishing that each such corporation is in existence, has paid all franchise
or similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in the state of New York;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the form
attached hereto as Exhibit F, as revised in accordance with changes reasonably
deemed necessary or advisable by legal counsel retained by APP, the Company and
NewCo in the State of New York to address regulatory and compliance issues (the
"Service Agreement");
(k) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to
in Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty
of perjury and dated as of the Closing Date, to the effect that such Stockholder
is a United States citizen or a resident alien (and thus not a foreign person)
and providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit G (the "Stockholder Release");
(n) intentionally omitted; and
(o) such other instrument or instruments of transfer prepared
by APP as shall be necessary or appropriate, as APP or its counsel shall
reasonably request, to carry out and effect the purpose and intent of this
Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective Date, APP
shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) Intentionally omitted;
(c) a certificate of the President of APP dated the Closing
Date as to the truth and correctness of the representations and warranties of
APP contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the Closing
Date, (i) as to the performance and compliance by APP with all covenants
contained herein on and as of the Effective Date and (ii) certifying that all
conditions precedent required to be satisfied by APP shall have been satisfied;
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(e) a certificate of the Secretary of APP certifying as to the
incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the
Effective Date, of the secretary of state of incorporation establishing that APP
is in existence, has paid all franchise or similar taxes, if any, and otherwise
is in good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten
(10) days prior to the Effective Date, of the Secretaries of State of the states
in which APP is qualified to do business, to the effect that APP is qualified to
do business and is in good standing as a foreign corporation in such state;
(h) the executed Service Agreement as revised in accordance
with the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II and
Exhibit B hereof; and
(k) such other instrument or instruments of transfer prepared
by the Company as shall be necessary or appropriate, as the Company or its
counsel shall reasonably request, to carry out and effect the purpose and intent
of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing, at
the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing, at
the request of NewCo and at NewCo's sole cost and expense, APP or the Surviving
Corporation shall deliver any further instruments of transfer and take all
reasonable action as may be necessary and appropriate to carry out the purpose
and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and records
shall be maintained, and all Tax Returns and schedules thereto shall be filed in
a manner consistent with the Merger being treated as a Reorganization. These
obligations are excused as to a party required to maintain the books or file a
Tax Return if such party has provided to the other parties a written opinion of
competent tax counsel to the effect that there is not substantial authority,
within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report the Merger
as a Reorganization and such opinion either is furnished prior to the Effective
Time or is based on facts or events not known at the Effective Time. Each party
shall provide to each other party such tax information, reports, returns, or
schedules as may be reasonably required to assist such party in accounting for
and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any taxes
incurred by the Company and for which APP has successor liability therefor which
arise solely as a result of the Merger or the consummation of the transactions
contemplated hereby; provided that the foregoing shall not limit
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or otherwise be deemed a waiver of any right of indemnification under Section
14.1 for a breach of any representation, warranty or covenant of the Company or
any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms and
conditions of this Article XIV, the Company agrees to indemnify, defend and hold
APP and its respective directors, officers, stockholders, employees, agents,
attorneys, consultants and Affiliates harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, reasonable attorneys' fees and expenses (including, without limitation,
all costs of experts and all costs incidental to or in connection with any
appellate process) (collectively, "Damages") asserted against or incurred by
such individuals and/or entities arising out of or resulting from:
(a) a breach by the Company of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of the Company
contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company and/or
any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statement
of material fact in any Registration Statement or any prospectus forming or part
thereof, or any amendment thereof or supplement thereto relating to the Company
(including any Company Subsidiary) or NewCo required to be stated therein or
(ii) failure to state information necessary to make the statements therein not
misleading, which untrue statement or failure to state information arises or
results solely from information provided in writing to APP or its counsel by the
Company or any Stockholder or their agents specifically for inclusion in any
such Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP. Subject to the terms and
conditions of this Article XIV, APP hereby agrees to indemnify, defend and hold
the Stockholders, the Company and NewCo and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and Affiliates
harmless from and against all Damages asserted against or incurred by such
individuals and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty (without
giving effect to any Material Adverse Effect qualifier contained as part of any
such representation or warranty) or covenant of APP contained in this Agreement
or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon
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any untrue statements of material fact in any Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or required to be stated therein or failure to state information
necessary to make the statements therein not misleading (except for any
liability based upon any actual or alleged untrue statement of material fact or
an omission to state a material fact relating to NewCo, the Company or any
Stockholder which was derived from any information provided in writing by the
Company or a Company Subsidiary or any of their agents contained in the
representations and warranties set forth in this Agreement or any certificate,
exhibit, schedule or instrument required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
any of the parties hereto of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement (an
"Indemnified Party") shall promptly (and, in the event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party for whom indemnification is sought (the "Indemnifying
Party) of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of Damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve any
Indemnifying Party of its obligations to any Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within thirty (30) days
after receipt of any Claim Notice (the "Election Period"), the Indemnifying
Party shall notify the Indemnified Party (x) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XIV
with respect to such Third Party Claim and (y) whether the Indemnifying Party
desires, at the sole cost and expense of such Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set forth
in Section 14.3(f) below, the Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. The
Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 14.3(b) and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may
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employ separate counsel at the expense of the Indemnifying Party, and upon
written notification thereof, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 14.3(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 14.3(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes their potential liability to the Indemnified
Party under this Article XIV and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 14.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Article XIV relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice period
or (ii) the expiration of the period
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for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
agrees to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding any provision herein to the contrary, the
obligation of an Indemnifying Party to provide indemnification to an Indemnified
Party for breach of any representation or warranty as provided in Sections
14.1(a) or 14.2(a) hereof shall not take effect unless and until the Damages
asserted against or incurred in the aggregate and on a collective basis by the
Indemnified Parties pursuant to either Section 14.1 or 14.2 (as applicable) as a
result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the
Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or any Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any Stockholder
fails to comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(c) at any time prior to the Effective Date by the Company if
any representation or warranty of APP contained in this Agreement or in any
certificate or other document executed and delivered by APP pursuant to this
Agreement is or becomes untrue in any material respect of if APP fails to comply
in any material respect with any covenant or agreement contained herein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
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(d) at any time prior to the Effective Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in Section
16.3, in the event this Agreement is terminated pursuant to this Article XV,
this Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo recognize
and acknowledge that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP that is
valuable, special and a unique asset of such entity's business. APP acknowledges
that it had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of the Company and NewCo that is
valuable, special and a unique asset of each such business. The Company, NewCo
and APP, severally, agree that they will not disclose such Confidential
Information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
APP, NewCo and the Company and (b) to counsel and other advisers to APP, NewCo
and the Company provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 16.1, unless (i) such information
becomes available to or known by the public generally through no fault of the
Company, NewCo or APP, as the case may be, (ii) disclosure is required by law or
the order of any governmental authority under color of law, provided, that prior
to disclosing any information pursuant to this clause (ii) the Company, NewCo or
APP, as the case may be, shall, if possible, give prior written notice thereof
to the Company, NewCo or APP and provide the Company or APP with the opportunity
to contest such disclosure, (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party, or (iv) the disclosing party is the sole and exclusive
owner of such Confidential Information as a result of the Merger or otherwise.
In the event of a breach or threatened breach by the Company, on the one hand,
and APP, on the other hand, of the provisions of this Section, APP, NewCo and
the Company shall be entitled to an injunction restraining the other party, as
the case may be, from disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting any of such
parties from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
Section 16.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, NewCo and the Company agree that, in the event of
a breach by either of them of the foregoing covenant, the covenant may be
enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
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Section 17.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP acknowledges
and agrees that the rights and remedies of the Company under this Agreement will
be directly available to the Stockholders as third party beneficiaries of the
rights and remedies of the Company under this Agreement, including, without
limitation, the rights and remedies under Article 14 hereof to indemnification
from APP against Damages incurred by the Stockholders resulting from a breach by
APP of any representation, warranty or covenant of APP contained herein. Except
as provided in the preceding sentence or as otherwise provided herein, neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder or APP
pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder and APP. Notwithstanding any
provision in this Agreement to the contrary, the representations and warranties
contained herein shall survive the Closing until the second anniversary of the
Closing Date except that (a) the representations and warranties set forth in
Section 3.21 with respect to environmental matters shall survive for a period of
ten (10) years, (b) the representations and warranties set forth in Section 3.30
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.27 and Section 3.33 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 14.1(c) and Section 14.2(c), and solely to
the extent that any party to be indemnified pursuant to such provisions actually
incurs liability under the Securities Act, the Exchange Act or any other federal
or state securities law, the representations and warranties set forth therein
shall survive until the expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
A-933
<PAGE> 1295
Section 17.9 Gender and Number. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Mid Rockland Imaging Associates
18 Squadron Boulevard
New City, New York 10956
Fax No.: (914) 634-6254
Attn: Joel Rosenberg, CPA
A-934
<PAGE> 1296
with a copy to: Drake, Sommers, Loeb, Tarshis & Catania, P.C.
1 Corwin Court, P.O. Box 1479
Newburgh, New York 12550
Fax. No.: (914) 565-1999
Attn: Steven L. Tarshis, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
A-935
<PAGE> 1297
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________________
Gregory L. Solomon, President
THE COMPANY:
NYACK MAGNETIC RESONANCE IMAGING, P.C.
By:_________________________________________
Herbert Z. Geller, M.D.
Its: President
A-936
<PAGE> 1298
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-937
<PAGE> 1299
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-938
<PAGE> 1300
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-939
<PAGE> 1301
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-940
<PAGE> 1302
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
A-941
<PAGE> 1303
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
A-942
<PAGE> 1304
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-943
<PAGE> 1305
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth therein are
delivered in connection with that certain Agreement and Plan of Reorganization
and Merger dated ____________, 1997, by and between American Physician Partners,
Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules correspond
to the section numbers in the Agreement. If disclosures made pursuant to one
section number can reasonably be interpreted by other parties to be a disclosure
to another section number, such disclosure shall constitute disclosure for
purposes of such additional section number. Capitalized terms used herein have
the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain exceptions to the
representations and warranties set forth in Article III of the Agreement, the
inclusion of an item on these Disclosure Schedules shall not be deemed an
admission by American Physician Partners, Inc. that such item is material to
American Physician Partners, Inc., the Company, NewCo or any Company Subsidiary
or that it will have a material adverse effect on American Physician Partners,
Inc., the Company, NewCo or any Company Subsidiary.
A-944
<PAGE> 1306
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and NYACK
MAGNETIC RESONANCE IMAGING, P.C. (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not have
been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
NYACK MAGNETIC RESONANCE IMAGING, P.C.
By:_________________________________
Its:________________________________
A-945
<PAGE> 1307
===============================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and between
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)
and
PELHAM IMAGING ASSOCIATES, P.C.
(a New York professional corporation)
===============================================================================
A-946
<PAGE> 1308
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
ARTICLE I Definitions.................................................................................. 2
Section 1.1 Definitions................................................................. 2
Section 1.2 Rules Of Interpretation..................................................... 6
ARTICLE II The Merger.................................................................................. 6
Section 2.1 The Merger.................................................................. 6
Section 2.2 The Closing................................................................. 6
Section 2.3 Effective Time.............................................................. 6
Section 2.4 Certificate of Incorporation of Surviving Corporation....................... 6
Section 2.5 Bylaws of Surviving Corporation............................................. 7
Section 2.6 Directors of the Surviving Corporation...................................... 7
Section 2.7 Officers of the Surviving Corporation....................................... 7
Section 2.8 Conversion of Company Common Stock.......................................... 7
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock................................................................ 7
Section 2.10 Fractional Shares........................................................... 8
ARTICLE III Representations and Warranties of the Company.............................................. 8
Section 3.1 Organization and Good Standing; Qualification............................... 8
Section 3.2 Authorization and Validity.................................................. 8
Section 3.3 Governmental Authorization.................................................. 8
Section 3.4 Capitalization.............................................................. 9
Section 3.5 Transactions in Capital Stock............................................... 9
Section 3.6 Continuity of Business Enterprise........................................... 9
Section 3.7 Subsidiaries and Investments................................................ 9
Section 3.8 Absence of Conflicting Agreements or Required Consents...................... 9
Section 3.9 Intentionally omitted....................................................... 9
Section 3.10 Absence of Changes.......................................................... 10
Section 3.11 No Undisclosed Liabilities.................................................. 10
Section 3.12 Litigation and Claims....................................................... 11
Section 3.13 No Violation of Law......................................................... 11
Section 3.14 Lease Agreements............................................................ 11
Section 3.15 Real and Personal Property.................................................. 11
Section 3.16 Indebtedness for Borrowed Money............................................. 12
Section 3.17 Contracts and Commitments................................................... 12
Section 3.18 Employee Matters............................................................ 13
Section 3.19 Labor Relations............................................................. 13
Section 3.20 Employee Benefit Plans...................................................... 14
Section 3.21 Environmental Matters....................................................... 15
Section 3.22 Filing Reports.............................................................. 16
Section 3.23 Insurance Policies.......................................................... 16
Section 3.24 Accounts Receivable; Payors................................................. 17
Section 3.25 Accounts Payable; Suppliers................................................. 17
Section 3.26 Inventory................................................................... 17
Section 3.27 Licenses, Authorization and Provider Programs............................... 18
Section 3.28 Inspections and Investigations.............................................. 18
</TABLE>
A-947
<PAGE> 1309
<TABLE>
<CAPTION>
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Section 3.29 Proprietary Rights and Information.......................................... 19
Section 3.30 Taxes....................................................................... 19
Section 3.31 Related Party Arrangements.................................................. 20
Section 3.32 Banking Relations........................................................... 20
Section 3.33 Fraud and Abuse and Self Referral........................................... 21
Section 3.34 Restrictions on Business Activities......................................... 21
Section 3.35 Agreements in Full Force and Effect......................................... 21
Section 3.36 Statements True and Correct................................................. 21
Section 3.37 Disclosure Schedules........................................................ 21
Section 3.38 Finders' Fees............................................................... 21
ARTICLE IV Representations and Warranties of APP....................................................... 21
Section 4.1 Organization and Good Standing; Qualification............................... 22
Section 4.2 Authorization and Validity.................................................. 22
Section 4.3 Governmental Authorization.................................................. 22
Section 4.4 Capitalization.............................................................. 22
Section 4.5 Subsidiaries and Investments................................................ 23
Section 4.6 Absence of Conflicting Agreements or Required Consents...................... 23
Section 4.7 Absence of Changes.......................................................... 23
Section 4.8 No Undisclosed Liabilities.................................................. 23
Section 4.9 Litigation and Claims....................................................... 23
Section 4.10 No Violation of Law......................................................... 23
Section 4.11 Employee Matters............................................................ 23
Section 4.12 Taxes....................................................................... 24
Section 4.13 Related Party Arrangements.................................................. 25
Section 4.14 Statements True and Correct................................................. 25
Section 4.15 Disclosure Schedules........................................................ 25
Section 4.16 Finder's Fees............................................................... 25
Section 4.17 Agreements in Full Force and Effect......................................... 25
ARTICLE V Closing Date Representations and Warranties of the Company................................... 25
Section 5.1 Organization and Good Standing; Qualification............................... 25
Section 5.2 Capitalization.............................................................. 25
Section 5.3 Corporate Records........................................................... 26
Section 5.4 Authorization and Validity.................................................. 26
Section 5.5 No Violation................................................................ 26
Section 5.6 No Business, Agreements, Assets or Liabilities.............................. 26
Section 5.7 Compliance with Laws........................................................ 26
ARTICLE VI Intentionally Omitted....................................................................... 26
ARTICLE VII Covenants of the Company................................................................... 26
Section 7.1 Conduct of The Company...................................................... 26
Section 7.2 Title to Assets; Indebtedness............................................... 28
Section 7.3 Access...................................................................... 28
Section 7.4 Acquisition Proposals....................................................... 28
Section 7.5 Compliance With Obligations................................................. 29
Section 7.6 Notice of Certain Events.................................................... 29
</TABLE>
A-948
<PAGE> 1310
<TABLE>
<CAPTION>
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Section 7.7 Intentionally omitted....................................................... 29
Section 7.8 Stockholders' Consent....................................................... 29
Section 7.9 Obligations of Company and Stockholders..................................... 29
Section 7.10 Funding of Accrued Employee Benefits........................................ 29
Section 7.11 Accounting and Tax Matters.................................................. 30
Section 7.12 Spin-Off Transaction........................................................ 30
Section 7.13 "F" Reorganization.......................................................... 30
ARTICLE VIII Covenants of APP.......................................................................... 30
Section 8.1 Consummation of Agreement................................................... 30
Section 8.2 Requirements to Effect the Merger and Acquisitions.......................... 31
Section 8.3 Access...................................................................... 31
Section 8.4 Notification of Certain Matters............................................. 31
Section 8.5 Qualified Retirement Plans.................................................. 31
ARTICLE IX Covenants of APP and the Company............................................................ 31
Section 9.1 Filings; Other Action....................................................... 31
Section 9.2 Amendments of Schedules..................................................... 32
Section 9.3 Actions Contrary to Stated Intent........................................... 32
Section 9.4 Public Announcements........................................................ 32
Section 9.5 Expenses.................................................................... 32
Section 9.6 Patient Confidentiality..................................................... 32
Section 9.7 Registration Statements..................................................... 33
ARTICLE X Conditions Precedent of APP.................................................................. 33
Section 10.1 Representations and Warranties.............................................. 33
Section 10.2 Covenants................................................................... 33
Section 10.3 Legal Opinion............................................................... 33
Section 10.4 Proceedings................................................................. 33
Section 10.5 No Material Adverse Effect.................................................. 33
Section 10.6 Government Approvals and Required Consents.................................. 33
Section 10.7 Securities Approvals........................................................ 33
Section 10.8 Closing Deliveries.......................................................... 33
Section 10.9 Closing of Initial Public Offering.......................................... 33
Section 10.10 Closing of Related Acquisitions............................................. 33
Section 10.11 Dissenter's Rights.......................................................... 34
Section 10.12 Stockholder Representation Letter; Indemnification Agreement................ 34
Section 10.13 Transfer of Assets.......................................................... 34
ARTICLE XI Conditions Precedent of the Company......................................................... 34
Section 11.1 Representations and Warranties.............................................. 34
Section 11.2 Covenants................................................................... 34
Section 11.3 Legal Opinions.............................................................. 34
Section 11.4 Proceedings................................................................. 34
Section 11.5 Government Approvals and Required Consents.................................. 34
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing........................................ 34
Section 11.7 Closing of Initial Public Offering.......................................... 35
Section 11.8 Closing Deliveries.......................................................... 35
</TABLE>
A-949
<PAGE> 1311
<TABLE>
<CAPTION>
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Section 11.9 No Material Adverse Effect.................................................. 35
Section 11.10 Service Agreement Analysis.................................................. 35
Section 11.11 Tax Opinion................................................................. 35
ARTICLE XII Closing Deliveries......................................................................... 35
Section 12.1 Deliveries of the Company................................................... 35
Section 12.2 Deliveries of APP. ......................................................... 36
ARTICLE XIII Post Closing Matters...................................................................... 37
Section 13.1 Further Instruments of Transfer............................................. 37
Section 13.2 Merger Tax Covenant......................................................... 37
Section 13.3 Current Public Information.................................................. 38
ARTICLE XIV Remedies................................................................................... 38
Section 14.1 Indemnification by the Company.............................................. 38
Section 14.2 Indemnification by APP...................................................... 38
Section 14.3 Conditions of Indemnification............................................... 39
Section 14.4 Costs, Expenses and Legal Fees.............................................. 41
Section 14.5 Tax Benefits; Insurance Proceeds............................................ 41
ARTICLE XV Termination................................................................................. 41
Section 15.1 Termination................................................................. 41
Section 15.2 Effect of Termination....................................................... 42
ARTICLE XVI Nondisclosure of Confidential Information.................................................. 42
Section 16.1 Non-Disclosure Covenant..................................................... 42
Section 16.2 Damages..................................................................... 42
Section 16.3 Survival.................................................................... 42
ARTICLE XVII Miscellaneous............................................................................. 42
Section 17.1 Amendment; Waivers.......................................................... 42
Section 17.2 Assignment.................................................................. 43
Section 17.3 Parties in Interest; No Third Party Beneficiaries........................... 43
Section 17.4 Entire Agreement............................................................ 43
Section 17.5 Severability................................................................ 43
Section 17.6 Survival of Representations, Warranties and Covenants....................... 43
Section 17.7 Governing Law............................................................... 43
Section 17.8 Captions.................................................................... 43
Section 17.9 Gender and Number........................................................... 44
Section 17.10 Intentionally omitted....................................................... 44
Section 17.11 Confidentiality; Publicity and Disclosures.................................. 44
Section 17.12 Notice...................................................................... 44
Section 17.13 No Waiver; Remedies......................................................... 45
Section 17.14 Counterparts................................................................ 45
Section 17.15 Defined Terms............................................................... 45
</TABLE>
A-950
<PAGE> 1312
<TABLE>
<CAPTION>
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<S> <C>
EXHIBITS
Exhibit A - List of Target Companies............................................................................A-1
Exhibit B - Merger Consideration................................................................................B-1
Exhibit C - Stockholder Representation Letter...................................................................C-1
Exhibit D - Indemnification Agreement...........................................................................D-1
Exhibit E - Physician Employment Agreement .....................................................................E-1
Exhibit F - Service Agreement...................................................................................F-1
Exhibit G - Stockholder Release.................................................................................G-1
Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
</TABLE>
A-951
<PAGE> 1313
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP") and PELHAM IMAGING ASSOCIATES,
P.C., a New York professional corporation (the "Company").
RECITALS
A. The Company owns and operates (i) a professional medical practice(s)
specializing in radiology and (ii) diagnostic imaging centers. All of the shares
of the common stock of the Company (the "Company Common Stock") are owned
beneficially and of record by the Stockholders.
B. APP is engaged in the business of owning, operating and acquiring
the assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that the
Company be merged with and into APP, and that APP be the sole surviving
corporation (sometimes referred to hereinafter as the "Surviving Corporation"),
and the Company be the disappearing corporation (sometimes referred to
hereinafter as the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) the Company will merge
with and into APP upon the terms and conditions set forth herein and in
accordance with the laws of the State of New York and (ii) the outstanding
shares of the Company Common Stock shall be converted at such time into cash and
shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein.
E. Prior to the Merger, the Company intends to transfer certain of its
assets most of which relate solely to the practice of medicine to a [newly
formed professional corporation] ("NewCo") in exchange for all of the capital
stock of NewCo and to thereafter distribute such NewCo stock to the Stockholders
(the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter into,
an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Stockholders, the "Target Interest Holders")
of each of the entities listed on Exhibit A (together with the Company, the
"Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Sections 351 and 368 of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder, as applicable.
A-952
<PAGE> 1314
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, NewCo and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed in Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the recitals
to this Agreement.
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
A-953
<PAGE> 1315
"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section 3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section 3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the terms
hereof, as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement is
declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
A-954
<PAGE> 1316
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering of
APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section
14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or other
fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA SectionSection 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA SectionSection 1401
et seq., (iv) The Occupational Safety and Health Act, 29 USCA SectionSection 651
et seq., (v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
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"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
SectionSection 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock[, $_____ par value per
share,] of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Physician Employee" shall mean each radiologist employed by the
Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the
recitals to this Agreement.
"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
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"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed to
be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into APP
in accordance with this Agreement and the separate corporate existence of the
Disappearing Corporation shall thereupon cease (the "Merger"). APP shall be the
Surviving Corporation in the Merger and shall continue to be governed by the
laws of the State of New York, and the separate corporate existence of the
Company with all its rights, privileges, powers, immunities, purposes and
franchises shall continue unaffected by the Merger, except as set forth herein.
The Surviving Corporation may, at any time concurrent with and/or after the
Effective Time, take any action in the name of or on behalf of the Disappearing
Corporation in order to effectuate the transactions contemplated by this
Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take place
at 10:00 a.m., local time, at the offices of APP located at 2301 NationsBank
Plaza, 901 Main Street, Dallas, Texas on the day on which the transactions
contemplated by the Initial Public Offering are consummated. The date on which
the Closing occurs is hereinafter referred to as the "Closing Date."
Section 2.3 Effective Time. If all the conditions to the Merger set
forth in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section 904
of the New York Business Corporation Law. The Merger shall become effective at
the time of the filing of such documents with the Secretary of State of the
State of New York, in accordance with such law or at such later time which the
parties hereto have theretofore agreed upon and designated in such filings as
the effective time of the Merger (the "Effective Time").
Section 2.4 Certificate of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Certificate of Incorporation of the Company
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation without any amendment or modification
as a result of the Merger.
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Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger.
Section 2.6 Directors of the Surviving Corporation. The persons who are
directors of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time.
Section 2.7 Officers of the Surviving Corporation. The persons who are
officers of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the
part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time shall
be terminated and cancelled, without payment of any consideration therefor, and
shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged and
remain outstanding as a validly issued, fully paid and nonassessable share of
APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the
Company Common Stock.
(a) At or after the Effective Time and at the Closing (i) the
Stockholders, as holders of a certificate or certificates representing shares of
the Company's Common Stock, shall upon surrender of each certificate or
certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until each
certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at the
Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees
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to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to such Company Common Stock or with
respect to the stock powers accompanying any Company Common Stock. Upon such
delivery (or completion of appropriate affidavit of lost certificate and
indemnity), each Stockholder shall receive in exchange therefor the Merger
Consideration pursuant to Exhibit B and Section 2.10 hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of APP Common Stock will be issued and any
Stockholder otherwise entitled to receive a fractional share of APP Common Stock
as part of the Merger Consideration hereunder shall receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to consummate
the Merger and except as set forth in the Disclosure Schedules attached hereto
and incorporated herein by this reference, the Company represents and warrants
to APP both as of the date hereof and as of the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. The Company and each Company Subsidiary is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all requisite
corporate power to enter into this Agreement and all other agreements entered
into in connection with the transactions contemplated hereby and to consummate
the transactions contemplated hereby. The execution, delivery and, subject to
approval of this Agreement and the Merger by the Stockholders, performance by
the Company of this Agreement and the agreements contemplated herein, and the
consummation by the Company of the transactions contemplated hereby and thereby
are within the Company's respective corporate powers and have been duly
authorized by all necessary action on the part of the Company's Board of
Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby to which the Company is
a party constitute, or upon execution will constitute, valid and binding
agreements of the Company, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting the enforcement of creditors' rights generally, or by general
equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger (as contemplated by Section
2.3) and any other required documents related to the Merger, and other than
consents, filings or notifications required to be made or obtained solely by APP
(including,
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without limitation, in connection with the Initial Public Offering, Form S-4 or
any Hart-Scott-Rodino filing to be made by APP, if any), the execution, delivery
and performance by the Company of this Agreement and the agreements provided for
herein, and the consummation of the transactions contemplated hereby and thereby
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority.
Section 3.4 Capitalization. The authorized capital stock of the Company
consists of 200 shares of the Company Common Stock, of which 130 shares are
issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the Company has no securities, bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
Section 3.5 Transactions in Capital Stock. There exist no Company
Rights. The Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership of shares
among any of its Stockholders has been altered or changed in contemplation of
the Merger within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the (2) two
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, require any notice under, or accelerate or modify, or permit any
person to accelerate or modify, any performance required by the terms of any
agreement, instrument, license or permit, to which the Company is a party or by
which the Company or any of its properties are subject or bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on the Company; and (v) except as
contemplated by this Agreement, will not create any Encumbrance or restriction
upon the Company Common Stock or any of the assets or properties of the Company.
Section 3.9 Intentionally omitted.
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Section 3.10 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent
with past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with
past practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable, mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee benefits
for any employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends or
other distributions to any Stockholder or any other holder of capital stock of
the Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its knowledge,
the Company does not have any liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted except for
liabilities or obligations reflected or reserved against in the Company's
Current Balance Sheet.
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Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder, the Physician Employees or any other licensed professional or other
individual affiliated with the Company affecting or that would reasonably be
likely to affect the Company Common Stock or the operations, business condition,
(financial or otherwise), or results of operations of the Company which (i) if
successful, may, individually or in the aggregate, have a Material Adverse
Effect on the Company or (ii) could adversely affect the ability of the Company
or any Company Subsidiary to effect the transactions contemplated hereby, and to
the knowledge of the Company there is no basis for any such action or any state
of facts or occurrence of any event which would reasonably be likely to give
rise to the foregoing. There are no unsatisfied judgments against the Company or
any Company Subsidiary or any licensed professional or other individual
affiliated with the Company or any Company Subsidiary relating to services
provided on behalf of the Company or any Company Subsidiary or any consent
decrees to which any of the foregoing is subject. Each of the matters, if any,
set forth in this Section 3.12 is fully covered by policies of insurance of the
Company or any Company Subsidiary as in effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any Company
Subsidiary has been, nor shall be as of the Effective Time (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which the Company or any Company Subsidiary is a party and pursuant to which the
Company or any Company Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the operation of its business and which requires payments in excess of
$12,000 per year (the "Lease Agreements"). The Company has delivered to APP true
and complete copies of all of the Lease Agreements. Each Lease Agreement is
valid, effective and in full force in accordance with its terms, and there is
not under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver to
APP in writing such consents as are necessary to effect a valid and binding
transfer or assignment of the Company's or any Company Subsidiary's rights
thereunder. The Company has a good, clear, valid and enforceable leasehold
interest under each of the Lease Agreements. The Lease Agreements comply with
the exceptions to ownership interests and compensation arrangements set out in
42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar applicable
state law safe harbor or other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein
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which it purports to own including, without limitation, all the property and
assets reflected in the Company Current Financial Statements; and (ii) owns such
rights, interests, assets and property free and clear of all Encumbrances, title
defects or objections (except for taxes not yet due and payable). The personal
property presently used in connection with the operation of the business of the
Company and the Company Subsidiaries constitutes the necessary personal property
assets to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, the Company does not have any
direct or indirect indebtedness for borrowed money, including indebtedness by
way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000 in
any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP of the assets and
properties to be acquired by APP from the Company, or which could inhibit or
prevent the Company from transferring to or vesting in APP good and sufficient
title to the assets and properties to be acquired by APP and the Surviving
Corporation except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, the Company
shall, on or before the Closing Date, use reasonable good faith efforts to
obtain and deliver to APP in writing, effective as of the Closing Date, such
consents as are necessary to enable the Surviving Corporation to enjoy all of
the rights now enjoyed by the Company under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to APP
any contracts or agreements relating to the provision of professional medical
services or other such agreements and contracts that APP consents to in writing
to be transferred to NewCo in the Spin-off Transaction. No contract with a
health care provider or Payor has been materially amended or terminated within
the last twelve (12) months.
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(b) The Company (i) has not received notice of any plan or
intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument required to be disclosed pursuant to Section
3.17(a), and to the knowledge of the Company there are no fact(s) that would
justify the exercise of such a right; and (ii) does not currently contemplate,
or have reason to believe any other Person currently contemplates, any amendment
or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a party to
any employment contract (except for oral employment agreements which are
terminable at will), consulting or collective bargaining contracts, deferred
compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected to
receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for it
to the date hereof or amounts required to be reimbursed to such employees. Upon
termination of employment of any employee or Physician Employee, no severance or
other payments will become due and the Company has no policy, past practice or
plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair labor
practice, charge or complaint or any other employment-related matter against or
involving the Company pending or threatened before the National Labor Relations
Board or any federal, state or local agency, authority or court;
(c) To the knowledge of the Company, there are no charges,
investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the Immigration
Reform and Control Act of 1986, as amended, and all applicable regulations
promulgated thereunder; and
(e) To the knowledge of the Company, there are no inquiries,
investigations or monitoring activities of any licensed, registered, or
certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
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Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof (the "Employee Benefit Plans"). The Company has
provided to APP copies of all plan documents (as they may have been amended to
the date hereof), determination letters, pending determination letter
applications, trust instruments, insurance contracts or policies related to an
Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee Benefit
Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any notice that
any Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach of
any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or other
liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the Company's
knowledge, threatened, claims, suits or other proceedings exist with respect to
any Employee Benefit Plan other than normal benefit claims filed by participants
or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or 501(c)(9)
of the Code and/or tax-exempt within the meaning of Section 501(a) of the Code
and, to the best knowledge of the Company and each Stockholder, has been
continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation of
any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency (within
the meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Company is a member (a "Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such plan
are at least equal in value to the present value of accrued benefits determined
on an ongoing basis as of the date hereof. With respect to each Employee Benefit
Plan described in Section 501(c)(9) of the Code, the assets of each such plan
are at least equal in value to the present value of accrued benefits, based upon
the most recent actuarial valuation as of a date no more than ninety (90) days
prior to the date hereof. The Disclosure Schedules
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contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any member of
a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section 412
of the Code.
(j) PBGC. No facts or circumstances are known to the Company
that would result in the imposition of liability against APP or any of its
Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result of
any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any Employee
Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable provisions of ERISA.
(l) Other Compensation Arrangements. Neither the Company nor,
to the Company's knowledge, any Stockholder or Physician Employee is a party to
any compensation or debt arrangement with any Person relating to the provision
of health care related services other than arrangements with the Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has, within
the five (5) years preceding the date hereof, through the Effective Time,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of the Company no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by the Company of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by the Company to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Schedule 3.21(b) discloses any known presence of asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises. To the knowledge of the
Company, there is no friable asbestos in or on the Company's or any Company
Subsidiary's owned or leased premises.
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(c) To the knowledge of the Company, no soil or water in or
under any assets currently or formerly held for use or sale by the Company or
any Company Subsidiary is or has been contaminated by any Hazardous Substance
while such assets or premises were owned, leased, operated or managed, directly
or indirectly by the Company or any Company Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on the
Company.
(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of the Company,
concerning the Company or any Company Subsidiary within the five (5) years
preceding the date hereof through the Effective Time with respect to any real
property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following
terms have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended to
assure the protection of the environment, or that classify, regulate,
call for the remediation of, require reporting with respect to, or list
or define air, water, groundwater, solid waste, hazardous, toxic, or
radioactive substances, materials, wastes, pollutants or contaminants,
or which are intended to assure the safety of employees, workers or
other persons, including the public in each case as in effect on the
date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials and
wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and
briefly describe the Company's policies of insurance to which the Company or any
Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by the
Company or any Company Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
the Company and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as the Company
and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which the Company or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies
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of all Insurance Policies have been provided to APP. Neither the Company nor any
Company Subsidiary nor any officer or director thereof has received any notice
or other written communication from any issuer of any Current Policy cancelling
such policy, materially increasing any deductibles or retained amounts
thereunder, or materially increasing the annual or other premiums payable
thereunder and, to the knowledge of the Company, no such cancellation or
increase of deductibles, retainages or premiums is threatened. There are no
outstanding claims, settlements or premiums owed against any Insurance Policy,
and all required notices have been given and all known potential or actual
claims under any Insurance Policy have been presented in due and timely fashion.
Within the five (5) years preceding the Agreement, neither the Company nor any
Company Subsidiary has filed a written application for any professional
liability insurance coverage which has been denied by an insurance agency or
carrier. The Disclosure Schedules also set forth a list of all claims under any
Insurance Policy in excess of $10,000 per occurrence filed by the Company or any
Company Subsidiary during the immediately preceding three-year period. Each
Physician Employee has, at all times while a Physician Employee, maintained or
been covered by professional malpractice insurance in such types and amounts as
are customary for such a physician practicing the same type of medicine in the
same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of all
accounts receivable of the Company as of March 31, 1997, which list is complete,
true and accurate in all material respects. All such accounts receivable arose
in the ordinary course of business and have not been previously written off as
bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements or
on the accounting records of the Company (which reserves are calculated
consistent with generally accepted accounting principles and past practice).
(b) The Disclosure Schedules set forth (i) a true, correct and
complete list of the names and addresses of each Payor of the Company as of such
date, which accounted for more than 5% of the revenues of the Company in the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for more than 5% of the revenues of the Company for the fiscal year to end
December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i)
list of the accounts payable of the Company as of March 31, 1997, and (ii) list
of each individual indebtedness owed by the Company of $5,000 or more, setting
forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company Current
Balance Sheet contained in the Company Financial Statements consisted, and all
such items on hand on the date of this Agreement consist, and all such items on
hand at the Effective Time will consist, net of all applicable reserves with
respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory
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are not materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or practice his or her specialty and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which the Company is eligible and which are listed in the Disclosure Schedules
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any private
insurance program) under which the Company is presently receiving payments
directly or indirectly from any Payor for patient care provided by such
Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to APP.
No violation, default, order or deficiency exists with respect to any of the
items listed in the Disclosure Schedules except for such violations, defaults,
orders or deficiencies which would not be reasonably likely to have a Material
Adverse Effect on the Company, and there is no action pending or to the
Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program, and
no event has occurred which, with or without notice or lapse of time, or both,
would constitute grounds for a violation, order or deficiency with respect to
any of the items listed in the Disclosure Schedules to revoke, withdraw or
suspend any material license to operate its business as is presently being
conducted by it. To the knowledge of the Company, there has been no decision not
to renew any existing agreement with any provider or Payor relating to the
Company's business as presently being conducted by it. Neither the Company nor
any Physician Employee (i) has had his/her/its professional license, Drug
Enforcement Agency number, Medicare/Medicaid provider status or staff privileges
at any hospital or diagnostic imaging center suspended, relinquished, terminated
or revoked (including orders that have been entered by any such entities but
stayed), (ii) has been reprimanded in writing, sentenced, or disciplined by any
licensing board, state agency, regulatory body or authority, hospital, Payor or
specialty board (including orders that have been entered by any such entities
but stayed), or (iii) is the subject of an initial or final determination by any
federal or state authority that could result in any demand or reimbursement
under the Medicare, Medicaid or Government Programs or any exclusion or which
monetary penalty under federal or state law or (iv) has had a final judgment or
settlement entered against him/her/it in connection with a malpractice or
similar action.
(b) The Company is not required, or for the 72-month period
prior to the Effective Time was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of the
Company, or any Physician Employee, nor the right of any licensed professional
or other individual affiliated with the Company to receive reimbursements
pursuant to any Governmental Program or Private Program has been terminated or
otherwise materially and adversely affected as a result of any investigation or
action whether by any federal or state governmental regulatory authority or
other third party. No Physician Employee, licensed professional or other
individual affiliated with the business has, during the past three (3) years
prior to the Effective Time, had their professional license or staff privileges
limited, suspended or revoked by any governmental regulatory authority or
agency, hospital, integrated delivery system, trade association, professional
review organization, accrediting organization or certifying agency
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(including orders that have been entered by any such entities but stayed). True,
correct and complete copies of all reports, correspondence, notices and other
documents relating to any matter described or referenced in this Section 3.28
have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v) other
similar agreements relating to the foregoing to which the Company or any Company
Subsidiary is a party (including expiration date if applicable) (collectively,
the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate
list and summary description of all agreements relating to technology, trade
secrets, know-how or processes that the Company is licensed or authorized to use
by others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of the Company, no
claim has been asserted by any person to the ownership of or for infringement by
the Company of any Proprietary Right of any other Person, and neither the
Company nor any Stockholder is aware of any valid basis for any such claim. To
the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) the Company has paid all
taxes, penalties, assessments and interest that have become due with respect to
any Tax Returns that it has filed and has properly accrued on its books and
records in accordance with generally accepted accounting principles for all of
the same that have not yet become due and payable and (ii) the Company is not
delinquent in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
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assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated any
applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not
granted an extension to any taxing authority of the statute of limitation period
during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Code and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of the
Company constitutes property that the Company, APP or any Affiliate of APP, will
be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties of
the Company are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated
in or cooperated with any international boycott as defined in Section 999 of the
Code.
(k) Parachute Payments. No payment required or contemplated
to be made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election to
be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has
not been a personal holding company within the meaning of Section 542 of the
Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to the
Company's business. There is no commitment to, and no income reflected in the
Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure Schedules
is a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such
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as checking account, borrowing arrangements, safe deposit box, etc.) and the
Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the Company nor
any Company Subsidiary has engaged and, to the knowledge of the Company, neither
the Company's officers and directors nor the Physician Employees or other
Persons and entities providing professional services for or on behalf of the
Company have engaged, in any activities which are prohibited under 42 U.S.C.
SectionSection 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. SectionSection 24, 287, 371, 664, 669, 1001,
1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company, any
Company Subsidiary or officer, director or key employee of the Company or
Company Subsidiary, which has or reasonably could be expected to have the effect
of prohibiting or materially impairing the current medical practice of the
Company or any Company Subsidiary or the continuation of that medical practice
in the future by NewCo, any acquisition of property by the Company, any Company
Subsidiary or the conduct of business by the Company or any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of the Company, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by the Company or any other party thereto. No
contract with a Physician Employee has been terminated in the last twelve (12)
months.
Section 3.36 Statements True and Correct. No representation or warranty
made herein by the Company or any Stockholder, nor any statement, certificate,
information, exhibit or instrument to be furnished by the Company or any
Stockholder to APP or any of its respective representatives pursuant to this
Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required by
Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of any
of the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
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Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the Merger
and the transactions contemplated hereby, all of which have been or will be made
available to the Company for review, are true, correct and complete as in effect
on the date of this Agreement and accurately reflect all material proceedings of
the stockholders and directors of APP (and all committees thereof) regarding the
Merger and the transactions contemplated hereby. The stock record books of APP,
which have been or will be made available to the Company for review, contain
true, complete and accurate records of the stock ownership of APP and the
transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and the Other Agreements and to
consummate the Merger and the transactions contemplated hereby. The execution,
delivery and performance by APP of this Agreement and the agreements provided
for herein, including the Other Agreements and the consummation by APP of the
transactions contemplated hereby and thereby are within APP's corporate powers
and have been duly authorized by all necessary action on the part of APP's Board
of Directors. This Agreement has and the Other Agreements have been duly
executed by APP. This Agreement and all other agreements and obligations entered
into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements of APP, enforceable against it in
accordance with their respective terms, except as may be limited by bankruptcy
or other laws affecting creditors' rights generally, or by general equity
principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the Merger and the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of [20,000,000] shares of APP Common Stock, of which [2,000,000] shares
are issued and outstanding and [10,000,000] shares of APP Preferred Stock, none
of which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
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Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or obligation accrued, contingent or
otherwise, that is reasonably likely to have a Material Adverse Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of
the Effective Time (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever), in violation of
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business or
its advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
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Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted
an extension to any taxing authority of the limitation period during which any
tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated
to be made by APP will be characterized as an "excess parachute payment" within
the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed
as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
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Section 4.13 Related Party Arrangements. The Disclosure Schedules or
Form S-4 sets forth a description of any interest held, directly or indirectly,
by any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to the Company or a Stockholder pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules required by
Article IV hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to such
agreements, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true and
correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo is a
professional corporation duly organized, validly existing and in good standing
under the laws of its state of organization, with all requisite corporate power
and authority to carry on the business in which it intends to engage, to own the
properties it intends to own, and to execute and deliver the Service Agreement,
the Security Agreement and the Physician Employment Agreements and consummate
the transactions and perform the services contemplated thereby. NewCo is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its intended business makes such qualification
necessary, which jurisdictions are listed in the Disclosure Schedules, except
where the failure to be so qualified shall not have a Material Adverse Effect on
NewCo.
Section 5.2 Capitalization. The authorized capital stock of NewCo
consists of [_____] shares of NewCo Common Stock, of which [______] shares are
issued and outstanding, and no shares of capital stock of NewCo are held in
treasury. The Stockholders own all of the issued and outstanding shares of NewCo
Common Stock, free and clear of any Encumbrance. Each outstanding share of NewCo
Common Stock has been legally and validly issued and is fully paid and
nonassessable. There exist no options, warrants, subscriptions or other rights
to purchase, or securities convertible into or exchangeable for, any of the
authorized or outstanding securities of NewCo. No shares of capital stock of
NewCo have been issued or disposed of in violation of the preemptive rights,
rights of first refusal or similar rights of any of NewCo's stockholders.
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Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and complete
copies thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery and
performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict with
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities. NewCo has
not commenced business since its incorporation. Other than its articles or
certificate of incorporation and bylaws, and as of the Closing Date, the Service
Agreement, the Security Agreement, the Physician Employment Agreements, and the
other contracts and agreements assigned to NewCo as part of the Spin-Off
Transaction, NewCo is not a party to or subject to any agreement, indenture or
other instrument. NewCo does not own any assets (tangible or intangible) other
than the consideration received upon the issuance of shares of its capital stock
or pursuant to the Spin-Off Transaction, and NewCo does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted) other than those assumed pursuant to the Spin-Off Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure to
so comply or file would not, individually or in the aggregate, have a Material
Adverse Effect on NewCo.
ARTICLE VI
Intentionally Omitted.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant to the
Spin-Off Transaction or the "F" Reorganization, from the date hereof until the
Effective Time, the Company shall, in all material respects, conduct its
business in the ordinary and usual course consistent with past practices and
shall use reasonable efforts to:
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(a) preserve intact its business and its relationships with
Payors, referral sources, customers, suppliers, patients, employees and others
having business relations with it;
(b) maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the conduct
of the business of the Company;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of
incorporation or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not
limited to, by way of stock split, dividend, recapitalization
or other reclassification) or any subscriptions, options,
warrants, rights or convertible securities, or enter into any
agreements or commitments of any character obligating it to
issue or sell any such securities;
(3) redeem, purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock or any option,
warrant or other right to purchase or acquire any such shares;
(4) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its
capital stock (except as expressly contemplated herein);
(5) voluntarily sell, transfer, surrender, abandon or
dispose of any of its assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the
ordinary course of business consistent with past practices;
(6) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge
or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital expenditures
which are not reasonably necessary for the conduct of its
business;
(9) grant any increase in the compensation payable or
to become payable to directors, officers, consultants or
employees other than merit increases to employees of the
Company who are not directors or officers of the Company,
except in the ordinary course of business and consistent with
past practices;
(10) change in any manner any accounting principles
or methods other than changes which are consistent with
generally accepted accounting principles;
(11) enter into any material commitment or
transaction other than in the ordinary course of business;
(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;
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(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;
(14) agree, whether in writing or otherwise, to do
any of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time,
the Company shall (i) except for sales of assets held as inventory, if any, in
the ordinary course of business prior to the Effective Time and except as
otherwise specifically described in the Disclosure Schedules to this Agreement,
have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or indirect
indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations in
the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, share certificate books, share registers,
accounts, tax returns, financial statements and all other data that, in the
reasonable opinion of APP, are required for APP to make such investigation as it
may desire of the properties and business of the Company. APP shall also be
allowed full access upon reasonable prior notice and during regular business
hours (and at such other times as the parties may reasonably agree) to consult
with the officers, employees (after announcement by the Company of the Merger to
its employees which shall occur no later than three (3) days subsequent to
execution hereof by the Company), accountants, counsel and agents of the Company
in connection with such investigation of the properties and business of the
Company. No investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall be
conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall
cause each of its directors, officers, employees or agents not to directly or
indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or capital stock of the
Company, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of the Company, or, without APP's prior written approval, afford
to any Person other than APP and its agents access to the properties, books or
records of the Company. If the Company receives any offer or proposal after the
date hereof, written or otherwise, of the type referred to above, the Company
shall promptly inform APP of such offer or proposal, decline such offer and
furnish APP with a copy thereof if such offer or proposal is in writing.
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Section 7.5 Compliance With Obligations. Prior to the Effective Time,
the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly
notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
the Company which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best
efforts to obtain the unanimous approval of its Stockholders to the Merger. In
seeking the approval of its Stockholders, the Company shall provide each
Stockholder with the Form S-4 which shall include information as may be required
by applicable law or as APP shall deem appropriate. The Board of Directors of
the Company shall recommend the approval of the Merger by the Stockholders of
the Company. If the Stockholders' approval is not unanimous, the Company shall
give notice to the nonconsenting Stockholders of the action taken by the
consenting Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to Section
7.8 hereof, the Company will take all action reasonably necessary to cause the
Company to perform its obligations under this Agreement and all related
agreements and to consummate the Merger and other transactions contemplated
hereby and thereby on the terms and conditions set forth in this Agreement and
such agreements; provided, however, that this covenant shall not require the
Company to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
Section 7.10 Funding of Accrued Employee Benefits. The Company hereby
covenants and agrees that it will take whatever steps are necessary to pay for
or fund completely any accrued benefits,
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where applicable, or vested accrued benefits for which the Company or any entity
might have any liability whatsoever arising from any tax-qualified plan as
required under applicable law. The Company acknowledges that the purpose and
intent of this covenant is to assure that APP shall have no liability whatsoever
at any time after the Closing Date with respect to any such tax-qualified plan,
unless such plan is merged with a plan sponsored by APP.
Section 7.11 Accounting and Tax Matters. The Company will not change in
any material respect the accounting methods or practices followed by the Company
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. The Company will not make
any material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (without regard to any extensions of
time) file all returns, information statements and other documents relating to
taxes of the Company required to be filed by it, and pay all taxes required to
be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form, organize and
incorporate NewCo in the state of New York, and the articles or certificate of
incorporation and bylaws of NewCo shall be in form and substance reasonably
satisfactory to APP. Except for consummating the Spin-Off Transaction, NewCo
shall not commence business until the Closing Date. On or prior to the Closing,
the Company shall take all actions and execute all documents, agreements or
instruments necessary pursuant to and in compliance with applicable law to
effect the Spin-Off Transaction, including without limitation, the following:
Prior to the Closing, the Company shall transfer to NewCo good, valid and
marketable title to all of the Company's right, title and interest in and to the
Employee Benefit Plans, all contracts and agreements and other assets listed on
the Disclosure Schedules (to be delivered by the Company prior to Closing, which
schedule will be subject to the approval of APP, which approval shall not be
unreasonably withheld) which by law either cannot be acquired or cannot be used
by APP because they relate to the practice of medicine or radiology, and shall
contribute to NewCo such other consideration and assets of the Company as may be
required under applicable law, in exchange for the issuance by NewCo of shares
of NewCo Common Stock, such shares being all of the issued and outstanding
shares of NewCo Common Stock. The Company shall then distribute the shares of
NewCo Common Stock to the Stockholders in proportion to their respective
ownership interest in the Company.
Section 7.13 "F" Reorganization. The Company shall convert its
corporate status from that of a professional medical corporation to that of a
general business corporation in a transaction which will qualify as a tax-free
transaction under Section 368(a)(2)(F) of the Code (the "F" Reorganization").
The Company shall prepare and execute all documents necessary to effectuate the
"F" Reorganization prior to the Closing. At or prior to the Closing, the Company
shall cause an amendment to this Agreement to be executed which will reflect the
changes which result from the "F" Reorganization.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Merger; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
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Section 8.2 Requirements to Effect the Merger and Acquisitions. APP
will use its best efforts to take, or cause to be taken, all actions necessary
to effect the Merger under applicable law, including without limitation the
filing with the appropriate government officials of all necessary documents in
form approved by counsel for the parties to this Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and their authorized representatives to inspect
and, at the Company's sole expense, make copies of all documents, records and
information with respect to the affairs of APP as the Company and their
representatives may reasonably request, all for the sole purpose of permitting
the Company to become familiar with the business and assets and liabilities of
APP. No investigation by the Company or the Stockholders shall diminish or
otherwise affect any of the representations, warranties, covenants or agreements
of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly inform
the Company in writing of (a) any notice of, or other communication relating to,
a default or event that, with notice or lapse of time or both, would become a
default, received by APP subsequent to the date of this Agreement and prior to
the Effective Time under any contract, agreement or investment material to APP's
condition (financial or otherwise), operations, assets, liabilities or business
and to which it is subject; (b) any material adverse change in APP's condition
(financial or otherwise), operations, assets, liabilities or business or (c)
defaults or disputes regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP shall use its best efforts
to establish a qualified plan and trust for NewCo, within the meaning of Section
401(a) and 501(a), respectively, of the Code ("New Qualified Plan") that will
provide benefits comparable (as determined under Section 401(a)(4) of the Code)
to the benefits provided under the qualified plans referenced in the Disclosure
Schedules, if any, sponsored by the Company as of March 31, 1997. APP will file
for a favorable determination letter from the IRS on the New Qualified Plan and
request a favorable determination from the IRS that NewCo is not a member of an
affiliated service group (as defined in Section 414(m) of the Code) or a
recipient organization of leased employee services (as defined in Section 414(n)
of the Code). Any benefits provided under the New Qualified Plan shall be
conditioned on a favorable determination letter from the IRS. Costs associated
with the establishment and design of the New Qualified Plan shall be paid by
APP. The NewCo shall be responsible for funding any contributions to, or any
ongoing administrative costs of, the New Qualified Plan.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and file
with the SEC the Registration Statements on Form S-1 and Form S-4 (or other
appropriate Forms) to be filed by APP in connection with its Initial Public
Offering and offering of the shares of APP Common Stock to the Target Interest
Holders pursuant to the transactions contemplated by this Agreement and the
Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. The Company shall cooperate with APP in the
preparation of the Registration Statements and shall furnish all information
concerning the Company and NewCo as may be reasonably requested in connection
with any such action in a timely manner.
(b) The Company and APP and each separately represent and warrant that
(i) in the case of the Company, none of the written information or documents
supplied or to be supplied by it specifically
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for inclusion in the Registration Statements, by exhibit or otherwise and (ii)
in the case of APP, will, at the time the Registration Statements and each
amendment and supplement thereto, if any, becomes effective under the Securities
Act, none of them contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Company shall be entitled to review the Registration
Statements and each of the amendments thereto, if any, prior to the time each
becomes effective under the Securities Act. The Company shall have no
responsibility for information contained in the Registration Statements except
for information provided by the Company specifically for inclusion therein. The
Company's review of the Registration Statements shall not diminish or otherwise
affect the representations, covenants and warranties of APP contained in this
Agreement.
(c) The Company shall, upon request, furnish APP with all information
concerning itself, its subsidiaries, directors, officers, partners, Stockholders
and NewCo, and such other matters as may be reasonably requested by APP in
connection with the preparation of the Registration Statements and each of the
amendments or supplements thereto, or any other statement, filing, notice or
application made by or on behalf of each such party or any of its subsidiaries
to any governmental entity in connection with the Merger and the other
transactions contemplated by this Agreement.
Section 9.2 Amendments of Schedules. Each party hereto agrees that,
with respect to the representations and warranties of such party contained in
this Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly the Disclosure Schedules with respect to
any matter that would have been or would be required to be set forth or
described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on the Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Disclosure Schedule that constitutes or reflects a Material Adverse Effect on
APP may be made unless the Company consents to such amendment or supplement. For
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have been
fulfilled, the Disclosure Schedules hereto shall be deemed to be the Disclosure
Schedules as amended or supplemented pursuant to this Section 9.2. In the event
that the Company seeks to amend or supplement a Disclosure Schedule pursuant to
this Section 9.2 and APP does not consent to such amendment or supplement, or
APP seeks to amend or supplement a Disclosure Schedule pursuant to this Section
9.2, and the Company does not consent, this Agreement shall be deemed terminated
by mutual consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Sections
351 or 368 of the Code, as applicable.
Section 9.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company and NewCo in connection with the Merger
shall be paid by the Company Stockholders in full immediately prior to the
Closing and such expenses shall be the sole responsibility of the Stockholders
following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all
records and information regarding the patients of the Company and NewCo
confidential in accordance with all applicable laws.
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Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as delivered pursuant to Section 10.12
hereof) shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Effective
Date.
Section 10.2 Covenants. The Company shall have performed and complied
in all material respects with all covenants required by this Agreement to be
performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have delivered
to APP their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse Effect on
the Company shall have occurred since March 31, 1997, whether or not such change
shall have been caused by the deliberate act or omission of the Company or any
Stockholder.
Section 10.6 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, statements, rule, regulation or ordinance to consummate the
transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all Disclosure
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
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Section 10.11 Dissenter's Rights. The Company shall have satisfied each
of its obligations to its Stockholders regarding dissenters or related rights
under New York Business Corporation Law, and the sum of the amount which may
become due to the Stockholders who have dissented to the Merger and have
indicated their intent to seek appraisal rights plus the cash portion of the
Merger Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties of
the Company and its related entities to be transferred to NewCo pursuant to the
Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician Employee
and such other radiologists whose names are set forth on the Disclosure
Schedules shall have entered into a Physician Employment Agreement between NewCo
and each such Physician Employee in a form reasonably consistent to the form
attached as Exhibit E and satisfactory to APP in its sole discretion (the
"Physician Employment Agreements").
Section 10.15 Completion of "F" Reorganization. The Company shall have
(1) completed the "F" Reorganization, and all transfers and dissolutions related
thereto, and (2) amended this Agreement to reflect changes resulting from the
"F" Reorganization.
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered to the
Company their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, contracts or any statute, rule, regulation or ordinances to
consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the
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Registration Statements shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC. At or prior to the
Effective Date, APP shall have received all state securities and "Blue Sky"
permits necessary to consummate the transactions contemplated hereby. At or
prior to the Effective Date, the APP Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to the Company referred to in Section 12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect on
APP shall have occurred since __________, 1997, whether or not such change shall
have been caused by the deliberate act or omission of APP.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its analysis and opinion, in a
form satisfactory to the Company, that the terms of the Service Agreement are
fair and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from
Brobeck, Phleger & Harrison LLP, counsel to APP, an opinion regarding the tax
consequences of the transactions contemplated by this Agreement and the other
Agreements, substantially in the form set forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Effective
Date, the Company shall deliver to APP the following, all of which shall be in a
form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
and the Service Agreement and all related documents and agreements and
consummation of the Merger, each certified by the Secretary of the Company as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of NewCo
authorizing the execution, delivery and performance of the Service Agreement,
the Security Agreement and the Physician Employment Agreements each certified by
the Secretary of NewCo as being true and correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of the Company dated the
Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the
Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by the
Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and officers
of such corporation and as to the signatures of such directors and officers who
have executed documents delivered at the Closing on behalf of that corporation;
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(f) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretary of State of New York for the Company and NewCo
establishing that each such corporation is in existence, has paid all franchise
or similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in the state of New York;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the form
attached hereto as Exhibit F, as revised in accordance with changes reasonably
deemed necessary or advisable by legal counsel retained by APP, the Company and
NewCo in the State of New York to address regulatory and compliance issues (the
"Service Agreement");
(k) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to
in Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty
of perjury and dated as of the Closing Date, to the effect that such Stockholder
is a United States citizen or a resident alien (and thus not a foreign person)
and providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit G (the "Stockholder Release");
(n) intentionally omitted; and
(o) such other instrument or instruments of transfer prepared
by APP as shall be necessary or appropriate, as APP or its counsel shall
reasonably request, to carry out and effect the purpose and intent of this
Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective Date, APP
shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) Intentionally omitted;
(c) a certificate of the President of APP dated the Closing
Date as to the truth and correctness of the representations and warranties of
APP contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the Closing
Date, (i) as to the performance and compliance by APP with all covenants
contained herein on and as of the Effective Date and (ii) certifying that all
conditions precedent required to be satisfied by APP shall have been satisfied;
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(e) a certificate of the Secretary of APP certifying as to
the incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the
Effective Date, of the secretary of state of incorporation establishing that APP
is in existence, has paid all franchise or similar taxes, if any, and otherwise
is in good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten
(10) days prior to the Effective Date, of the Secretaries of State of the states
in which APP is qualified to do business, to the effect that APP is qualified to
do business and is in good standing as a foreign corporation in such state;
(h) the executed Service Agreement as revised in accordance
with the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II
and Exhibit B hereof; and
(k) such other instrument or instruments of transfer prepared
by the Company as shall be necessary or appropriate, as the Company or its
counsel shall reasonably request, to carry out and effect the purpose and intent
of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing, at
the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing, at
the request of NewCo and at NewCo's sole cost and expense, APP or the Surviving
Corporation shall deliver any further instruments of transfer and take all
reasonable action as may be necessary and appropriate to carry out the purpose
and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and records
shall be maintained, and all Tax Returns and schedules thereto shall be filed in
a manner consistent with the Merger being treated as a Reorganization. These
obligations are excused as to a party required to maintain the books or file a
Tax Return if such party has provided to the other parties a written opinion of
competent tax counsel to the effect that there is not substantial authority,
within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report the Merger
as a Reorganization and such opinion either is furnished prior to the Effective
Time or is based on facts or events not known at the Effective Time. Each party
shall provide to each other party such tax information, reports, returns, or
schedules as may be reasonably required to assist such party in accounting for
and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any taxes
incurred by the Company and for which APP has successor liability therefor which
arise solely as a result of the Merger or the consummation of the transactions
contemplated hereby; provided that the foregoing shall not limit
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or otherwise be deemed a waiver of any right of indemnification under Section
14.1 for a breach of any representation, warranty or covenant of the Company or
any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms and
conditions of this Article XIV, the Company agrees to indemnify, defend and hold
APP and its respective directors, officers, stockholders, employees, agents,
attorneys, consultants and Affiliates harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, reasonable attorneys' fees and expenses (including, without limitation,
all costs of experts and all costs incidental to or in connection with any
appellate process) (collectively, "Damages") asserted against or incurred by
such individuals and/or entities arising out of or resulting from:
(a) a breach by the Company of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of the Company
contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company and/or
any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statement
of material fact in any Registration Statement or any prospectus forming or part
thereof, or any amendment thereof or supplement thereto relating to the Company
(including any Company Subsidiary) or NewCo required to be stated therein or
(ii) failure to state information necessary to make the statements therein not
misleading, which untrue statement or failure to state information arises or
results solely from information provided in writing to APP or its counsel by the
Company or any Stockholder or their agents specifically for inclusion in any
such Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP. Subject to the terms and
conditions of this Article XIV, APP hereby agrees to indemnify, defend and hold
the Stockholders, the Company and NewCo and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and Affiliates
harmless from and against all Damages asserted against or incurred by such
individuals and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty (without
giving effect to any Material Adverse Effect qualifier contained as part of any
such representation or warranty) or covenant of APP contained in this Agreement
or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon
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any untrue statements of material fact in any Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or required to be stated therein or failure to state information
necessary to make the statements therein not misleading (except for any
liability based upon any actual or alleged untrue statement of material fact or
an omission to state a material fact relating to NewCo, the Company or any
Stockholder which was derived from any information provided in writing by the
Company or a Company Subsidiary or any of their agents contained in the
representations and warranties set forth in this Agreement or any certificate,
exhibit, schedule or instrument required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
any of the parties hereto of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement (an
"Indemnified Party") shall promptly (and, in the event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party for whom indemnification is sought (the "Indemnifying
Party) of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of Damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve any
Indemnifying Party of its obligations to any Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within thirty (30) days
after receipt of any Claim Notice (the "Election Period"), the Indemnifying
Party shall notify the Indemnified Party (x) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XIV
with respect to such Third Party Claim and (y) whether the Indemnifying Party
desires, at the sole cost and expense of such Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set forth
in Section 14.3(f) below, the Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. The
Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 14.3(b) and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may
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employ separate counsel at the expense of the Indemnifying Party, and upon
written notification thereof, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 14.3(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 14.3(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes their potential liability to the Indemnified
Party under this Article XIV and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 14.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Article XIV relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice period
or (ii) the expiration of the period
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for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
agrees to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding any provision herein to the contrary, the
obligation of an Indemnifying Party to provide indemnification to an Indemnified
Party for breach of any representation or warranty as provided in Sections
14.1(a) or 14.2(a) hereof shall not take effect unless and until the Damages
asserted against or incurred in the aggregate and on a collective basis by the
Indemnified Parties pursuant to either Section 14.1 or 14.2 (as applicable) as a
result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the
Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or any Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any Stockholder
fails to comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(c) at any time prior to the Effective Date by the Company if
any representation or warranty of APP contained in this Agreement or in any
certificate or other document executed and delivered by APP pursuant to this
Agreement is or becomes untrue in any material respect of if APP fails to comply
in any material respect with any covenant or agreement contained herein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
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(d) at any time prior to the Effective Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in Section
16.3, in the event this Agreement is terminated pursuant to this Article XV,
this Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo recognize
and acknowledge that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP that is
valuable, special and a unique asset of such entity's business. APP acknowledges
that it had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of the Company and NewCo that is
valuable, special and a unique asset of each such business. The Company, NewCo
and APP, severally, agree that they will not disclose such Confidential
Information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
APP, NewCo and the Company and (b) to counsel and other advisers to APP, NewCo
and the Company provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 16.1, unless (i) such information
becomes available to or known by the public generally through no fault of the
Company, NewCo or APP, as the case may be, (ii) disclosure is required by law or
the order of any governmental authority under color of law, provided, that prior
to disclosing any information pursuant to this clause (ii) the Company, NewCo or
APP, as the case may be, shall, if possible, give prior written notice thereof
to the Company, NewCo or APP and provide the Company or APP with the opportunity
to contest such disclosure, (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party, or (iv) the disclosing party is the sole and exclusive
owner of such Confidential Information as a result of the Merger or otherwise.
In the event of a breach or threatened breach by the Company, on the one hand,
and APP, on the other hand, of the provisions of this Section, APP, NewCo and
the Company shall be entitled to an injunction restraining the other party, as
the case may be, from disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting any of such
parties from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
Section 16.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, NewCo and the Company agree that, in the event of
a breach by either of them of the foregoing covenant, the covenant may be
enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
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Section 17.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP acknowledges
and agrees that the rights and remedies of the Company under this Agreement will
be directly available to the Stockholders as third party beneficiaries of the
rights and remedies of the Company under this Agreement, including, without
limitation, the rights and remedies under Article 14 hereof to indemnification
from APP against Damages incurred by the Stockholders resulting from a breach by
APP of any representation, warranty or covenant of APP contained herein. Except
as provided in the preceding sentence or as otherwise provided herein, neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder or APP
pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder and APP. Notwithstanding any
provision in this Agreement to the contrary, the representations and warranties
contained herein shall survive the Closing until the second anniversary of the
Closing Date except that (a) the representations and warranties set forth in
Section 3.21 with respect to environmental matters shall survive for a period of
ten (10) years, (b) the representations and warranties set forth in Section 3.30
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.27 and Section 3.33 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 14.1(c) and Section 14.2(c), and solely to
the extent that any party to be indemnified pursuant to such provisions actually
incurs liability under the Securities Act, the Exchange Act or any other federal
or state securities law, the representations and warranties set forth therein
shall survive until the expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
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<PAGE> 1356
Section 17.9 Gender and Number. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Mid Rockland Imaging Associates
18 Squadron Boulevard
New City, New York 10956
Fax No.: (914) 634-6254
Attn: Joel Rosenberg, CPA
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<PAGE> 1357
with a copy to: Drake, Sommers, Loeb, Tarshis & Catania, P.C.
1 Corwin Court, P.O. Box 1479
Newburgh, New York 12550
Fax. No.: (914) 565-1999
Attn: Steven L. Tarshis, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
--------------------------------------
Gregory L. Solomon, President
THE COMPANY:
PELHAM IMAGING ASSOCIATES, P.C.
By:
-------------------------------------
Herbert Z. Geller, M.D.
Its: President
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<PAGE> 1359
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
Drs. Thomas, Wallop, Kim & Lewis, P.A.
Carroll Imaging Associates, P.A.
Diagnostic Imaging Associates, P.A.
Drs. Copeland, Hyman, and Shackman, P.A.
Drs. Decarlo, Lyon, Hearn & Pazourek, P.A.
Harbor Radiologists, P.A.
Perilla, Syndler & Associates, P.A.
Radiology and Nuclear Medicine, A Professional Association
Mid Rockland Imaging Associates, P.C.
Rockland Radiological Group, P.C.
Advanced Imaging of Orange County, P.C.
Central Imaging Associates, P.C.
Nyack Magnetic Resonance Imaging, P.C.
Pelham Imaging Associates, P.C.
Women's Imaging Consultants, P.C.
Pacific Imaging Consultants, A Medical Group, Inc.
Total Medical Imaging, Inc.
Valley Radiologists Medical Group, Inc.
The IDE Group, P.C.
M & S X-Ray Associates, P.A.
South Texas MR, Inc.
San Antonio MR, Inc.
Lexington MR, Ltd.
Madison Square Joint Venture
South Texas No. 1 MRI Limited Partnership, a Texas limited partnership
San Antonio MRI Partnership No. 2 Ltd., a Texas limited partnership
A-998
<PAGE> 1360
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-999
<PAGE> 1361
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
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<PAGE> 1362
EXHIBIT D.
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-1001
<PAGE> 1363
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
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<PAGE> 1364
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
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<PAGE> 1365
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-1004
<PAGE> 1366
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth therein are
delivered in connection with that certain Agreement and Plan of Reorganization
and Merger dated ____________, 1997, by and between American Physician Partners,
Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules correspond
to the section numbers in the Agreement. If disclosures made pursuant to one
section number can reasonably be interpreted by other parties to be a disclosure
to another section number, such disclosure shall constitute disclosure for
purposes of such additional section number. Capitalized terms used herein have
the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain exceptions to the
representations and warranties set forth in Article III of the Agreement, the
inclusion of an item on these Disclosure Schedules shall not be deemed an
admission by American Physician Partners, Inc. that such item is material to
American Physician Partners, Inc., the Company, NewCo or any Company Subsidiary
or that it will have a material adverse effect on American Physician Partners,
Inc., the Company, NewCo or any Company Subsidiary.
A-1005
<PAGE> 1367
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and PELHAM
IMAGING ASSOCIATES, P.C. (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not have
been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
PELHAM IMAGING ASSOCIATES, P.C.
By:_________________________________
Its:________________________________
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================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and between
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)
and
ROCKLAND RADIOLOGICAL GROUP, P.C.
(a New York professional corporation)
================================================================================
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TABLE OF CONTENTS
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ARTICLE I Definitions................................................................................... 2
Section 1.1 Definitions......................................................... 2
Section 1.2 Rules Of Interpretation............................................. 6
ARTICLE II The Merger................................................................................... 6
Section 2.1 The Merger.......................................................... 6
Section 2.2 The Closing......................................................... 6
Section 2.3 Effective Time...................................................... 6
Section 2.4 Certificate of Incorporation of Surviving Corporation............... 6
Section 2.5 Bylaws of Surviving Corporation..................................... 7
Section 2.6 Directors of the Surviving Corporation.............................. 7
Section 2.7 Officers of the Surviving Corporation............................... 7
Section 2.8 Conversion of Company Common Stock.................................. 7
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock........................................................ 7
Section 2.10 Fractional Shares................................................... 8
ARTICLE III Representations and Warranties of the Company............................................... 8
Section 3.1 Organization and Good Standing; Qualification....................... 8
Section 3.2 Authorization and Validity.......................................... 8
Section 3.3 Governmental Authorization.......................................... 8
Section 3.4 Capitalization...................................................... 9
Section 3.5 Transactions in Capital Stock....................................... 9
Section 3.6 Continuity of Business Enterprise................................... 9
Section 3.7 Subsidiaries and Investments........................................ 9
Section 3.8 Absence of Conflicting Agreements or Required Consents.............. 9
Section 3.9 Intentionally omitted............................................... 9
Section 3.10 Absence of Changes.................................................. 10
Section 3.11 No Undisclosed Liabilities.......................................... 10
Section 3.12 Litigation and Claims............................................... 11
Section 3.13 No Violation of Law................................................. 11
Section 3.14 Lease Agreements.................................................... 11
Section 3.15 Real and Personal Property.......................................... 11
Section 3.16 Indebtedness for Borrowed Money..................................... 12
Section 3.17 Contracts and Commitments........................................... 12
Section 3.18 Employee Matters.................................................... 13
Section 3.19 Labor Relations..................................................... 13
Section 3.20 Employee Benefit Plans.............................................. 14
Section 3.21 Environmental Matters............................................... 15
Section 3.22 Filing Reports...................................................... 16
Section 3.23 Insurance Policies.................................................. 16
Section 3.24 Accounts Receivable; Payors......................................... 17
Section 3.25 Accounts Payable; Suppliers......................................... 17
Section 3.26 Inventory........................................................... 17
Section 3.27 Licenses, Authorization and Provider Programs....................... 18
Section 3.28 Inspections and Investigations...................................... 18
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Section 3.29 Proprietary Rights and Information.................................. 19
Section 3.30 Taxes............................................................... 19
Section 3.31 Related Party Arrangements.......................................... 20
Section 3.32 Banking Relations................................................... 20
Section 3.33 Fraud and Abuse and Self Referral................................... 21
Section 3.34 Restrictions on Business Activities................................. 21
Section 3.35 Agreements in Full Force and Effect................................. 21
Section 3.36 Statements True and Correct......................................... 21
Section 3.37 Disclosure Schedules................................................ 21
Section 3.38 Finders' Fees....................................................... 21
ARTICLE IV Representations and Warranties of APP........................................................ 21
Section 4.1 Organization and Good Standing; Qualification....................... 22
Section 4.2 Authorization and Validity.......................................... 22
Section 4.3 Governmental Authorization.......................................... 22
Section 4.4 Capitalization...................................................... 22
Section 4.5 Subsidiaries and Investments........................................ 23
Section 4.6 Absence of Conflicting Agreements or Required Consents.............. 23
Section 4.7 Absence of Changes.................................................. 23
Section 4.8 No Undisclosed Liabilities.......................................... 23
Section 4.9 Litigation and Claims............................................... 23
Section 4.10 No Violation of Law................................................. 23
Section 4.11 Employee Matters.................................................... 23
Section 4.12 Taxes............................................................... 24
Section 4.13 Related Party Arrangements.......................................... 25
Section 4.14 Statements True and Correct......................................... 25
Section 4.15 Disclosure Schedules................................................ 25
Section 4.16 Finder's Fees....................................................... 25
Section 4.17 Agreements in Full Force and Effect................................. 25
ARTICLE V Closing Date Representations and Warranties of the Company.................................... 25
Section 5.1 Organization and Good Standing; Qualification....................... 25
Section 5.2 Capitalization...................................................... 25
Section 5.3 Corporate Records................................................... 26
Section 5.4 Authorization and Validity.......................................... 26
Section 5.5 No Violation........................................................ 26
Section 5.6 No Business, Agreements, Assets or Liabilities...................... 26
Section 5.7 Compliance with Laws................................................ 26
ARTICLE VI Intentionally Omitted........................................................................ 26
ARTICLE VII Covenants of the Company.................................................................... 26
Section 7.1 Conduct of The Company.............................................. 26
Section 7.2 Title to Assets; Indebtedness....................................... 28
Section 7.3 Access.............................................................. 28
Section 7.4 Acquisition Proposals............................................... 28
Section 7.5 Compliance With Obligations......................................... 29
Section 7.6 Notice of Certain Events............................................ 29
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Section 7.7 Intentionally omitted............................................... 29
Section 7.8 Stockholders' Consent............................................... 29
Section 7.9 Obligations of Company and Stockholders............................. 29
Section 7.10 Funding of Accrued Employee Benefits................................ 29
Section 7.11 Accounting and Tax Matters.......................................... 30
Section 7.12 Spin-Off Transaction................................................ 30
Section 7.13 "F" Reorganization.................................................. 30
ARTICLE VIII Covenants of APP........................................................................... 30
Section 8.1 Consummation of Agreement........................................... 30
Section 8.2 Requirements to Effect the Merger and Acquisitions.................. 31
Section 8.3 Access.............................................................. 31
Section 8.4 Notification of Certain Matters..................................... 31
Section 8.5 Qualified Retirement Plans.......................................... 31
ARTICLE IX Covenants of APP and the Company............................................................. 31
Section 9.1 Filings; Other Action............................................... 31
Section 9.2 Amendments of Schedules............................................. 32
Section 9.3 Actions Contrary to Stated Intent................................... 32
Section 9.4 Public Announcements................................................ 32
Section 9.5 Expenses............................................................ 32
Section 9.6 Patient Confidentiality............................................. 32
Section 9.7 Registration Statements............................................. 33
ARTICLE X Conditions Precedent of APP................................................................... 33
Section 10.1 Representations and Warranties...................................... 33
Section 10.2 Covenants........................................................... 33
Section 10.3 Legal Opinion....................................................... 33
Section 10.4 Proceedings......................................................... 33
Section 10.5 No Material Adverse Effect.......................................... 33
Section 10.6 Government Approvals and Required Consents.......................... 33
Section 10.7 Securities Approvals................................................ 33
Section 10.8 Closing Deliveries.................................................. 33
Section 10.9 Closing of Initial Public Offering.................................. 33
Section 10.10 Closing of Related Acquisitions..................................... 33
Section 10.11 Dissenter's Rights.................................................. 34
Section 10.12 Stockholder Representation Letter; Indemnification Agreement........ 34
Section 10.13 Transfer of Assets.................................................. 34
ARTICLE XI Conditions Precedent of the Company.......................................................... 34
Section 11.1 Representations and Warranties...................................... 34
Section 11.2 Covenants........................................................... 34
Section 11.3 Legal Opinions...................................................... 34
Section 11.4 Proceedings......................................................... 34
Section 11.5 Government Approvals and Required Consents.......................... 34
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing................................ 34
Section 11.7 Closing of Initial Public Offering.................................. 35
Section 11.8 Closing Deliveries.................................................. 35
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Section 11.9 No Material Adverse Effect.......................................... 35
Section 11.10 Service Agreement Analysis.......................................... 35
Section 11.11 Tax Opinion......................................................... 35
ARTICLE XII Closing Deliveries.......................................................................... 35
Section 12.1 Deliveries of the Company........................................... 35
Section 12.2 Deliveries of APP. ................................................. 36
ARTICLE XIII Post Closing Matters....................................................................... 37
Section 13.1 Further Instruments of Transfer..................................... 37
Section 13.2 Merger Tax Covenant................................................. 37
Section 13.3 Current Public Information.......................................... 38
ARTICLE XIV Remedies.................................................................................... 38
Section 14.1 Indemnification by the Company...................................... 38
Section 14.2 Indemnification by APP.............................................. 38
Section 14.3 Conditions of Indemnification....................................... 39
Section 14.4 Costs, Expenses and Legal Fees...................................... 41
Section 14.5 Tax Benefits; Insurance Proceeds.................................... 41
ARTICLE XV Termination.................................................................................. 41
Section 15.1 Termination......................................................... 41
Section 15.2 Effect of Termination............................................... 42
ARTICLE XVI Nondisclosure of Confidential Information................................................... 42
Section 16.1 Non-Disclosure Covenant............................................. 42
Section 16.2 Damages............................................................. 42
Section 16.3 Survival............................................................ 42
ARTICLE XVII Miscellaneous.............................................................................. 42
Section 17.1 Amendment; Waivers.................................................. 42
Section 17.2 Assignment.......................................................... 43
Section 17.3 Parties in Interest; No Third Party Beneficiaries................... 43
Section 17.4 Entire Agreement.................................................... 43
Section 17.5 Severability........................................................ 43
Section 17.6 Survival of Representations, Warranties and Covenants............... 43
Section 17.7 Governing Law....................................................... 43
Section 17.8 Captions............................................................ 43
Section 17.9 Gender and Number................................................... 44
Section 17.10 Intentionally omitted............................................... 44
Section 17.11 Confidentiality; Publicity and Disclosures.......................... 44
Section 17.12 Notice.............................................................. 44
Section 17.13 No Waiver; Remedies................................................. 45
Section 17.14 Counterparts........................................................ 45
Section 17.15 Defined Terms....................................................... 45
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EXHIBITS
Exhibit A - List of Target Companies................................................................... A-1
Exhibit B - Merger Consideration....................................................................... B-1
Exhibit C - Stockholder Representation Letter.......................................................... C-1
Exhibit D - Indemnification Agreement.................................................................. D-1
Exhibit E - Physician Employment Agreement ............................................................ E-1
Exhibit F - Service Agreement.......................................................................... F-1
Exhibit G - Stockholder Release........................................................................ G-1
Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
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A-1012
<PAGE> 1374
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP") and ROCKLAND RADIOLOGICAL GROUP,
P.C., a New York professional corporation (the "Company").
RECITALS
A. The Company owns and operates (i) a professional medical
practice(s) specializing in radiology and (ii) diagnostic imaging centers. All
of the shares of the common stock of the Company (the "Company Common Stock")
are owned beneficially and of record by the Stockholders.
B. APP is engaged in the business of owning, operating and acquiring
the assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that the
Company be merged with and into APP, and that APP be the sole surviving
corporation (sometimes referred to hereinafter as the "Surviving Corporation"),
and the Company be the disappearing corporation (sometimes referred to
hereinafter as the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) the Company will merge
with and into APP upon the terms and conditions set forth herein and in
accordance with the laws of the State of New York and (ii) the outstanding
shares of the Company Common Stock shall be converted at such time into cash and
shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein.
E. Prior to the Merger, the Company intends to transfer certain of
its assets most of which relate solely to the practice of medicine to a [newly
formed professional corporation] ("NewCo") in exchange for all of the capital
stock of NewCo and to thereafter distribute such NewCo stock to the Stockholders
(the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Stockholders, the "Target Interest Holders")
of each of the entities listed on Exhibit A (together with the Company, the
"Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Sections 351 and 368 of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder, as applicable.
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<PAGE> 1375
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals
to this Agreement.
"APP Group" shall mean APP, NewCo and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed in Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the
recitals to this Agreement.
"Company Current Balance Sheet" shall mean the unaudited
consolidated balance sheet of Company and its Subsidiaries as of March 31, 1997.
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<PAGE> 1376
"Company Current Financial Statements" shall mean the Company
Current Balance Sheet and the related statements of income, stockholders' equity
and statements of cash flows of Company and the Company Subsidiaries for the
_____ (__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section
3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section
3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as
of the date hereof or otherwise delivered by any party hereto pursuant to the
terms hereof, as such may be amended or supplemented from time to time pursuant
to the provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement
is declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section
14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering of
APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a
party to this Agreement or an Other Agreement that has not been terminated prior
to Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section
14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of
APP Common Stock received by APP before underwriting commissions, discounts or
other fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section
3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on
the assets, properties, business, operations, condition (financial or
otherwise), liabilities or results of operations of the Person or Persons being
referred to, taken as a whole (including its consolidated subsidiaries, if any),
in consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651 et seq.,
(v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
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"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock[, $_____ par value
per share,] of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section
8.5.
"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals
to this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.
"Physician Employee" shall mean each radiologist employed by the
Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth
in Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the
recitals to this Agreement.
"Stockholders" shall mean the stockholders of the Company
immediately prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
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"Target Companies" shall have the meaning set forth in the recitals
to this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder,"
"hereof," "hereinabove," "hereinafter" and other equivalent words refer to this
Agreement and not solely to the particular Article, Section or subdivision
hereof in which such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed to
be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into APP
in accordance with this Agreement and the separate corporate existence of the
Disappearing Corporation shall thereupon cease (the "Merger"). APP shall be the
Surviving Corporation in the Merger and shall continue to be governed by the
laws of the State of New York, and the separate corporate existence of the
Company with all its rights, privileges, powers, immunities, purposes and
franchises shall continue unaffected by the Merger, except as set forth herein.
The Surviving Corporation may, at any time concurrent with and/or after the
Effective Time, take any action in the name of or on behalf of the Disappearing
Corporation in order to effectuate the transactions contemplated by this
Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take
place at 10:00 a.m., local time, at the offices of APP located at 2301
NationsBank Plaza, 901 Main Street, Dallas, Texas on the day on which the
transactions contemplated by the Initial Public Offering are consummated. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
Section 2.3 Effective Time. If all the conditions to the Merger set
forth in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section 904
of the New York Business Corporation Law. The Merger shall become effective at
the time of the filing of such documents with the Secretary of State of the
State of New York, in accordance with such law or at such later time which the
parties hereto have theretofore agreed upon and designated in such filings as
the effective time of the Merger (the "Effective Time").
Section 2.4 Certificate of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Certificate of Incorporation of the Company
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation without any amendment or modification
as a result of the Merger.
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Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger.
Section 2.6 Directors of the Surviving Corporation. The persons who
are directors of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time.
Section 2.7 Officers of the Surviving Corporation. The persons who
are officers of the Company immediately prior to the Effective Time shall submit
a written resignation in form and substance acceptable to APP, effective as of
the Effective Time.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the
part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time
shall be terminated and cancelled, without payment of any consideration
therefor, and shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged and
remain outstanding as a validly issued, fully paid and nonassessable share of
APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the
Company Common Stock.
(a) At or after the Effective Time and at the Closing (i)
the Stockholders, as holders of a certificate or certificates representing
shares of the Company's Common Stock, shall upon surrender of each certificate
or certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until each
certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at the
Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees
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to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to such Company Common Stock or with
respect to the stock powers accompanying any Company Common Stock. Upon such
delivery (or completion of appropriate affidavit of lost certificate and
indemnity), each Stockholder shall receive in exchange therefor the Merger
Consideration pursuant to Exhibit B and Section 2.10 hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of APP Common Stock will be issued and any
Stockholder otherwise entitled to receive a fractional share of APP Common Stock
as part of the Merger Consideration hereunder shall receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to
consummate the Merger and except as set forth in the Disclosure Schedules
attached hereto and incorporated herein by this reference, the Company
represents and warrants to APP both as of the date hereof and as of the
Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, with all requisite corporate power
and authority to own, operate and lease its assets and properties and to carry
on its business as currently conducted. The Company and each Company Subsidiary
is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all
requisite corporate power to enter into this Agreement and all other agreements
entered into in connection with the transactions contemplated hereby and to
consummate the transactions contemplated hereby. The execution, delivery and,
subject to approval of this Agreement and the Merger by the Stockholders,
performance by the Company of this Agreement and the agreements contemplated
herein, and the consummation by the Company of the transactions contemplated
hereby and thereby are within the Company's respective corporate powers and have
been duly authorized by all necessary action on the part of the Company's Board
of Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby to which the Company is
a party constitute, or upon execution will constitute, valid and binding
agreements of the Company, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting the enforcement of creditors' rights generally, or by general
equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying with
the provisions of the applicable state corporate laws regarding the approval of
the Merger and the filing of the Certificates of Merger (as contemplated by
Section 2.3) and any other required documents related to the Merger, and other
than consents, filings or notifications required to be made or obtained solely
by APP (including,
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without limitation, in connection with the Initial Public Offering, Form S-4 or
any Hart-Scott-Rodino filing to be made by APP, if any), the execution, delivery
and performance by the Company of this Agreement and the agreements provided for
herein, and the consummation of the transactions contemplated hereby and thereby
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority.
Section 3.4 Capitalization. The authorized capital stock of the
Company consists of 200 shares of the Company Common Stock, of which 130 shares
are issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the Company has no securities, bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
Section 3.5 Transactions in Capital Stock. There exist no Company
Rights. The Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership of shares
among any of its Stockholders has been altered or changed in contemplation of
the Merger within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been
any sale, distribution or spin-off of significant assets of the Company or any
of its Affiliates other than in the ordinary course of business within the (2)
two years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, require any notice under, or accelerate or modify, or permit any
person to accelerate or modify, any performance required by the terms of any
agreement, instrument, license or permit, to which the Company is a party or by
which the Company or any of its properties are subject or bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on the Company; and (v) except as
contemplated by this Agreement, will not create any Encumbrance or restriction
upon the Company Common Stock or any of the assets or properties of the Company.
Section 3.9 Intentionally omitted.
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Section 3.10 Absence of Changes. Except as permitted or contemplated
by this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent
with past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any
of its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable, mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee benefits
for any employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends or
other distributions to any Stockholder or any other holder of capital stock of
the Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its
knowledge, the Company does not have any liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected or reserved against
in the Company's Current Balance Sheet.
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Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder, the Physician Employees or any other licensed professional or other
individual affiliated with the Company affecting or that would reasonably be
likely to affect the Company Common Stock or the operations, business condition,
(financial or otherwise), or results of operations of the Company which (i) if
successful, may, individually or in the aggregate, have a Material Adverse
Effect on the Company or (ii) could adversely affect the ability of the Company
or any Company Subsidiary to effect the transactions contemplated hereby, and to
the knowledge of the Company there is no basis for any such action or any state
of facts or occurrence of any event which would reasonably be likely to give
rise to the foregoing. There are no unsatisfied judgments against the Company or
any Company Subsidiary or any licensed professional or other individual
affiliated with the Company or any Company Subsidiary relating to services
provided on behalf of the Company or any Company Subsidiary or any consent
decrees to which any of the foregoing is subject. Each of the matters, if any,
set forth in this Section 3.12 is fully covered by policies of insurance of the
Company or any Company Subsidiary as in effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any
Company Subsidiary has been, nor shall be as of the Effective Time (by virtue of
any action, omission to act, contract to which it is a party or any occurrence
or state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a
true, accurate and complete list of all the lease agreements and license
agreements to which the Company or any Company Subsidiary is a party and
pursuant to which the Company or any Company Subsidiary leases (whether as
lessor or lessee) or licenses (whether as licensor or licensee) any real or
personal property related to the operation of its business and which requires
payments in excess of $12,000 per year (the "Lease Agreements"). The Company has
delivered to APP true and complete copies of all of the Lease Agreements. Each
Lease Agreement is valid, effective and in full force in accordance with its
terms, and there is not under any such lease (i) any existing or claimed
material default by the Company or any Company Subsidiary (as applicable) or
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by the Company or any Company Subsidiary (as
applicable) and, individually or in the aggregate, may reasonably result in a
Material Adverse Effect on the Company, or, (ii) to the knowledge of the
Company, any existing material default by any other party under any of the Lease
Agreements or any event of material default or event which with notice or lapse
of time, or both, would constitute a material default by any such party. To the
knowledge of the Company, there is no pending or threatened reassessment of any
property covered by the Lease Agreements. The Company or any Company Subsidiary
will use reasonable good faith efforts to obtain, prior to the Effective Time,
the consent of each landlord or lessor whose consent is required to the
assignment of the Lease Agreements and will use reasonable good faith efforts to
deliver to APP in writing such consents as are necessary to effect a valid and
binding transfer or assignment of the Company's or any Company Subsidiary's
rights thereunder. The Company has a good, clear, valid and enforceable
leasehold interest under each of the Lease Agreements. The Lease Agreements
comply with the exceptions to ownership interests and compensation arrangements
set out in 42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar
applicable state law safe harbor or other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein
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which it purports to own including, without limitation, all the property and
assets reflected in the Company Current Financial Statements; and (ii) owns such
rights, interests, assets and property free and clear of all Encumbrances, title
defects or objections (except for taxes not yet due and payable). The personal
property presently used in connection with the operation of the business of the
Company and the Company Subsidiaries constitutes the necessary personal property
assets to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, the Company does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000 in
any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP of the assets and
properties to be acquired by APP from the Company, or which could inhibit or
prevent the Company from transferring to or vesting in APP good and sufficient
title to the assets and properties to be acquired by APP and the Surviving
Corporation except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, the Company
shall, on or before the Closing Date, use reasonable good faith efforts to
obtain and deliver to APP in writing, effective as of the Closing Date, such
consents as are necessary to enable the Surviving Corporation to enjoy all of
the rights now enjoyed by the Company under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to APP
any contracts or agreements relating to the provision of professional medical
services or other such agreements and contracts that APP consents to in writing
to be transferred to NewCo in the Spin-off Transaction. No contract with a
health care provider or Payor has been materially amended or terminated within
the last twelve (12) months.
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(b) The Company (i) has not received notice of any plan or
intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument required to be disclosed pursuant to Section
3.17(a), and to the knowledge of the Company there are no fact(s) that would
justify the exercise of such a right; and (ii) does not currently contemplate,
or have reason to believe any other Person currently contemplates, any amendment
or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a party
to any employment contract (except for oral employment agreements which are
terminable at will), consulting or collective bargaining contracts, deferred
compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected to
receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for it
to the date hereof or amounts required to be reimbursed to such employees. Upon
termination of employment of any employee or Physician Employee, no severance or
other payments will become due and the Company has no policy, past practice or
plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair
labor practice, charge or complaint or any other employment-related matter
against or involving the Company pending or threatened before the National Labor
Relations Board or any federal, state or local agency, authority or court;
(c) To the knowledge of the Company, there are no charges,
investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the
Immigration Reform and Control Act of 1986, as amended, and all applicable
regulations promulgated thereunder; and
(e) To the knowledge of the Company, there are no inquiries,
investigations or monitoring activities of any licensed, registered, or
certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
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Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof (the "Employee Benefit Plans"). The Company has
provided to APP copies of all plan documents (as they may have been amended to
the date hereof), determination letters, pending determination letter
applications, trust instruments, insurance contracts or policies related to an
Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee Benefit
Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any notice
that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach of
any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or other
liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the Company's
knowledge, threatened, claims, suits or other proceedings exist with respect to
any Employee Benefit Plan other than normal benefit claims filed by participants
or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or 501(c)(9)
of the Code and/or tax-exempt within the meaning of Section 501(a) of the Code
and, to the best knowledge of the Company and each Stockholder, has been
continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation of
any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency
(within the meaning of Section 412 of the Code), whether waived or unwaived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Code) in which the Company is a member (a "Controlled Group"). With respect to
each Employee Benefit Plan subject to Title IV of ERISA, the assets of each such
plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. With respect to each
Employee Benefit Plan described in Section 501(c)(9) of the Code, the assets of
each such plan are at least equal in value to the present value of accrued
benefits, based upon the most recent actuarial valuation as of a date no more
than ninety (90) days prior to the date hereof. The Disclosure Schedules
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contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any member
of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section 412
of the Code.
(j) PBGC. No facts or circumstances are known to the Company
that would result in the imposition of liability against APP or any of its
Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result of
any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any Employee
Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable provisions of ERISA.
(l) Other Compensation Arrangements. Neither the Company
nor, to the Company's knowledge, any Stockholder or Physician Employee is a
party to any compensation or debt arrangement with any Person relating to the
provision of health care related services other than arrangements with the
Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has,
within the five (5) years preceding the date hereof, through the Effective Time,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of the Company no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by the Company of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by the Company to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Schedule 3.21(b) discloses any known presence of asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises. To the knowledge of the
Company, there is no friable asbestos in or on the Company's or any Company
Subsidiary's owned or leased premises.
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(c) To the knowledge of the Company, no soil or water in or
under any assets currently or formerly held for use or sale by the Company or
any Company Subsidiary is or has been contaminated by any Hazardous Substance
while such assets or premises were owned, leased, operated or managed, directly
or indirectly by the Company or any Company Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on the
Company.
(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of the
Company, concerning the Company or any Company Subsidiary within the five (5)
years preceding the date hereof through the Effective Time with respect to any
real property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following
terms have the following meanings:
"Environmental Laws" shall mean any federal, state or
local laws, ordinances, codes, regulations, rules, policies and
orders (including without limitation, Medical Waste Laws) that are
intended to assure the protection of the environment, or that
classify, regulate, call for the remediation of, require reporting
with respect to, or list or define air, water, groundwater, solid
waste, hazardous, toxic, or radioactive substances, materials,
wastes, pollutants or contaminants, or which are intended to assure
the safety of employees, workers or other persons, including the
public in each case as in effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities
of the Company or any Company Subsidiary, whether contingent or
fixed, which (i) have arisen, or would reasonably be likely to
arise, under Environmental Laws and (ii) relate to actions occurring
or conditions existing on or prior to the date hereof or the
Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation,
treatment, storage, recycling, transportation, disposal or release
of any Hazardous Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings
of any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and
briefly describe the Company's policies of insurance to which the Company or any
Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by the
Company or any Company Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
the Company and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as the Company
and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which the Company or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies
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of all Insurance Policies have been provided to APP. Neither the Company nor any
Company Subsidiary nor any officer or director thereof has received any notice
or other written communication from any issuer of any Current Policy cancelling
such policy, materially increasing any deductibles or retained amounts
thereunder, or materially increasing the annual or other premiums payable
thereunder and, to the knowledge of the Company, no such cancellation or
increase of deductibles, retainages or premiums is threatened. There are no
outstanding claims, settlements or premiums owed against any Insurance Policy,
and all required notices have been given and all known potential or actual
claims under any Insurance Policy have been presented in due and timely fashion.
Within the five (5) years preceding the Agreement, neither the Company nor any
Company Subsidiary has filed a written application for any professional
liability insurance coverage which has been denied by an insurance agency or
carrier. The Disclosure Schedules also set forth a list of all claims under any
Insurance Policy in excess of $10,000 per occurrence filed by the Company or any
Company Subsidiary during the immediately preceding three-year period. Each
Physician Employee has, at all times while a Physician Employee, maintained or
been covered by professional malpractice insurance in such types and amounts as
are customary for such a physician practicing the same type of medicine in the
same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of
all accounts receivable of the Company as of March 31, 1997, which list is
complete, true and accurate in all material respects. All such accounts
receivable arose in the ordinary course of business and have not been previously
written off as bad debts and, are, to the extent still uncollected, to the
knowledge of the Company collectible in the ordinary course of business, net of
reserves for doubtful and uncollectible accounts shown in the Company Financial
Statements or on the accounting records of the Company (which reserves are
calculated consistent with generally accepted accounting principles and past
practice).
(b) The Disclosure Schedules set forth (i) a true, correct
and complete list of the names and addresses of each Payor of the Company as of
such date, which accounted for more than 5% of the revenues of the Company in
the fiscal year ended December 31, 1996, or which is reasonably expected to
account for more than 5% of the revenues of the Company for the fiscal year to
end December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete
(i) list of the accounts payable of the Company as of March 31, 1997, and (ii)
list of each individual indebtedness owed by the Company of $5,000 or more,
setting forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company
Current Balance Sheet contained in the Company Financial Statements consisted,
and all such items on hand on the date of this Agreement consist, and all such
items on hand at the Effective Time will consist, net of all applicable reserves
with respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory
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are not materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or practice his or her specialty and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which the Company is eligible and which are listed in the Disclosure Schedules
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any private
insurance program) under which the Company is presently receiving payments
directly or indirectly from any Payor for patient care provided by such
Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to APP.
No violation, default, order or deficiency exists with respect to any of the
items listed in the Disclosure Schedules except for such violations, defaults,
orders or deficiencies which would not be reasonably likely to have a Material
Adverse Effect on the Company, and there is no action pending or to the
Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program, and
no event has occurred which, with or without notice or lapse of time, or both,
would constitute grounds for a violation, order or deficiency with respect to
any of the items listed in the Disclosure Schedules to revoke, withdraw or
suspend any material license to operate its business as is presently being
conducted by it. To the knowledge of the Company, there has been no decision not
to renew any existing agreement with any provider or Payor relating to the
Company's business as presently being conducted by it. Neither the Company nor
any Physician Employee (i) has had his/her/its professional license, Drug
Enforcement Agency number, Medicare/Medicaid provider status or staff privileges
at any hospital or diagnostic imaging center suspended, relinquished, terminated
or revoked (including orders that have been entered by any such entities but
stayed), (ii) has been reprimanded in writing, sentenced, or disciplined by any
licensing board, state agency, regulatory body or authority, hospital, Payor or
specialty board (including orders that have been entered by any such entities
but stayed), or (iii) is the subject of an initial or final determination by any
federal or state authority that could result in any demand or reimbursement
under the Medicare, Medicaid or Government Programs or any exclusion or which
monetary penalty under federal or state law or (iv) has had a final judgment or
settlement entered against him/her/it in connection with a malpractice or
similar action.
(b) The Company is not required, or for the 72-month period
prior to the Effective Time was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of
the Company, or any Physician Employee, nor the right of any licensed
professional or other individual affiliated with the Company to receive
reimbursements pursuant to any Governmental Program or Private Program has been
terminated or otherwise materially and adversely affected as a result of any
investigation or action whether by any federal or state governmental regulatory
authority or other third party. No Physician Employee, licensed professional or
other individual affiliated with the business has, during the past three (3)
years prior to the Effective Time, had their professional license or staff
privileges limited, suspended or revoked by any governmental regulatory
authority or agency, hospital, integrated delivery system, trade association,
professional review organization, accrediting organization or certifying agency
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(including orders that have been entered by any such entities but stayed). True,
correct and complete copies of all reports, correspondence, notices and other
documents relating to any matter described or referenced in this Section 3.28
have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v) other
similar agreements relating to the foregoing to which the Company or any Company
Subsidiary is a party (including expiration date if applicable) (collectively,
the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate
list and summary description of all agreements relating to technology, trade
secrets, know-how or processes that the Company is licensed or authorized to use
by others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of the Company, no
claim has been asserted by any person to the ownership of or for infringement by
the Company of any Proprietary Right of any other Person, and neither the
Company nor any Stockholder is aware of any valid basis for any such claim. To
the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company
may be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) the Company has paid all
taxes, penalties, assessments and interest that have become due with respect to
any Tax Returns that it has filed and has properly accrued on its books and
records in accordance with generally accepted accounting principles for all of
the same that have not yet become due and payable and (ii) the Company is not
delinquent in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
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assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated any
applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not
granted an extension to any taxing authority of the statute of limitation period
during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Code and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of
the Company constitutes property that the Company, APP or any Affiliate of APP,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties of
the Company are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated
in or cooperated with any international boycott as defined in Section 999 of the
Code.
(k) Parachute Payments. No payment required or contemplated
to be made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election to
be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has
not been a personal holding company within the meaning of Section 542 of the
Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to the
Company's business. There is no commitment to, and no income reflected in the
Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such
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as checking account, borrowing arrangements, safe deposit box, etc.) and the
Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the Company
nor any Company Subsidiary has engaged and, to the knowledge of the Company,
neither the Company's officers and directors nor the Physician Employees or
other Persons and entities providing professional services for or on behalf of
the Company have engaged, in any activities which are prohibited under 42 U.S.C.
Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Sections 24, 287, 371, 664, 669, 1001, 1027,
1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no
material agreement, judgment, injunction, order or decree binding upon the
Company, any Company Subsidiary or officer, director or key employee of the
Company or Company Subsidiary, which has or reasonably could be expected to have
the effect of prohibiting or materially impairing the current medical practice
of the Company or any Company Subsidiary or the continuation of that medical
practice in the future by NewCo, any acquisition of property by the Company, any
Company Subsidiary or the conduct of business by the Company or any Company
Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of the Company, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by the Company or any other party thereto. No
contract with a Physician Employee has been terminated in the last twelve (12)
months.
Section 3.36 Statements True and Correct. No representation or
warranty made herein by the Company or any Stockholder, nor any statement,
certificate, information, exhibit or instrument to be furnished by the Company
or any Stockholder to APP or any of its respective representatives pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required
by Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of any
of the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
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Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the Merger
and the transactions contemplated hereby, all of which have been or will be made
available to the Company for review, are true, correct and complete as in effect
on the date of this Agreement and accurately reflect all material proceedings of
the stockholders and directors of APP (and all committees thereof) regarding the
Merger and the transactions contemplated hereby. The stock record books of APP,
which have been or will be made available to the Company for review, contain
true, complete and accurate records of the stock ownership of APP and the
transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and the Other Agreements
and to consummate the Merger and the transactions contemplated hereby. The
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, including the Other Agreements and the consummation by APP
of the transactions contemplated hereby and thereby are within APP's corporate
powers and have been duly authorized by all necessary action on the part of
APP's Board of Directors. This Agreement has and the Other Agreements have been
duly executed by APP. This Agreement and all other agreements and obligations
entered into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements of APP, enforceable against it in
accordance with their respective terms, except as may be limited by bankruptcy
or other laws affecting creditors' rights generally, or by general equity
principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with
the provisions of the applicable state corporate laws regarding the approval of
the Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the Merger and the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of [20,000,000] shares of APP Common Stock, of which [2,000,000] shares
are issued and outstanding and [10,000,000] shares of APP Preferred Stock, none
of which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
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Section 4.5 Subsidiaries and Investments. APP does not own, directly
or indirectly, any capital stock or other equity, ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture or
other entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents.
The execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated
by this Agreement, since March 31, 1997, there has not been (i) any change in
the working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the
Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as
of the Effective Time (by virtue of any action, omission to act, contract to
which it is a party or any occurrence or state of facts whatsoever), in
violation of any applicable local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any governmental body,
agency or authority or court binding on it, or relating to its property or
business or its advertising, sales or pricing practices, except for violations
which are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4,
APP does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
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Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted
an extension to any taxing authority of the limitation period during which any
tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated
to be made by APP will be characterized as an "excess parachute payment" within
the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed
as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
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Section 4.13 Related Party Arrangements. The Disclosure Schedules or
Form S-4 sets forth a description of any interest held, directly or indirectly,
by any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to the Company or a Stockholder
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules required
by Article IV hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to such
agreements, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true
and correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo is
a professional corporation duly organized, validly existing and in good standing
under the laws of its state of organization, with all requisite corporate power
and authority to carry on the business in which it intends to engage, to own the
properties it intends to own, and to execute and deliver the Service Agreement,
the Security Agreement and the Physician Employment Agreements and consummate
the transactions and perform the services contemplated thereby. NewCo is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its intended business makes such qualification
necessary, which jurisdictions are listed in the Disclosure Schedules, except
where the failure to be so qualified shall not have a Material Adverse Effect on
NewCo.
Section 5.2 Capitalization. The authorized capital stock of NewCo
consists of [_____] shares of NewCo Common Stock, of which [______] shares are
issued and outstanding, and no shares of capital stock of NewCo are held in
treasury. The Stockholders own all of the issued and outstanding shares of NewCo
Common Stock, free and clear of any Encumbrance. Each outstanding share of NewCo
Common Stock has been legally and validly issued and is fully paid and
nonassessable. There exist no options, warrants, subscriptions or other rights
to purchase, or securities convertible into or exchangeable for, any of the
authorized or outstanding securities of NewCo. No shares of capital stock of
NewCo have been issued or disposed of in violation of the preemptive rights,
rights of first refusal or similar rights of any of NewCo's stockholders.
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Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and complete
copies thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery and
performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict with
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities. NewCo
has not commenced business since its incorporation. Other than its articles or
certificate of incorporation and bylaws, and as of the Closing Date, the Service
Agreement, the Security Agreement, the Physician Employment Agreements, and the
other contracts and agreements assigned to NewCo as part of the Spin-Off
Transaction, NewCo is not a party to or subject to any agreement, indenture or
other instrument. NewCo does not own any assets (tangible or intangible) other
than the consideration received upon the issuance of shares of its capital stock
or pursuant to the Spin-Off Transaction, and NewCo does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted) other than those assumed pursuant to the Spin-Off Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure to
so comply or file would not, individually or in the aggregate, have a Material
Adverse Effect on NewCo.
ARTICLE VI
Intentionally Omitted.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant to
the Spin-Off Transaction or the "F" Reorganization, from the date hereof until
the Effective Time, the Company shall, in all material respects, conduct its
business in the ordinary and usual course consistent with past practices and
shall use reasonable efforts to:
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(a) preserve intact its business and its relationships with
Payors, referral sources, customers, suppliers, patients, employees and others
having business relations with it;
(b) maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the conduct
of the business of the Company;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of incorporation
or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not
limited to, by way of stock split, dividend,
recapitalization or other reclassification) or any
subscriptions, options, warrants, rights or convertible
securities, or enter into any agreements or commitments of
any character obligating it to issue or sell any such
securities;
(3) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or any option,
warrant or other right to purchase or acquire any such
shares;
(4) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to
its capital stock (except as expressly contemplated herein);
(5) voluntarily sell, transfer, surrender, abandon or
dispose of any of its assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the
ordinary course of business consistent with past practices;
(6) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien,
charge or encumbrance of any kind, except liens for taxes
not currently due and except for liens which arise by
operation of law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the
ordinary course of business or which is reasonably necessary
for the conduct of its business;
(8) make or commit to make any capital expenditures
which are not reasonably necessary for the conduct of its
business;
(9) grant any increase in the compensation payable or to
become payable to directors, officers, consultants or
employees other than merit increases to employees of the
Company who are not directors or officers of the Company,
except in the ordinary course of business and consistent
with past practices;
(10) change in any manner any accounting principles or
methods other than changes which are consistent with
generally accepted accounting principles;
(11) enter into any material commitment or transaction
other than in the ordinary course of business;
(12) take any action which could reasonably be expected
to have a Material Adverse Effect on the Company;
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(13) apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount
payable directly or indirectly to or for the benefit of any
Affiliate of the Company, other than in the ordinary course
and consistent with past practices;
(14) agree, whether in writing or otherwise, to do any
of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of
this Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time,
the Company shall (i) except for sales of assets held as inventory, if any, in
the ordinary course of business prior to the Effective Time and except as
otherwise specifically described in the Disclosure Schedules to this Agreement,
have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or indirect
indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations in
the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, share certificate books, share registers,
accounts, tax returns, financial statements and all other data that, in the
reasonable opinion of APP, are required for APP to make such investigation as it
may desire of the properties and business of the Company. APP shall also be
allowed full access upon reasonable prior notice and during regular business
hours (and at such other times as the parties may reasonably agree) to consult
with the officers, employees (after announcement by the Company of the Merger to
its employees which shall occur no later than three (3) days subsequent to
execution hereof by the Company), accountants, counsel and agents of the Company
in connection with such investigation of the properties and business of the
Company. No investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall be
conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall
cause each of its directors, officers, employees or agents not to directly or
indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or capital stock of the
Company, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of the Company, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of the Company. If the Company receives any
offer or proposal after the date hereof, written or otherwise, of the type
referred to above, the Company shall promptly inform APP of such offer or
proposal, decline such offer and furnish APP with a copy thereof if such offer
or proposal is in writing.
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Section 7.5 Compliance With Obligations. Prior to the Effective
Time, the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly
notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting the Company which, if pending on the date of this Agreement,
would have been required to have been disclosed to APP hereunder or which relate
to the consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best
efforts to obtain the unanimous approval of its Stockholders to the Merger. In
seeking the approval of its Stockholders, the Company shall provide each
Stockholder with the Form S-4 which shall include information as may be required
by applicable law or as APP shall deem appropriate. The Board of Directors of
the Company shall recommend the approval of the Merger by the Stockholders of
the Company. If the Stockholders' approval is not unanimous, the Company shall
give notice to the nonconsenting Stockholders of the action taken by the
consenting Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to
Section 7.8 hereof, the Company will take all action reasonably necessary to
cause the Company to perform its obligations under this Agreement and all
related agreements and to consummate the Merger and other transactions
contemplated hereby and thereby on the terms and conditions set forth in this
Agreement and such agreements; provided, however, that this covenant shall not
require the Company to make any expenditures that are not expressly set forth in
this Agreement or otherwise contemplated herein.
Section 7.10 Funding of Accrued Employee Benefits. The Company
hereby covenants and agrees that it will take whatever steps are necessary to
pay for or fund completely any accrued benefits,
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where applicable, or vested accrued benefits for which the Company or any entity
might have any liability whatsoever arising from any tax-qualified plan as
required under applicable law. The Company acknowledges that the purpose and
intent of this covenant is to assure that APP shall have no liability whatsoever
at any time after the Closing Date with respect to any such tax-qualified plan,
unless such plan is merged with a plan sponsored by APP.
Section 7.11 Accounting and Tax Matters. The Company will not change
in any material respect the accounting methods or practices followed by the
Company (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. The Company will
not make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment or consent to any tax
claim or assessment or any waiver of the statute of limitations for any such
claim or assessment. The Company will duly, accurately and timely (without
regard to any extensions of time) file all returns, information statements and
other documents relating to taxes of the Company required to be filed by it, and
pay all taxes required to be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form, organize
and incorporate NewCo in the state of New York, and the articles or certificate
of incorporation and bylaws of NewCo shall be in form and substance reasonably
satisfactory to APP. Except for consummating the Spin-Off Transaction, NewCo
shall not commence business until the Closing Date. On or prior to the Closing,
the Company shall take all actions and execute all documents, agreements or
instruments necessary pursuant to and in compliance with applicable law to
effect the Spin-Off Transaction, including without limitation, the following:
Prior to the Closing, the Company shall transfer to NewCo good, valid and
marketable title to all of the Company's right, title and interest in and to the
Employee Benefit Plans, all contracts and agreements and other assets listed on
the Disclosure Schedules (to be delivered by the Company prior to Closing, which
schedule will be subject to the approval of APP, which approval shall not be
unreasonably withheld) which by law either cannot be acquired or cannot be used
by APP because they relate to the practice of medicine or radiology, and shall
contribute to NewCo such other consideration and assets of the Company as may be
required under applicable law, in exchange for the issuance by NewCo of shares
of NewCo Common Stock, such shares being all of the issued and outstanding
shares of NewCo Common Stock. The Company shall then distribute the shares of
NewCo Common Stock to the Stockholders in proportion to their respective
ownership interest in the Company.
Section 7.13 "F" Reorganization. The Company shall convert its
corporate status from that of a professional medical corporation to that of a
general business corporation in a transaction which will qualify as a tax-free
transaction under Section 368(a)(2)(F) of the Code (the "F" Reorganization").
The Company shall prepare and execute all documents necessary to effectuate the
"F" Reorganization prior to the Closing. At or prior to the Closing, the Company
shall cause an amendment to this Agreement to be executed which will reflect the
changes which result from the "F" Reorganization.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Merger; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
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Section 8.2 Requirements to Effect the Merger and Acquisitions. APP
will use its best efforts to take, or cause to be taken, all actions necessary
to effect the Merger under applicable law, including without limitation the
filing with the appropriate government officials of all necessary documents in
form approved by counsel for the parties to this Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and their authorized representatives to inspect
and, at the Company's sole expense, make copies of all documents, records and
information with respect to the affairs of APP as the Company and their
representatives may reasonably request, all for the sole purpose of permitting
the Company to become familiar with the business and assets and liabilities of
APP. No investigation by the Company or the Stockholders shall diminish or
otherwise affect any of the representations, warranties, covenants or agreements
of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly
inform the Company in writing of (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by APP subsequent to the date of this Agreement
and prior to the Effective Time under any contract, agreement or investment
material to APP's condition (financial or otherwise), operations, assets,
liabilities or business and to which it is subject; (b) any material adverse
change in APP's condition (financial or otherwise), operations, assets,
liabilities or business or (c) defaults or disputes regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP shall use its best
efforts to establish a qualified plan and trust for NewCo, within the meaning of
Section 401(a) and 501(a), respectively, of the Code ("New Qualified Plan") that
will provide benefits comparable (as determined under Section 401(a)(4) of the
Code) to the benefits provided under the qualified plans referenced in the
Disclosure Schedules, if any, sponsored by the Company as of March 31, 1997. APP
will file for a favorable determination letter from the IRS on the New Qualified
Plan and request a favorable determination from the IRS that NewCo is not a
member of an affiliated service group (as defined in Section 414(m) of the Code)
or a recipient organization of leased employee services (as defined in Section
414(n) of the Code). Any benefits provided under the New Qualified Plan shall be
conditioned on a favorable determination letter from the IRS. Costs associated
with the establishment and design of the New Qualified Plan shall be paid by
APP. The NewCo shall be responsible for funding any contributions to, or any
ongoing administrative costs of, the New Qualified Plan.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and
file with the SEC the Registration Statements on Form S-1 and Form S-4 (or other
appropriate Forms) to be filed by APP in connection with its Initial Public
Offering and offering of the shares of APP Common Stock to the Target Interest
Holders pursuant to the transactions contemplated by this Agreement and the
Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. The Company shall cooperate with APP in the
preparation of the Registration Statements and shall furnish all information
concerning the Company and NewCo as may be reasonably requested in connection
with any such action in a timely manner.
(b) The Company and APP and each separately represent and warrant
that (i) in the case of the Company, none of the written information or
documents supplied or to be supplied by it specifically
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for inclusion in the Registration Statements, by exhibit or otherwise and (ii)
in the case of APP, will, at the time the Registration Statements and each
amendment and supplement thereto, if any, becomes effective under the Securities
Act, none of them contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Company shall be entitled to review the Registration
Statements and each of the amendments thereto, if any, prior to the time each
becomes effective under the Securities Act. The Company shall have no
responsibility for information contained in the Registration Statements except
for information provided by the Company specifically for inclusion therein. The
Company's review of the Registration Statements shall not diminish or otherwise
affect the representations, covenants and warranties of APP contained in this
Agreement.
(c) The Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners,
Stockholders and NewCo, and such other matters as may be reasonably requested by
APP in connection with the preparation of the Registration Statements and each
of the amendments or supplements thereto, or any other statement, filing, notice
or application made by or on behalf of each such party or any of its
subsidiaries to any governmental entity in connection with the Merger and the
other transactions contemplated by this Agreement.
Section 9.2 Amendments of Schedules. Each party hereto agrees that,
with respect to the representations and warranties of such party contained in
this Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly the Disclosure Schedules with respect to
any matter that would have been or would be required to be set forth or
described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on the Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Disclosure Schedule that constitutes or reflects a Material Adverse Effect on
APP may be made unless the Company consents to such amendment or supplement. For
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have been
fulfilled, the Disclosure Schedules hereto shall be deemed to be the Disclosure
Schedules as amended or supplemented pursuant to this Section 9.2. In the event
that the Company seeks to amend or supplement a Disclosure Schedule pursuant to
this Section 9.2 and APP does not consent to such amendment or supplement, or
APP seeks to amend or supplement a Disclosure Schedule pursuant to this Section
9.2, and the Company does not consent, this Agreement shall be deemed terminated
by mutual consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Sections
351 or 368 of the Code, as applicable.
Section 9.4 Public Announcements. The parties hereto will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and,
except as may be required by applicable law, will not issue any such press
release or make any such public statement prior to such consultation, although
the foregoing shall not apply to any disclosure by APP in any filing with the
DOJ, FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company and NewCo in connection with the Merger
shall be paid by the Company Stockholders in full immediately prior to the
Closing and such expenses shall be the sole responsibility of the Stockholders
following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all
records and information regarding the patients of the Company and NewCo
confidential in accordance with all applicable laws.
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Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as delivered pursuant to Section 10.12
hereof) shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Effective
Date.
Section 10.2 Covenants. The Company shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have
delivered to APP their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse Effect
on the Company shall have occurred since March 31, 1997, whether or not such
change shall have been caused by the deliberate act or omission of the Company
or any Stockholder.
Section 10.6 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, statements, rule, regulation or ordinance to
consummate the transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
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Section 10.11 Dissenter's Rights. The Company shall have satisfied
each of its obligations to its Stockholders regarding dissenters or related
rights under New York Business Corporation Law, and the sum of the amount which
may become due to the Stockholders who have dissented to the Merger and have
indicated their intent to seek appraisal rights plus the cash portion of the
Merger Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties
of the Company and its related entities to be transferred to NewCo pursuant to
the Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician
Employee and such other radiologists whose names are set forth on the Disclosure
Schedules shall have entered into a Physician Employment Agreement between NewCo
and each such Physician Employee in a form reasonably consistent to the form
attached as Exhibit E and satisfactory to APP in its sole discretion (the
"Physician Employment Agreements").
Section 10.15 Completion of "F" Reorganization. The Company shall
have (1) completed the "F" Reorganization, and all transfers and dissolutions
related thereto, and (2) amended this Agreement to reflect changes resulting
from the "F" Reorganization.
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations
of the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered to
the Company their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, contracts or any statute, rule, regulation or
ordinances to consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the
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Registration Statements shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC. At or prior to the
Effective Date, APP shall have received all state securities and "Blue Sky"
permits necessary to consummate the transactions contemplated hereby. At or
prior to the Effective Date, the APP Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to the Company referred to in Section 12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect
on APP shall have occurred since __________, 1997, whether or not such change
shall have been caused by the deliberate act or omission of APP.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its analysis and opinion, in a
form satisfactory to the Company, that the terms of the Service Agreement are
fair and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from
Haynes and Boone, L.L.P., an opinion regarding the tax consequences of the
transactions contemplated by this Agreement and the other Agreements,
substantially in the form set forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Effective
Date, the Company shall deliver to APP the following, all of which shall be in a
form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
and the Service Agreement and all related documents and agreements and
consummation of the Merger, each certified by the Secretary of the Company as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of NewCo
authorizing the execution, delivery and performance of the Service Agreement,
the Security Agreement and the Physician Employment Agreements each certified by
the Secretary of NewCo as being true and correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of the Company dated the
Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the
Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by the
Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and officers
of such corporation and as to the signatures of such directors and officers who
have executed documents delivered at the Closing on behalf of that corporation;
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(f) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretary of State of New York for the Company and NewCo
establishing that each such corporation is in existence, has paid all franchise
or similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in the state of New York;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the form
attached hereto as Exhibit F, as revised in accordance with changes reasonably
deemed necessary or advisable by legal counsel retained by APP, the Company and
NewCo in the State of New York to address regulatory and compliance issues (the
"Service Agreement");
(k) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to
in Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty
of perjury and dated as of the Closing Date, to the effect that such Stockholder
is a United States citizen or a resident alien (and thus not a foreign person)
and providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit G (the "Stockholder Release");
(n) intentionally omitted; and
(o) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of this
Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective Date,
APP shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) Intentionally omitted;
(c) a certificate of the President of APP dated the Closing
Date as to the truth and correctness of the representations and warranties of
APP contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the Closing
Date, (i) as to the performance and compliance by APP with all covenants
contained herein on and as of the Effective Date and (ii) certifying that all
conditions precedent required to be satisfied by APP shall have been satisfied;
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(e) a certificate of the Secretary of APP certifying as to
the incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the
Effective Date, of the secretary of state of incorporation establishing that APP
is in existence, has paid all franchise or similar taxes, if any, and otherwise
is in good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten
(10) days prior to the Effective Date, of the Secretaries of State of the states
in which APP is qualified to do business, to the effect that APP is qualified to
do business and is in good standing as a foreign corporation in such state;
(h) the executed Service Agreement as revised in accordance
with the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II
and Exhibit B hereof; and
(k) such other instrument or instruments of transfer
prepared by the Company as shall be necessary or appropriate, as the Company or
its counsel shall reasonably request, to carry out and effect the purpose and
intent of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing,
at the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing, at
the request of NewCo and at NewCo's sole cost and expense, APP or the Surviving
Corporation shall deliver any further instruments of transfer and take all
reasonable action as may be necessary and appropriate to carry out the purpose
and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report
the Merger as a Reorganization and such opinion either is furnished prior to the
Effective Time or is based on facts or events not known at the Effective Time.
Each party shall provide to each other party such tax information, reports,
returns, or schedules as may be reasonably required to assist such party in
accounting for and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any
taxes incurred by the Company and for which APP has successor liability therefor
which arise solely as a result of the Merger or the consummation of the
transactions contemplated hereby; provided that the foregoing shall not limit
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or otherwise be deemed a waiver of any right of indemnification under Section
14.1 for a breach of any representation, warranty or covenant of the Company or
any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms
and conditions of this Article XIV, the Company agrees to indemnify, defend and
hold APP and its respective directors, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates harmless from and against all
losses, claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, reasonable attorneys' fees and expenses (including, without
limitation, all costs of experts and all costs incidental to or in connection
with any appellate process) (collectively, "Damages") asserted against or
incurred by such individuals and/or entities arising out of or resulting from:
(a) a breach by the Company of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of the
Company contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company
and/or any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statement
of material fact in any Registration Statement or any prospectus forming or part
thereof, or any amendment thereof or supplement thereto relating to the Company
(including any Company Subsidiary) or NewCo required to be stated therein or
(ii) failure to state information necessary to make the statements therein not
misleading, which untrue statement or failure to state information arises or
results solely from information provided in writing to APP or its counsel by the
Company or any Stockholder or their agents specifically for inclusion in any
such Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP. Subject to the terms and
conditions of this Article XIV, APP hereby agrees to indemnify, defend and hold
the Stockholders, the Company and NewCo and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and Affiliates
harmless from and against all Damages asserted against or incurred by such
individuals and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of APP contained in
this Agreement or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon
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any untrue statements of material fact in any Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or required to be stated therein or failure to state information
necessary to make the statements therein not misleading (except for any
liability based upon any actual or alleged untrue statement of material fact or
an omission to state a material fact relating to NewCo, the Company or any
Stockholder which was derived from any information provided in writing by the
Company or a Company Subsidiary or any of their agents contained in the
representations and warranties set forth in this Agreement or any certificate,
exhibit, schedule or instrument required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or 14.2
herein to the contrary, nothing contained in this Agreement shall relieve any of
the parties hereto of any liability or limit any liability that it may have in
the case of fraud in connection with the transactions contemplated by this
Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement
(an "Indemnified Party") shall promptly (and, in the event, at least ten (10)
days prior to the due date for any responsive pleadings, filings or other
documents) (i) notify the party for whom indemnification is sought (the
"Indemnifying Party) of any third-party claim or claims asserted against the
Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying Party
a written notice ("Claim Notice") describing in reasonable detail the nature of
the Third Party Claim, a copy of all papers served with respect to such claim
(if any), an estimate of the amount of Damages attributable to the Third Party
Claim and the basis of the Indemnified Party's request for indemnification under
this Agreement. The failure to promptly deliver a Claim Notice shall not relieve
any Indemnifying Party of its obligations to any Indemnified Party with respect
to the related Third Party Claim except to the extent that the resulting delay
is materially prejudicial to the defense of such claim. Within thirty (30) days
after receipt of any Claim Notice (the "Election Period"), the Indemnifying
Party shall notify the Indemnified Party (x) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XIV
with respect to such Third Party Claim and (y) whether the Indemnifying Party
desires, at the sole cost and expense of such Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set forth
in Section 14.3(f) below, the Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. The
Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 14.3(b) and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may
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employ separate counsel at the expense of the Indemnifying Party, and upon
written notification thereof, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 14.3(b), or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
14.3(b) but fails diligently and promptly to prosecute or settle the Third Party
Claim, then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party (if the Indemnified Party is entitled
to indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes their potential liability to the Indemnified
Party under this Article XIV and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 14.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Article XIV relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice period
or (ii) the expiration of the period
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for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or compromise
a Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
agrees to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding any provision herein to the contrary,
the obligation of an Indemnifying Party to provide indemnification to an
Indemnified Party for breach of any representation or warranty as provided in
Sections 14.1(a) or 14.2(a) hereof shall not take effect unless and until the
Damages asserted against or incurred in the aggregate and on a collective basis
by the Indemnified Parties pursuant to either Section 14.1 or 14.2 (as
applicable) as a result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of
any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the
Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or any Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any Stockholder
fails to comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(c) at any time prior to the Effective Date by the Company
if any representation or warranty of APP contained in this Agreement or in any
certificate or other document executed and delivered by APP pursuant to this
Agreement is or becomes untrue in any material respect of if APP fails to comply
in any material respect with any covenant or agreement contained herein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
A-1053
<PAGE> 1415
(d) at any time prior to the Effective Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in Section
16.3, in the event this Agreement is terminated pursuant to this Article XV,
this Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo
recognize and acknowledge that each has in the past, currently has, and in the
future may possibly have, access to certain Confidential Information of APP that
is valuable, special and a unique asset of such entity's business. APP
acknowledges that it had in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of the Company and
NewCo that is valuable, special and a unique asset of each such business. The
Company, NewCo and APP, severally, agree that they will not disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to authorized
representatives of APP, NewCo and the Company and (b) to counsel and other
advisers to APP, NewCo and the Company provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 16.1, unless
(i) such information becomes available to or known by the public generally
through no fault of the Company, NewCo or APP, as the case may be, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii) the Company, NewCo or APP, as the case may be, shall, if
possible, give prior written notice thereof to the Company, NewCo or APP and
provide the Company or APP with the opportunity to contest such disclosure,
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, or
(iv) the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Merger or otherwise. In the event of a breach or
threatened breach by the Company, on the one hand, and APP, on the other hand,
of the provisions of this Section, APP, NewCo and the Company shall be entitled
to an injunction restraining the other party, as the case may be, from
disclosing, in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting any of such parties from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages.
Section 16.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, NewCo and the Company agree that,
in the event of a breach by either of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
A-1054
<PAGE> 1416
Section 17.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto, except
by APP to a wholly owned subsidiary of APP; provided that any such assignment
shall not relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP acknowledges
and agrees that the rights and remedies of the Company under this Agreement will
be directly available to the Stockholders as third party beneficiaries of the
rights and remedies of the Company under this Agreement, including, without
limitation, the rights and remedies under Article 14 hereof to indemnification
from APP against Damages incurred by the Stockholders resulting from a breach by
APP of any representation, warranty or covenant of APP contained herein. Except
as provided in the preceding sentence or as otherwise provided herein, neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants.
The representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder or APP
pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder and APP. Notwithstanding any
provision in this Agreement to the contrary, the representations and warranties
contained herein shall survive the Closing until the second anniversary of the
Closing Date except that (a) the representations and warranties set forth in
Section 3.21 with respect to environmental matters shall survive for a period of
ten (10) years, (b) the representations and warranties set forth in Section 3.30
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.27 and Section 3.33 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 14.1(c) and Section 14.2(c), and solely to
the extent that any party to be indemnified pursuant to such provisions actually
incurs liability under the Securities Act, the Exchange Act or any other federal
or state securities law, the representations and warranties set forth therein
shall survive until the expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
A-1055
<PAGE> 1417
Section 17.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and neuter
and the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Mid Rockland Imaging Associates
18 Squadron Boulevard
New City, New York 10956
Fax No.: (914) 634-6254
Attn: Joel Rosenberg, CPA
A-1056
<PAGE> 1418
with a copy to: Drake, Sommers, Loeb, Tarshis & Catania, P.C.
1 Corwin Court, P.O. Box 1479
Newburgh, New York 12550
Fax. No.: (914) 565-1999
Attn: Steven L. Tarshis, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
A-1057
<PAGE> 1419
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
---------------------------------
Gregory L. Solomon, President
THE COMPANY:
ROCKLAND RADIOLOGICAL GROUP, P.C.
By:
---------------------------------
Herbert Z. Geller, M.D.
Its: President
A-1058
<PAGE> 1420
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-1059
<PAGE> 1421
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-1060
<PAGE> 1422
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-1061
<PAGE> 1423
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-1062
<PAGE> 1424
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
A-1063
<PAGE> 1425
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
A-1064
<PAGE> 1426
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-1065
<PAGE> 1427
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth therein are
delivered in connection with that certain Agreement and Plan of Reorganization
and Merger dated ____________, 1997, by and between American Physician Partners,
Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules correspond
to the section numbers in the Agreement. If disclosures made pursuant to one
section number can reasonably be interpreted by other parties to be a disclosure
to another section number, such disclosure shall constitute disclosure for
purposes of such additional section number. Capitalized terms used herein have
the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain exceptions to the
representations and warranties set forth in Article III of the Agreement, the
inclusion of an item on these Disclosure Schedules shall not be deemed an
admission by American Physician Partners, Inc. that such item is material to
American Physician Partners, Inc., the Company, NewCo or any Company Subsidiary
or that it will have a material adverse effect on American Physician Partners,
Inc., the Company, NewCo or any Company Subsidiary.
A-1066
<PAGE> 1428
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and ROCKLAND
RADIOLOGICAL GROUP, P.C., a New York professional corporation (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
ROCKLAND RADIOLOGICAL GROUP, P.C.
By:_________________________________
Its:________________________________
A-1067
<PAGE> 1429
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and between
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)
and
WOMEN'S IMAGING CONSULTANTS, P.C.
(a New York professional corporation)
================================================================================
A-1068
<PAGE> 1430
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Rules Of Interpretation . . . . . . . . . . . . . . 6
ARTICLE II The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 The Closing . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Effective Time . . . . . . . . . . . . . . . . . . 6
Section 2.4 Certificate of Incorporation of
Surviving Corporation . . . . . . . . . . . . . . . 6
Section 2.5 Bylaws of Surviving Corporation . . . . . . . . . . 7
Section 2.6 Directors of the Surviving Corporation . . . . . . 7
Section 2.7 Officers of the Surviving Corporation . . . . . . . 7
Section 2.8 Conversion of Company Common Stock . . . . . . . . 7
Section 2.9 Exchange of Certificates Representing
Shares of the Company Common Stock . . . . . . . . 7
Section 2.10 Fractional Shares . . . . . . . . . . . . . . . . . 8
ARTICLE III Representations and Warranties of the Company . . . . . . . . . . 8
Section 3.1 Organization and Good Standing;
Qualification . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Authorization and Validity . . . . . . . . . . . . 8
Section 3.3 Governmental Authorization . . . . . . . . . . . . 8
Section 3.4 Capitalization . . . . . . . . . . . . . . . . . . 9
Section 3.5 Transactions in Capital Stock . . . . . . . . . . . 9
Section 3.6 Continuity of Business Enterprise . . . . . . . . . 9
Section 3.7 Subsidiaries and Investments . . . . . . . . . . . 9
Section 3.8 Absence of Conflicting Agreements or
Required Consents . . . . . . . . . . . . . . . . . 9
Section 3.9 Intentionally omitted . . . . . . . . . . . . . . . 9
Section 3.10 Absence of Changes . . . . . . . . . . . . . . . . 10
Section 3.11 No Undisclosed Liabilities . . . . . . . . . . . . 10
Section 3.12 Litigation and Claims . . . . . . . . . . . . . . . 11
Section 3.13 No Violation of Law . . . . . . . . . . . . . . . . 11
Section 3.14 Lease Agreements . . . . . . . . . . . . . . . . . 11
Section 3.15 Real and Personal Property . . . . . . . . . . . . 11
Section 3.16 Indebtedness for Borrowed Money . . . . . . . . . . 12
Section 3.17 Contracts and Commitments . . . . . . . . . . . . . 12
Section 3.18 Employee Matters . . . . . . . . . . . . . . . . . 13
Section 3.19 Labor Relations . . . . . . . . . . . . . . . . . . 13
Section 3.20 Employee Benefit Plans . . . . . . . . . . . . . . 14
Section 3.21 Environmental Matters . . . . . . . . . . . . . . . 15
Section 3.22 Filing Reports . . . . . . . . . . . . . . . . . . 16
Section 3.23 Insurance Policies . . . . . . . . . . . . . . . . 16
Section 3.24 Accounts Receivable; Payors . . . . . . . . . . . . 17
Section 3.25 Accounts Payable; Suppliers . . . . . . . . . . . . 17
Section 3.26 Inventory . . . . . . . . . . . . . . . . . . . . . 17
Section 3.27 Licenses, Authorization and Provider Programs . . . 18
Section 3.28 Inspections and Investigations . . . . . . . . . . 18
</TABLE>
A-1069
<PAGE> 1431
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 3.29 Proprietary Rights and Information . . . . . . . . 19
Section 3.30 Taxes . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.31 Related Party Arrangements . . . . . . . . . . . . 20
Section 3.32 Banking Relations . . . . . . . . . . . . . . . . . 20
Section 3.33 Fraud and Abuse and Self Referral . . . . . . . . . 21
Section 3.34 Restrictions on Business Activities . . . . . . . . 21
Section 3.35 Agreements in Full Force and Effect . . . . . . . . 21
Section 3.36 Statements True and Correct . . . . . . . . . . . . 21
Section 3.37 Disclosure Schedules . . . . . . . . . . . . . . . 21
Section 3.38 Finders' Fees . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV Representations and Warranties of APP . . . . . . . . . . . . . . 21
Section 4.1 Organization and Good Standing; Qualification . . . 22
Section 4.2 Authorization and Validity. . . . . . . . . . . . . 22
Section 4.3 Governmental Authorization . . . . . . . . . . . . 22
Section 4.4 Capitalization . . . . . . . . . . . . . . . . . . 22
Section 4.5 Subsidiaries and Investments . . . . . . . . . . . 23
Section 4.6 Absence of Conflicting Agreements or
Required Consents . . . . . . . . . . . . . . . . . 23
Section 4.7 Absence of Changes . . . . . . . . . . . . . . . . 23
Section 4.8 No Undisclosed Liabilities . . . . . . . . . . . . 23
Section 4.9 Litigation and Claims . . . . . . . . . . . . . . . 23
Section 4.10 No Violation of Law . . . . . . . . . . . . . . . . 23
Section 4.11 Employee Matters . . . . . . . . . . . . . . . . . 23
Section 4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.13 Related Party Arrangements . . . . . . . . . . . . 25
Section 4.14 Statements True and Correct . . . . . . . . . . . . 25
Section 4.15 Disclosure Schedules . . . . . . . . . . . . . . . 25
Section 4.16 Finder's Fees . . . . . . . . . . . . . . . . . . . 25
Section 4.17 Agreements in Full Force and Effect . . . . . . . . 25
ARTICLE V Closing Date Representations and Warranties of the Company . . . . 25
Section 5.1 Organization and Good Standing; Qualification . . . 25
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . 25
Section 5.3 Corporate Records . . . . . . . . . . . . . . . . . 26
Section 5.4 Authorization and Validity . . . . . . . . . . . . 26
Section 5.5 No Violation . . . . . . . . . . . . . . . . . . . 26
Section 5.6 No Business, Agreements, Assets or Liabilities . . 26
Section 5.7 Compliance with Laws . . . . . . . . . . . . . . . 26
ARTICLE VI Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VII Covenants of the Company . . . . . . . . . . . . . . . . . . . . 26
Section 7.1 Conduct of The Company . . . . . . . . . . . . . . 26
Section 7.2 Title to Assets; Indebtedness . . . . . . . . . . . 28
Section 7.3 Access . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.4 Acquisition Proposals . . . . . . . . . . . . . . . 28
Section 7.5 Compliance With Obligations . . . . . . . . . . . . 29
Section 7.6 Notice of Certain Events . . . . . . . . . . . . . 29
</TABLE>
A-1070
<PAGE> 1432
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.7 Intentionally omitted . . . . . . . . . . . . . . . 29
Section 7.8 Stockholders' Consent . . . . . . . . . . . . . . . 29
Section 7.9 Obligations of Company and Stockholders . . . . . . 29
Section 7.10 Funding of Accrued Employee Benefits . . . . . . . 29
Section 7.11 Accounting and Tax Matters . . . . . . . . . . . . 30
Section 7.12 Spin-Off Transaction . . . . . . . . . . . . . . . 30
Section 7.13 "F" Reorganization . . . . . . . . . . . . . . . . 30
ARTICLE VIII Covenants of APP . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.1 Consummation of Agreement . . . . . . . . . . . . . 30
Section 8.2 Requirements to Effect the Merger
and Acquisitions . . . . . . . . . . . . . . . . . 31
Section 8.3 Access . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.4 Notification of Certain Matters . . . . . . . . . . 31
Section 8.5 Qualified Retirement Plans. . . . . . . . . . . . . 31
ARTICLE IX Covenants of APP and the Company . . . . . . . . . . . . . . . . . 31
Section 9.1 Filings; Other Action . . . . . . . . . . . . . . . 31
Section 9.2 Amendments of Schedules . . . . . . . . . . . . . . 32
Section 9.3 Actions Contrary to Stated Intent . . . . . . . . . 32
Section 9.4 Public Announcements . . . . . . . . . . . . . . . 32
Section 9.5 Expenses . . . . . . . . . . . . . . . . . . . . . 32
Section 9.6 Patient Confidentiality . . . . . . . . . . . . . . 32
Section 9.7 Registration Statements. . . . . . . . . . . . . . 33
ARTICLE X Conditions Precedent of APP . . . . . . . . . . . . . . . . . . . . 33
Section 10.1 Representations and Warranties . . . . . . . . . . 33
Section 10.2 Covenants . . . . . . . . . . . . . . . . . . . . . 33
Section 10.3 Legal Opinion . . . . . . . . . . . . . . . . . . . 33
Section 10.4 Proceedings . . . . . . . . . . . . . . . . . . . . 33
Section 10.5 No Material Adverse Effect . . . . . . . . . . . . 33
Section 10.6 Government Approvals and Required Consents . . . . 33
Section 10.7 Securities Approvals . . . . . . . . . . . . . . . 33
Section 10.8 Closing Deliveries . . . . . . . . . . . . . . . . 33
Section 10.9 Closing of Initial Public Offering . . . . . . . . 33
Section 10.10 Closing of Related Acquisitions . . . . . . . . . . 33
Section 10.11 Dissenter's Rights . . . . . . . . . . . . . . . . 34
Section 10.12 Stockholder Representation Letter;
Indemnification Agreement . . . . . . . . . . . . . 34
Section 10.13 Transfer of Assets . . . . . . . . . . . . . . . . 34
ARTICLE XI Conditions Precedent of the Company . . . . . . . . . . . . . . . 34
Section 11.1 Representations and Warranties . . . . . . . . . . 34
Section 11.2 Covenants . . . . . . . . . . . . . . . . . . . . . 34
Section 11.3 Legal Opinions . . . . . . . . . . . . . . . . . . 34
Section 11.4 Proceedings . . . . . . . . . . . . . . . . . . . . 34
Section 11.5 Government Approvals and Required Consents . . . . 34
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing . . . . . . . 34
Section 11.7 Closing of Initial Public Offering . . . . . . . . 35
Section 11.8 Closing Deliveries . . . . . . . . . . . . . . . . 35
</TABLE>
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Section 11.9 No Material Adverse Effect . . . . . . . . . . . . 35
Section 11.10 Service Agreement Analysis . . . . . . . . . . . . 35
Section 11.11 Tax Opinion . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XII Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.1 Deliveries of the Company . . . . . . . . . . . . . 35
Section 12.2 Deliveries of APP. . . . . . . . . . . . . . . . . 36
ARTICLE XIII Post Closing Matters . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.1 Further Instruments of Transfer . . . . . . . . . . 37
Section 13.2 Merger Tax Covenant . . . . . . . . . . . . . . . . 37
Section 13.3 Current Public Information . . . . . . . . . . . . 38
ARTICLE XIV Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.1 Indemnification by the Company . . . . . . . . . . 38
Section 14.2 Indemnification by APP . . . . . . . . . . . . . . 38
Section 14.3 Conditions of Indemnification . . . . . . . . . . . 39
Section 14.4 Costs, Expenses and Legal Fees . . . . . . . . . . 41
Section 14.5 Tax Benefits; Insurance Proceeds . . . . . . . . . 41
ARTICLE XV Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 15.1 Termination . . . . . . . . . . . . . . . . . . . . 41
Section 15.2 Effect of Termination . . . . . . . . . . . . . . . 42
ARTICLE XVI Nondisclosure of Confidential Information . . . . . . . . . . . . 42
Section 16.1 Non-Disclosure Covenant . . . . . . . . . . . . . . 42
Section 16.2 Damages . . . . . . . . . . . . . . . . . . . . . . 42
Section 16.3 Survival . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XVII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 17.1 Amendment; Waivers . . . . . . . . . . . . . . . . 42
Section 17.2 Assignment . . . . . . . . . . . . . . . . . . . . 43
Section 17.3 Parties in Interest; No Third Party
Beneficiaries . . . . . . . . . . . . . . . . . . . 43
Section 17.4 Entire Agreement . . . . . . . . . . . . . . . . . 43
Section 17.5 Severability . . . . . . . . . . . . . . . . . . . 43
Section 17.6 Survival of Representations, Warranties
and Covenants . . . . . . . . . . . . . . . . . . . 43
Section 17.7 Governing Law . . . . . . . . . . . . . . . . . . . 43
Section 17.8 Captions . . . . . . . . . . . . . . . . . . . . . 43
Section 17.9 Gender and Number . . . . . . . . . . . . . . . . . 44
Section 17.10 Intentionally omitted. . . . . . . . . . . . . . . 44
Section 17.11 Confidentiality; Publicity and Disclosures . . . . 44
Section 17.12 Notice . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.13 No Waiver; Remedies . . . . . . . . . . . . . . . . 45
Section 17.14 Counterparts . . . . . . . . . . . . . . . . . . . 45
Section 17.15 Defined Terms . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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EXHIBITS
Exhibit A - List of Target Companies . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Merger Consideration . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Stockholder Representation Letter . . . . . . . . . . . . . . . . C-1
Exhibit D - Indemnification Agreement . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E - Physician Employment Agreement . . . . . . . . . . . . . . . . . E-1
Exhibit F - Service Agreement . . . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit G - Stockholder Release . . . . . . . . . . . . . . . . . . . . . . . G-1
Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
</TABLE>
A-1073
<PAGE> 1435
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP") and WOMEN'S IMAGING CONSULTANTS,
P.C., a New York professional corporation (the "Company").
RECITALS
A. The Company owns and operates (i) a professional medical
practice(s) specializing in radiology and (ii) diagnostic imaging centers. All
of the shares of the common stock of the Company (the "Company Common Stock")
are owned beneficially and of record by the Stockholders.
B. APP is engaged in the business of owning, operating and
acquiring the assets of, and managing the non-medical aspects of, radiology
practices and diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that
the Company be merged with and into APP, and that APP be the sole surviving
corporation (sometimes referred to hereinafter as the "Surviving Corporation"),
and the Company be the disappearing corporation (sometimes referred to
hereinafter as the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) the Company will merge
with and into APP upon the terms and conditions set forth herein and in
accordance with the laws of the State of New York and (ii) the outstanding
shares of the Company Common Stock shall be converted at such time into cash
and shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein.
E. Prior to the Merger, the Company intends to transfer certain
of its assets most of which relate solely to the practice of medicine to a
[newly formed professional corporation] ("NewCo") in exchange for all of the
capital stock of NewCo and to thereafter distribute such NewCo stock to the
Stockholders (the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement
with interest holders (together with the Stockholders, the "Target Interest
Holders") of each of the entities listed on Exhibit A (together with the
Company, the "Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Sections 351 and 368 of
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder, as applicable.
A-1074
<PAGE> 1436
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, NewCo and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed in Exhibit 1.1, director or executive officer of such
entity after reasonable investigation and inquiry by the executive officers of
such entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director
or executive officer of the Company actually possesses without the necessity of
any special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the
recitals to this Agreement.
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
A-1075
<PAGE> 1437
"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section
3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person,
including, but not limited to, information derived from reports, processes,
data, know-how, software programs, improvements, inventions, strategies,
compensation structures, reports, investigations, research, work in progress,
codes, marketing and sales programs and plans, financial projections, cost
summaries, formulae, contract analyses, financial information, forecasts,
confidential filings with any state or federal agency, and all other
confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section
3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the
terms hereof, as such may be amended or supplemented from time to time pursuant
to the provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement
is declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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<PAGE> 1438
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering
of APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section
14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or
other fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred
to, taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste,
(xi) any substance, pollutant, material, or contaminant listed or regulated
under any Medical Waste Law, and (xii) other biological waste and discarded
materials contaminated with or exposed to blood, excretion, or secretions from
human beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Section Section 2501 et seq., (iii) the
Marine Protection, Research, and Sanctuaries Act of 1972, 33 USCA Section
Section 1401 et seq., (iv) The Occupational Safety and Health Act, 29 USCA
Section Section 651 et seq., (v) the United States Department of Health and
Human Services, National Institute for Occupational Safety and Health,
Infectious Waste Disposal Guidelines, Publication No. 88-119, and (vi) any
other federal, state, regional, county, municipal, or other local laws,
regulations, and ordinances insofar as they are applicable to any of the
Company's assets or operations and purport to regulate Medical Waste or impose
requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
A-1077
<PAGE> 1439
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock[, $_____ par value
per share,] of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.
"Physician Employee" shall mean each radiologist employed by the
Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the
recitals to this Agreement.
"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
A-1078
<PAGE> 1440
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth
in Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in
which such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed
to be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time, the Company shall be merged with and
into APP in accordance with this Agreement and the separate corporate existence
of the Disappearing Corporation shall thereupon cease (the "Merger"). APP
shall be the Surviving Corporation in the Merger and shall continue to be
governed by the laws of the State of New York, and the separate corporate
existence of the Company with all its rights, privileges, powers, immunities,
purposes and franchises shall continue unaffected by the Merger, except as set
forth herein. The Surviving Corporation may, at any time concurrent with
and/or after the Effective Time, take any action in the name of or on behalf of
the Disappearing Corporation in order to effectuate the transactions
contemplated by this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take
place at 10:00 a.m., local time, at the offices of APP located at 2301
NationsBank Plaza, 901 Main Street, Dallas, Texas on the day on which the
transactions contemplated by the Initial Public Offering are consummated. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
Section 2.3 Effective Time. If all the conditions to the Merger
set forth in Articles XI and XII shall have been fulfilled or waived in
accordance herewith and this Agreement shall not have been terminated in
accordance with Article XVI, the parties hereto shall cause to be properly
executed and filed on the Closing Date, Certificates of Merger meeting the
requirements of Section 904 of the New York Business Corporation Law. The
Merger shall become effective at the time of the filing of such documents with
the Secretary of State of the State of New York, in accordance with such law or
at such later time which the parties hereto have theretofore agreed upon and
designated in such filings as the effective time of the Merger (the "Effective
Time").
Section 2.4 Certificate of Incorporation of Surviving
Corporation. Effective at the Effective Time, the Certificate of Incorporation
of the Company in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation without any amendment
or modification as a result of the Merger.
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<PAGE> 1441
Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP
in effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger.
Section 2.6 Directors of the Surviving Corporation. The persons
who are directors of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time.
Section 2.7 Officers of the Surviving Corporation. The persons
who are officers of the Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on
the part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the
Company's treasury, if any, at the Effective Time, by virtue of the Merger,
shall be cancelled and retired without payment of any consideration therefor
and shall cease to exist.
(c) Each Company Right outstanding at the Effective Time
shall be terminated and cancelled, without payment of any consideration
therefor, and shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged
and remain outstanding as a validly issued, fully paid and nonassessable share
of APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the
Company Common Stock.
(a) At or after the Effective Time and at the Closing (i)
the Stockholders, as holders of a certificate or certificates representing
shares of the Company's Common Stock, shall upon surrender of each certificate
or certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until
each certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at
the Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing
the certificates representing Company Common Stock owned by him, her or it,
duly endorsed in blank by the Stockholder, or accompanied by duly executed
stock powers in blank, and with all necessary transfer tax and other revenue
stamps, acquired at the Stockholder's expense, affixed and cancelled. Each
Stockholder agrees
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<PAGE> 1442
to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to such Company Common Stock or with
respect to the stock powers accompanying any Company Common Stock. Upon such
delivery (or completion of appropriate affidavit of lost certificate and
indemnity), each Stockholder shall receive in exchange therefor the Merger
Consideration pursuant to Exhibit B and Section 2.10 hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other
provision herein, no fractional shares of APP Common Stock will be issued and
any Stockholder otherwise entitled to receive a fractional share of APP Common
Stock as part of the Merger Consideration hereunder shall receive a cash
payment in lieu thereof reflecting such Stockholder's proportionate interest in
a share of APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to consummate
the Merger and except as set forth in the Disclosure Schedules attached hereto
and incorporated herein by this reference, the Company represents and warrants
to APP both as of the date hereof and as of the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, with all requisite corporate
power and authority to own, operate and lease its assets and properties and to
carry on its business as currently conducted. The Company and each Company
Subsidiary is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in
good standing would not have a Material Adverse Effect on the Company. Copies
of the articles or certificates of incorporation and all amendments thereto of
the Company and each Company Subsidiary and the bylaws of the Company and each
Company Subsidiary, as amended, and copies of the corporate minutes of the
Company, all of which have been or will be made available to APP for review,
are true and complete as in effect on the date of this Agreement, and in the
case of the corporate minutes, accurately reflect all material proceedings of
the Stockholders and directors of the Company (and all committees thereof).
The stock record books of the Company, which have been or will be made
available to APP for review, contain true, complete and accurate records of the
stock ownership of record of the Company and the transfer record of the shares
of its capital stock.
Section 3.2 Authorization and Validity. The Company has all
requisite corporate power to enter into this Agreement and all other agreements
entered into in connection with the transactions contemplated hereby and to
consummate the transactions contemplated hereby. The execution, delivery and,
subject to approval of this Agreement and the Merger by the Stockholders,
performance by the Company of this Agreement and the agreements contemplated
herein, and the consummation by the Company of the transactions contemplated
hereby and thereby are within the Company's respective corporate powers and
have been duly authorized by all necessary action on the part of the Company's
Board of Directors. Subject to the approval of this Agreement and the Merger
by the Stockholders, this Agreement has been duly executed by the Company, and
this Agreement and all other agreements and obligations entered into and
undertaken in connection with the transactions contemplated hereby to which the
Company is a party constitute, or upon execution will constitute, valid and
binding agreements of the Company, enforceable against it in accordance with
their respective terms, except as enforceability may be limited by bankruptcy
or other laws affecting the enforcement of creditors' rights generally, or by
general equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger (as
contemplated by Section 2.3) and any other required documents related to the
Merger, and other than consents, filings or notifications required to be made
or obtained solely by APP (including,
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without limitation, in connection with the Initial Public Offering, Form S-4 or
any Hart-Scott-Rodino filing to be made by APP, if any), the execution,
delivery and performance by the Company of this Agreement and the agreements
provided for herein, and the consummation of the transactions contemplated
hereby and thereby by the Company require no action by or in respect of, or
filing with, any governmental body, agency, official or authority.
Section 3.4 Capitalization. The authorized capital stock of the
Company consists of 200 shares of the Company Common Stock, of which 130 shares
are issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common
Stock are owned by the Company in treasury. No shares of Company Common Stock
have been issued or disposed of in violation of any preemptive rights, rights
of first refusal or similar rights of any of the Stockholders. Other than
Company Common Stock, the Company has no securities, bonds, debentures, notes
or other obligations the holders of which have the right to vote (or are
convertible into or exercisable for securities having the right to vote) with
the Stockholders on any matter.
Section 3.5 Transactions in Capital Stock. There exist no
Company Rights. The Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Company nor the relative
ownership of shares among any of its Stockholders has been altered or changed
in contemplation of the Merger within the two (2) years preceding the date of
this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not
been any sale, distribution or spin-off of significant assets of the Company or
any of its Affiliates other than in the ordinary course of business within the
(2) two years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not
own, directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required
Consents. Subject to approval of this Agreement and the Merger by the
Stockholders of the Company, the execution, delivery and performance by the
Company of this Agreement and any other documents contemplated hereby (with or
without the giving of notice, the lapse of time, or both): (i) do not require
the consent of any governmental or regulatory body or authority or any other
third party except for such consents, for which the failure to obtain would not
result in a Material Adverse Effect on the Company; (ii) will not conflict with
or result in a violation of any provision of the Company's articles or
certificate of incorporation or bylaws, (iii) will not conflict with, result in
a violation of, or constitute a default under any law, rule, ordinance,
regulation or any ruling, decree, determination, award, judgment, order or
injunction of any court or governmental instrumentality which is applicable to
the Company or by which the Company or its properties are subject or bound;
(iv) will not conflict with, constitute grounds for termination of, result in a
breach of, constitute a default under, require any notice under, or accelerate
or modify, or permit any person to accelerate or modify, any performance
required by the terms of any agreement, instrument, license or permit, to which
the Company is a party or by which the Company or any of its properties are
subject or bound except for such conflict, termination, breach or default, the
occurrence of which would not result in a Material Adverse Effect on the
Company; and (v) except as contemplated by this Agreement, will not create any
Encumbrance or restriction upon the Company Common Stock or any of the assets
or properties of the Company.
Section 3.9 Intentionally omitted.
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Section 3.10 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, the Company has conducted
its business only in the ordinary course and has not:
(a) suffered any change or changes in its working
capital, condition (financial or otherwise), assets, liabilities, reserves,
business or operations (whether or not covered by insurance) that individually
or in the aggregate has had or could reasonably be expected to have a Material
Adverse Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business;
(c) written off as uncollectible any receivable, except
for write-offs in the ordinary course of business;
(d) except in the ordinary course of business and
consistent with past practice, cancelled or compromised any debts or waived or
permitted to lapse any claims or rights or sold, transferred or otherwise
disposed of any of its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment
policies;
(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject,
any of its assets, tangible or intangible, to any claim or Encumbrance, except
for liens for current personal property taxes not yet due and payable,
mechanics, landlords, materialmen, and other statutory liens, purchase money
security interests, sale-leaseback interests granted and all other Encumbrances
granted in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee
benefits for any employee of the Company, except in the ordinary course of
business and consistent with past practice;
(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;
(l) declared, set aside or made any payments, dividends
or other distributions to any Stockholder or any other holder of capital stock
of the Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its
knowledge, the Company does not have any liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected or reserved against
in the Company's Current Balance Sheet.
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Section 3.12 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of the
Company, threatened against, or affecting the Company, any Company Subsidiary,
any Stockholder, the Physician Employees or any other licensed professional or
other individual affiliated with the Company affecting or that would reasonably
be likely to affect the Company Common Stock or the operations, business
condition, (financial or otherwise), or results of operations of the Company
which (i) if successful, may, individually or in the aggregate, have a Material
Adverse Effect on the Company or (ii) could adversely affect the ability of the
Company or any Company Subsidiary to effect the transactions contemplated
hereby, and to the knowledge of the Company there is no basis for any such
action or any state of facts or occurrence of any event which would reasonably
be likely to give rise to the foregoing. There are no unsatisfied judgments
against the Company or any Company Subsidiary or any licensed professional or
other individual affiliated with the Company or any Company Subsidiary relating
to services provided on behalf of the Company or any Company Subsidiary or any
consent decrees to which any of the foregoing is subject. Each of the matters,
if any, set forth in this Section 3.12 is fully covered by policies of
insurance of the Company or any Company Subsidiary as in effect on the date
hereof.
Section 3.13 No Violation of Law. Neither the Company nor any
Company Subsidiary has been, nor shall be as of the Effective Time (by virtue
of any action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever), in violation of any applicable local,
state or federal law, ordinance, regulation, order, injunction or decree, or
any other requirement of any governmental body, agency, authority or court
binding on it, or relating to its properties, assets or business or its
advertising, sales or pricing practices, except for violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a
true, accurate and complete list of all the lease agreements and license
agreements to which the Company or any Company Subsidiary is a party and
pursuant to which the Company or any Company Subsidiary leases (whether as
lessor or lessee) or licenses (whether as licensor or licensee) any real or
personal property related to the operation of its business and which requires
payments in excess of $12,000 per year (the "Lease Agreements"). The Company
has delivered to APP true and complete copies of all of the Lease Agreements.
Each Lease Agreement is valid, effective and in full force in accordance with
its terms, and there is not under any such lease (i) any existing or claimed
material default by the Company or any Company Subsidiary (as applicable) or
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by the Company or any Company Subsidiary
(as applicable) and, individually or in the aggregate, may reasonably result in
a Material Adverse Effect on the Company, or, (ii) to the knowledge of the
Company, any existing material default by any other party under any of the
Lease Agreements or any event of material default or event which with notice or
lapse of time, or both, would constitute a material default by any such party.
To the knowledge of the Company, there is no pending or threatened reassessment
of any property covered by the Lease Agreements. The Company or any Company
Subsidiary will use reasonable good faith efforts to obtain, prior to the
Effective Time, the consent of each landlord or lessor whose consent is
required to the assignment of the Lease Agreements and will use reasonable good
faith efforts to deliver to APP in writing such consents as are necessary to
effect a valid and binding transfer or assignment of the Company's or any
Company Subsidiary's rights thereunder. The Company has a good, clear, valid
and enforceable leasehold interest under each of the Lease Agreements. The
Lease Agreements comply with the exceptions to ownership interests and
compensation arrangements set out in 42 U.S.C. Section 1395nn, 42 C.F.R.
Section 1001.952, and any similar applicable state law safe harbor or other
exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns
any interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein
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which it purports to own including, without limitation, all the property and
assets reflected in the Company Current Financial Statements; and (ii) owns
such rights, interests, assets and property free and clear of all Encumbrances,
title defects or objections (except for taxes not yet due and payable). The
personal property presently used in connection with the operation of the
business of the Company and the Company Subsidiaries constitutes the necessary
personal property assets to continue operation of the Company and any Company
Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, the Company does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in
any manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies,
of each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate
(other than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000
in any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is
with unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP of the assets and
properties to be acquired by APP from the Company, or which could inhibit or
prevent the Company from transferring to or vesting in APP good and sufficient
title to the assets and properties to be acquired by APP and the Surviving
Corporation except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, the
Company shall, on or before the Closing Date, use reasonable good faith efforts
to obtain and deliver to APP in writing, effective as of the Closing Date, such
consents as are necessary to enable the Surviving Corporation to enjoy all of
the rights now enjoyed by the Company under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to
APP any contracts or agreements relating to the provision of professional
medical services or other such agreements and contracts that APP consents to in
writing to be transferred to NewCo in the Spin-off Transaction. No contract
with a health care provider or Payor has been materially amended or terminated
within the last twelve (12) months.
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(b) The Company (i) has not received notice of any plan
or intention of any other party to exercise any right to cancel or terminate
any contract, agreement or instrument required to be disclosed pursuant to
Section 3.17(a), and to the knowledge of the Company there are no fact(s) that
would justify the exercise of such a right; and (ii) does not currently
contemplate, or have reason to believe any other Person currently contemplates,
any amendment or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a
party to any employment contract (except for oral employment agreements which
are terminable at will), consulting or collective bargaining contracts,
deferred compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit
sharing, bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected
to receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
Upon termination of employment of any employee or Physician Employee, no
severance or other payments will become due and the Company has no policy, past
practice or plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair
labor practice, charge or complaint or any other employment-related matter
against or involving the Company pending or threatened before the National
Labor Relations Board or any federal, state or local agency, authority or
court;
(c) To the knowledge of the Company, there are no
charges, investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or
court against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the
Immigration Reform and Control Act of 1986, as amended, and all applicable
regulations promulgated thereunder; and
(e) To the knowledge of the Company, there are no
inquiries, investigations or monitoring activities of any licensed, registered,
or certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
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Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided to APP copies of all plan documents (as they may have been
amended to the date hereof), determination letters, pending determination
letter applications, trust instruments, insurance contracts or policies related
to an Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee
Benefit Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any
notice that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach
of any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or
other liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the
Company's knowledge, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or
501(c)(9) of the Code and/or tax-exempt within the meaning of Section 501(a) of
the Code and, to the best knowledge of the Company and each Stockholder, has
been continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation
of any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency
(within the meaning of Section 412 of the Code), whether waived or unwaived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Code) in which the Company is a member (a "Controlled Group"). With respect to
each Employee Benefit Plan subject to Title IV of ERISA, the assets of each
such plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. With respect to each
Employee Benefit Plan described in Section 501(c)(9) of the Code, the assets of
each such plan are at least equal in value to the present value of accrued
benefits, based upon the most recent actuarial valuation as of a date no more
than ninety (90) days prior to the date hereof. The Disclosure Schedules
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contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of
a Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any
member of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section
412 of the Code.
(j) PBGC. No facts or circumstances are known to the
Company that would result in the imposition of liability against APP or any of
its Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result
of any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any
Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or
commitment to provide medical, dental or life insurance benefits to or on
behalf of any of its employees who may retire or any of its former employees
who have retired except as may be required pursuant to the continuation of
coverage provisions of Section 4980B of the Code and the applicable provisions
of ERISA.
(l) Other Compensation Arrangements. Neither the Company
nor, to the Company's knowledge, any Stockholder or Physician Employee is a
party to any compensation or debt arrangement with any Person relating to the
provision of health care related services other than arrangements with the
Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has,
within the five (5) years preceding the date hereof, through the Effective
Time, received from any federal, state or local governmental body, agency,
authority or entity, or any other Person, any written notice, demand, citation,
summons, complaint or order or any notice of any penalty, lien or assessment,
and to the knowledge of the Company no investigation or review is pending by
any governmental entity, with respect to any (i) alleged violation by the
Company of any Environmental Law (as defined in subsection (e) below) (ii)
alleged failure by the Company to have any environmental permit, certificate,
license, approval, registration or authorization required pursuant to any
Environmental Law in connection with the conduct of its business; or (iii)
alleged illegal Regulated Activity (as defined in subsection (e) below) by the
Company.
(b) Neither the Company nor any Company Subsidiary has
used, transported, disposed of or arranged for the disposal of (as those terms
are defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein)
that would be reasonably likely to give rise to any Environmental Liabilities
(as defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Schedule 3.21(b) discloses any known presence of asbestos in or on the
Company's or any Company Subsidiary's owned or leased premises. To the
knowledge of the Company, there is no friable asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises.
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(c) To the knowledge of the Company, no soil or water in
or under any assets currently or formerly held for use or sale by the Company
or any Company Subsidiary is or has been contaminated by any Hazardous
Substance while such assets or premises were owned, leased, operated or
managed, directly or indirectly by the Company or any Company Subsidiary, where
such contamination had, or would be reasonably likely to have, a Material
Adverse Effect on the Company.
(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of the
Company, concerning the Company or any Company Subsidiary within the five (5)
years preceding the date hereof through the Effective Time with respect to any
real property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following
terms have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended
to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect
to, or list or define air, water, groundwater, solid waste, hazardous,
toxic, or radioactive substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public in each case as in
effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
Section 3.22 Filing Reports. All returns, reports, plans and
filings of any kind or nature necessary to be filed by the Company with any
governmental agency or authority have been properly completed and timely filed
in compliance with all applicable requirements, except where failure to so file
would not have a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list
and briefly describe the Company's policies of insurance to which the Company
or any Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and
enforceable policies, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies and all premiums with respect thereto which
are due and payable are currently paid. All Insurance Policies currently
maintained by the Company or any Company Subsidiary ("Current Policies") taken
together, (i) provide adequate insurance coverage for the assets, properties
and operations of the Company and its Affiliates for all risks normally insured
against by a Person carrying on a substantially similar business or businesses
as the Company and its Affiliates, (ii) are sufficient for compliance with
legal and contractual requirements to which the Company or any of its
Affiliates is a party or by which any of them may be bound, and (iii) shall be
maintained in force (including the payment of all premiums and compliance with
their terms) without interruption up to and including the Closing Date. True,
complete and correct copies
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of all Insurance Policies have been provided to APP. Neither the Company nor
any Company Subsidiary nor any officer or director thereof has received any
notice or other written communication from any issuer of any Current Policy
cancelling such policy, materially increasing any deductibles or retained
amounts thereunder, or materially increasing the annual or other premiums
payable thereunder and, to the knowledge of the Company, no such cancellation
or increase of deductibles, retainages or premiums is threatened. There are no
outstanding claims, settlements or premiums owed against any Insurance Policy,
and all required notices have been given and all known potential or actual
claims under any Insurance Policy have been presented in due and timely
fashion. Within the five (5) years preceding the Agreement, neither the
Company nor any Company Subsidiary has filed a written application for any
professional liability insurance coverage which has been denied by an insurance
agency or carrier. The Disclosure Schedules also set forth a list of all
claims under any Insurance Policy in excess of $10,000 per occurrence filed by
the Company or any Company Subsidiary during the immediately preceding
three-year period. Each Physician Employee has, at all times while a Physician
Employee, maintained or been covered by professional malpractice insurance in
such types and amounts as are customary for such a physician practicing the
same type of medicine in the same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging
of all accounts receivable of the Company as of March 31, 1997, which list is
complete, true and accurate in all material respects. All such accounts
receivable arose in the ordinary course of business and have not been
previously written off as bad debts and, are, to the extent still uncollected,
to the knowledge of the Company collectible in the ordinary course of business,
net of reserves for doubtful and uncollectible accounts shown in the Company
Financial Statements or on the accounting records of the Company (which
reserves are calculated consistent with generally accepted accounting
principles and past practice).
(b) The Disclosure Schedules set forth (i) a true,
correct and complete list of the names and addresses of each Payor of the
Company as of such date, which accounted for more than 5% of the revenues of
the Company in the fiscal year ended December 31, 1996, or which is reasonably
expected to account for more than 5% of the revenues of the Company for the
fiscal year to end December 31, 1997, and (ii) a single line item listing for
all private-pay patients in the aggregate of the Company. The Company has
satisfactory relations with such Payors set forth in (i) above and none of such
Payors has notified the Company that it intends to discontinue its relationship
with the Company or to deny any payments due from, or any claims for payment
submitted to any such party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and
complete (i) list of the accounts payable of the Company as of March 31, 1997,
and (ii) list of each individual indebtedness owed by the Company of $5,000 or
more, setting forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct
and complete list of the names and addresses of each of the providers/suppliers
of products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company
Current Balance Sheet contained in the Company Financial Statements consisted,
and all such items on hand on the date of this Agreement consist, and all such
items on hand at the Effective Time will consist, net of all applicable
reserves with respect thereto (calculated consistent with past practice), of
items of a quality and a quantity usable and saleable in the ordinary course of
the Company's business and conform to generally accepted standards in the
industry of which the Company is a part. The value of the inventories
reflected on the Company Current Balance Sheet contained in the Company
Financial Statements are net of adequate reserves for damaged, excess, and
unusable items. Purchase commitments of the Company for inventory
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are not materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or practice his or her specialty and (ii) is eligible to
participate in and to receive reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid Programs") and any other
programs funded in whole or in part by federal, state or local entities for
which the Company is eligible and which are listed in the Disclosure Schedules
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any
private insurance program) under which the Company is presently receiving
payments directly or indirectly from any Payor for patient care provided by
such Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to
APP. No violation, default, order or deficiency exists with respect to any of
the items listed in the Disclosure Schedules except for such violations,
defaults, orders or deficiencies which would not be reasonably likely to have a
Material Adverse Effect on the Company, and there is no action pending or to
the Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program,
and no event has occurred which, with or without notice or lapse of time, or
both, would constitute grounds for a violation, order or deficiency with
respect to any of the items listed in the Disclosure Schedules to revoke,
withdraw or suspend any material license to operate its business as is
presently being conducted by it. To the knowledge of the Company, there has
been no decision not to renew any existing agreement with any provider or Payor
relating to the Company's business as presently being conducted by it. Neither
the Company nor any Physician Employee (i) has had his/her/its professional
license, Drug Enforcement Agency number, Medicare/Medicaid provider status or
staff privileges at any hospital or diagnostic imaging center suspended,
relinquished, terminated or revoked (including orders that have been entered by
any such entities but stayed), (ii) has been reprimanded in writing, sentenced,
or disciplined by any licensing board, state agency, regulatory body or
authority, hospital, Payor or specialty board (including orders that have been
entered by any such entities but stayed), or (iii) is the subject of an initial
or final determination by any federal or state authority that could result in
any demand or reimbursement under the Medicare, Medicaid or Government Programs
or any exclusion or which monetary penalty under federal or state law or (iv)
has had a final judgment or settlement entered against him/her/it in connection
with a malpractice or similar action.
(b) The Company is not required, or for the 72-month
period prior to the Effective Time was not required, to file any cost reports
or other reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of
the Company, or any Physician Employee, nor the right of any licensed
professional or other individual affiliated with the Company to receive
reimbursements pursuant to any Governmental Program or Private Program has been
terminated or otherwise materially and adversely affected as a result of any
investigation or action whether by any federal or state governmental regulatory
authority or other third party. No Physician Employee, licensed professional
or other individual affiliated with the business has, during the past three (3)
years prior to the Effective Time, had their professional license or staff
privileges limited, suspended or revoked by any governmental regulatory
authority or agency, hospital, integrated delivery system, trade association,
professional review organization, accrediting organization or certifying agency
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(including orders that have been entered by any such entities but stayed).
True, correct and complete copies of all reports, correspondence, notices and
other documents relating to any matter described or referenced in this Section
3.28 have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete
and accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v)
other similar agreements relating to the foregoing to which the Company or any
Company Subsidiary is a party (including expiration date if applicable)
(collectively, the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and
accurate list and summary description of all agreements relating to technology,
trade secrets, know-how or processes that the Company is licensed or authorized
to use by others (other than technology, know-how or processes generally
available to other health care providers) or which it licenses or authorizes
others to use, true, correct and complete copies of which have been provided to
APP. There are no outstanding and, to the Company's knowledge, any threatened
disputes or disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and
the Proprietary Rights are freely transferable. To the knowledge of the
Company, no claim has been asserted by any person to the ownership of or for
infringement by the Company of any Proprietary Right of any other Person, and
neither the Company nor any Stockholder is aware of any valid basis for any
such claim. To the best knowledge of the Company, no proceedings have been
threatened which challenge the Proprietary Rights of the Company. The Company
has the right to use, free and clear of any adverse claims or rights of others,
all trade secrets, customer lists and proprietary information required for the
performance and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and
timely filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All
such Tax Returns or reports are complete and accurate in all material respects
and properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the
Company may be disputing in good faith by proceedings in compliance with
applicable law, which are described in the Disclosure Schedules, (i) the
Company has paid all taxes, penalties, assessments and interest that have
become due with respect to any Tax Returns that it has filed and has properly
accrued on its books and records in accordance with generally accepted
accounting principles for all of the same that have not yet become due and
payable and (ii) the Company is not delinquent in the payment of any tax,
assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
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assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to
be asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated
any applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has
not granted an extension to any taxing authority of the statute of limitation
period during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for
all income, social security, unemployment insurance, sales, excise, use, and
other taxes have been collected or withheld and paid to the respective
governmental agencies.
(f) Foreign Person. Neither the Company nor any
Stockholder is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets
of the Company constitutes property that the Company, APP or any Affiliate of
APP, will be required to treat as being owned by another person pursuant to the
"Safe Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal
by the Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties
of the Company are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any
time consented to have the provisions of Section 341(f)(2) of the Code apply to
it.
(j) Boycotts. The Company has not at any time
participated in or cooperated with any international boycott as defined in
Section 999 of the Code.
(k) Parachute Payments. No payment required or
contemplated to be made by the Company will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election
to be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or
has not been a personal holding company within the meaning of Section 542 of
the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to
the Company's business. There is no commitment to, and no income reflected in
the Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such
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as checking account, borrowing arrangements, safe deposit box, etc.) and the
Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the
Company nor any Company Subsidiary has engaged and, to the knowledge of the
Company, neither the Company's officers and directors nor the Physician
Employees or other Persons and entities providing professional services for or
on behalf of the Company have engaged, in any activities which are prohibited
under 42 U.S.C. Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn
(subject to the exceptions or safe harbor provisions set forth in such
legislation), or the regulations promulgated thereunder or pursuant to similar
state or local statutes or regulations, or which are prohibited by applicable
rules of professional conduct or 18 U.S.C. Sections 24, 287, 371, 664, 669,
1001, 1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no
material agreement, judgment, injunction, order or decree binding upon the
Company, any Company Subsidiary or officer, director or key employee of the
Company or Company Subsidiary, which has or reasonably could be expected to
have the effect of prohibiting or materially impairing the current medical
practice of the Company or any Company Subsidiary or the continuation of that
medical practice in the future by NewCo, any acquisition of property by the
Company, any Company Subsidiary or the conduct of business by the Company or
any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are
valid and binding, and are in full force and effect and are enforceable in
accordance with their terms, except to the extent that the validity or
enforceability thereof may be limited by bankruptcy or other laws affecting the
enforcement of creditors' rights generally, or by general equity principles, or
by public policy. There is no pending or, to the knowledge of the Company,
threatened bankruptcy, insolvency or similar proceeding with respect to any
other party to such agreements, and no event has occurred which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder by the Company or any other party
thereto. No contract with a Physician Employee has been terminated in the last
twelve (12) months.
Section 3.36 Statements True and Correct. No representation or
warranty made herein by the Company or any Stockholder, nor any statement,
certificate, information, exhibit or instrument to be furnished by the Company
or any Stockholder to APP or any of its respective representatives pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules
required by Article III hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
any of the Stockholders or the Company who is entitled to any fee or commission
upon consummation of the transactions contemplated by this Agreement or
referred to herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
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Section 4.1 Organization and Good Standing; Qualification. APP
is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. APP is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where such failure to be so
qualified or in good standing would not have a Material Adverse Effect on APP.
Copies of the certificate of incorporation and all amendments thereto of APP
and the bylaws of APP, as amended, and copies of the corporate minutes of APP
regarding the Merger and the transactions contemplated hereby, all of which
have been or will be made available to the Company for review, are true,
correct and complete as in effect on the date of this Agreement and accurately
reflect all material proceedings of the stockholders and directors of APP (and
all committees thereof) regarding the Merger and the transactions contemplated
hereby. The stock record books of APP, which have been or will be made
available to the Company for review, contain true, complete and accurate
records of the stock ownership of APP and the transfer of the shares of its
capital stock.
Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and the Other Agreements
and to consummate the Merger and the transactions contemplated hereby. The
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, including the Other Agreements and the consummation by APP
of the transactions contemplated hereby and thereby are within APP's corporate
powers and have been duly authorized by all necessary action on the part of
APP's Board of Directors. This Agreement has and the Other Agreements have
been duly executed by APP. This Agreement and all other agreements and
obligations entered into and undertaken in connection with the Merger and the
transactions contemplated hereby to which APP is a party constitute, or upon
execution will constitute, valid and binding agreements of APP, enforceable
against it in accordance with their respective terms, except as may be limited
by bankruptcy or other laws affecting creditors' rights generally, or by
general equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger and any
other required documents related to the Merger, and other than consents,
filings or notifications required to be made or obtained solely by the Company,
the execution, delivery and performance by APP of this Agreement and the
agreements provided for herein, and the consummation of the Merger and the
transactions contemplated hereby and thereby by APP requires no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of [20,000,000] shares of APP Common Stock, of which [2,000,000]
shares are issued and outstanding and [10,000,000] shares of APP Preferred
Stock, none of which are outstanding. Each outstanding share of APP Common
Stock has been legally and validly issued and is fully paid and nonassessable,
and was issued pursuant to a valid exemption from registration under (i) the
Securities Act of 1933, as amended, and (ii) all applicable state securities
laws. No shares of capital stock are owned by APP in treasury. No shares of
capital stock of APP have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any
stockholders of APP. APP has no bonds, debentures, notes or other obligations
the holders of which have the right to vote (or are convertible into or
exercisable for securities having the right to vote) with the stockholders of
APP on any matter. There exist no options, warrants, subscriptions, calls,
commitments or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of APP and no
option, warrant, subscription, call, or commitment or commission right of any
kind exists which obligates APP to issue any of its authorized but unissued
capital stock. APP has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
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Section 4.5 Subsidiaries and Investments. APP does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance of this Agreement by APP and
any other documents contemplated hereby (with or without the giving of notice,
the lapse of time, or both): (i) does not require the consent of any
governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on APP; (ii) will not conflict with any provision of
APP's certificate of incorporation or bylaws; (iii) will not conflict with,
result in a violation of, or constitute a default under any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or governmental
instrumentality to which APP is a party or by which APP or its properties are
subject or bound; (iv) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, require any
notice under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit, material
to this transaction, to which APP is a party or by which APP or any of its
properties are bound except for such conflict, termination, breach or default,
the occurrence of which would not result in a Material Adverse Effect on APP;
and (v) will not create any Encumbrance or restriction upon APP Common Stock or
any of the assets or properties of APP. The financial statements of APP
contained in the Registration Statements (a) have been prepared in accordance
with generally accepted accounting principles consistently applied (except as
may be indicated therein or in the notes thereto), (b) present fairly the
financial position of APP and APP Subsidiaries as of the dates indicated and
present fairly the results of APP's and APP Subsidiaries' operations for the
periods then ended, and (c) are in accordance with the books and records of APP
and APP Subsidiaries, which have been properly maintained and are complete and
correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, there has not been (i)
any change in the working capital, condition (financial or otherwise), assets,
liabilities, reserves, business or operations of APP that has had or is
reasonably likely to have a Material Adverse Effect on APP; or (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in
the Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.
Section 4.9 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of APP,
threatened against, or affecting APP. There are no unsatisfied judgments
against APP or any consent decrees to which APP is subject. Each of the
matters, if any, set forth in the Disclosure Schedules are fully covered by
policies of insurance of APP as in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be
as of the Effective Time (by virtue of any action, omission to act, contract to
which it is a party or any occurrence or state of facts whatsoever), in
violation of any applicable local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any governmental body,
agency or authority or court binding on it, or relating to its property or
business or its advertising, sales or pricing practices, except for violations
which are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form
S-4, APP does not have any material arrangements, agreements or plans with any
person with respect to the employment by APP of such person or whereby such
person is to serve as an officer or director of APP.
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Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any
Tax Returns that it has filed and has properly accrued on its books and records
for all of the same that have not yet become due and (ii) APP is not delinquent
in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. APP has not received any notice that any tax deficiency or
delinquency has been asserted against APP. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of APP that could be asserted by any taxing authority. There is
no taxing authority audit of APP pending, or to the knowledge of APP,
threatened, and the results of any completed audits are properly reflected in
the financial statements of APP. APP has not violated any federal, state,
local or foreign tax law.
(d) No Extension of Limitation Period. APP has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
(g) Tax Exempt Entity. None of the assets of APP are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Code.
(j) Parachute Payments. No payment required or
contemplated to be made by APP will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
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Section 4.13 Related Party Arrangements. The Disclosure Schedules
or Form S-4 sets forth a description of any interest held, directly or
indirectly, by any officer, director or other Affiliate of APP in any property,
real or personal or mixed, tangible or intangible, used in or pertaining to
APP's business and any arrangement or agreement with any such person concerning
the provision of goods or services or other matters pertaining to APP's
business.
Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to the Company or a Stockholder
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules
required by Article IV hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
APP who is entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true
and correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo
is a professional corporation duly organized, validly existing and in good
standing under the laws of its state of organization, with all requisite
corporate power and authority to carry on the business in which it intends to
engage, to own the properties it intends to own, and to execute and deliver the
Service Agreement, the Security Agreement and the Physician Employment
Agreements and consummate the transactions and perform the services
contemplated thereby. NewCo is duly qualified and licensed to do business and
is in good standing in all jurisdictions where the nature of its intended
business makes such qualification necessary, which jurisdictions are listed in
the Disclosure Schedules, except where the failure to be so qualified shall not
have a Material Adverse Effect on NewCo.
Section 5.2 Capitalization. The authorized capital stock of
NewCo consists of [_____] shares of NewCo Common Stock, of which [______]
shares are issued and outstanding, and no shares of capital stock of NewCo are
held in treasury. The Stockholders own all of the issued and outstanding
shares of NewCo Common Stock, free and clear of any Encumbrance. Each
outstanding share of NewCo Common Stock has been legally and validly issued and
is fully paid and nonassessable. There exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of NewCo. No
shares of capital stock of NewCo have been issued or disposed of in violation
of the preemptive rights, rights of first refusal or similar rights of any of
NewCo's stockholders.
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Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and
complete copies thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery
and performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict
with any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities.
NewCo has not commenced business since its incorporation. Other than its
articles or certificate of incorporation and bylaws, and as of the Closing
Date, the Service Agreement, the Security Agreement, the Physician Employment
Agreements, and the other contracts and agreements assigned to NewCo as part of
the Spin-Off Transaction, NewCo is not a party to or subject to any agreement,
indenture or other instrument. NewCo does not own any assets (tangible or
intangible) other than the consideration received upon the issuance of shares
of its capital stock or pursuant to the Spin-Off Transaction, and NewCo does
not have any liabilities, accrued, contingent or otherwise (known or unknown
and asserted or unasserted) other than those assumed pursuant to the Spin-Off
Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure
to so comply or file would not, individually or in the aggregate, have a
Material Adverse Effect on NewCo.
ARTICLE VI
Intentionally Omitted.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant
to the Spin-Off Transaction or the "F" Reorganization, from the date hereof
until the Effective Time, the Company shall, in all material respects, conduct
its business in the ordinary and usual course consistent with past practices
and shall use reasonable efforts to:
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(a) preserve intact its business and its relationships
with Payors, referral sources, customers, suppliers, patients, employees and
others having business relations with it;
(b) maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the
conduct of the business of the Company;
(c) continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof. In addition, without the written consent of APP, the Company shall
not:
(1) amend its articles or certificate of
incorporation or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or
sale, shares of any class of its securities (including, but
not limited to, by way of stock split, dividend,
recapitalization or other reclassification) or any
subscriptions, options, warrants, rights or convertible
securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such securities;
(3) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such
shares;
(4) declare or pay any dividend or other
distribution (whether in cash, stock or other property) with
respect to its capital stock (except as expressly contemplated
herein);
(5) voluntarily sell, transfer, surrender,
abandon or dispose of any of its assets or property rights
(tangible or intangible) other than the sale of inventory, if
any, in the ordinary course of business consistent with past
practices;
(6) grant or make any mortgage or pledge or
subject itself or any of its properties or assets to any lien,
charge or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital
expenditures which are not reasonably necessary for the
conduct of its business;
(9) grant any increase in the compensation
payable or to become payable to directors, officers,
consultants or employees other than merit increases to
employees of the Company who are not directors or officers of
the Company, except in the ordinary course of business and
consistent with past practices;
(10) change in any manner any accounting
principles or methods other than changes which are consistent
with generally accepted accounting principles;
(11) enter into any material commitment or
transaction other than in the ordinary course of business;
(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;
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(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;
(14) agree, whether in writing or otherwise, to do
any of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective
Time, the Company shall (i) except for sales of assets held as inventory, if
any, in the ordinary course of business prior to the Effective Time and except
as otherwise specifically described in the Disclosure Schedules to this
Agreement, have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or indirect
indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations
in the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.
Section 7.3 Access. At all times prior to the Effective Time,
APP's employees, attorneys, accountants, agents and other authorized and
designated representatives will be allowed full access upon reasonable prior
notice and during regular business hours (and at such other times as the
parties may reasonably agree) to the properties, books and records of the
Company, including, without limitation, deeds, title documents, leases, patient
lists, insurance policies, minute books, share certificate books, share
registers, accounts, tax returns, financial statements and all other data that,
in the reasonable opinion of APP, are required for APP to make such
investigation as it may desire of the properties and business of the Company.
APP shall also be allowed full access upon reasonable prior notice and during
regular business hours (and at such other times as the parties may reasonably
agree) to consult with the officers, employees (after announcement by the
Company of the Merger to its employees which shall occur no later than three
(3) days subsequent to execution hereof by the Company), accountants, counsel
and agents of the Company in connection with such investigation of the
properties and business of the Company. No investigation by APP shall diminish
or otherwise affect any of the representations, warranties, covenants or
agreements of the Company under this Agreement. Any access or investigation
referred to in this Section 7.3 shall be conducted in such a manner as to
minimize the disruption to the Company's ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and
shall cause each of its directors, officers, employees or agents not to
directly or indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire
all or a substantial portion of the business, properties or capital stock of
the Company, whether by merger, consolidation, share exchange, business
combination, purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of the Company, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of the Company. If the Company receives any
offer or proposal after the date hereof, written or otherwise, of the type
referred to above, the Company shall promptly inform APP of such offer or
proposal, decline such offer and furnish APP with a copy thereof if such offer
or proposal is in writing.
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Section 7.5 Compliance With Obligations. Prior to the Effective
Time, the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all
material agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly
notify APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to
terminate employment received from, any salaried or non-hourly, skilled
employee of the Company;
(d) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting the Company which, if pending on the date of this
Agreement, would have been required to have been disclosed to APP hereunder or
which relate to the consummation of the transactions contemplated by this
Agreement;
(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a
material deterioration in the relationship with any Payor or supplier or key
employee of the Company and, if requested by APP, will exert its reasonable
best efforts to restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its
best efforts to obtain the unanimous approval of its Stockholders to the
Merger. In seeking the approval of its Stockholders, the Company shall provide
each Stockholder with the Form S-4 which shall include information as may be
required by applicable law or as APP shall deem appropriate. The Board of
Directors of the Company shall recommend the approval of the Merger by the
Stockholders of the Company. If the Stockholders' approval is not unanimous,
the Company shall give notice to the nonconsenting Stockholders of the action
taken by the consenting Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to
Section 7.8 hereof, the Company will take all action reasonably necessary to
cause the Company to perform its obligations under this Agreement and all
related agreements and to consummate the Merger and other transactions
contemplated hereby and thereby on the terms and conditions set forth in this
Agreement and such agreements; provided, however, that this covenant shall not
require the Company to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein.
Section 7.10 Funding of Accrued Employee Benefits. The Company
hereby covenants and agrees that it will take whatever steps are necessary to
pay for or fund completely any accrued benefits,
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where applicable, or vested accrued benefits for which the Company or any
entity might have any liability whatsoever arising from any tax-qualified plan
as required under applicable law. The Company acknowledges that the purpose
and intent of this covenant is to assure that APP shall have no liability
whatsoever at any time after the Closing Date with respect to any such
tax-qualified plan, unless such plan is merged with a plan sponsored by APP.
Section 7.11 Accounting and Tax Matters. The Company will not
change in any material respect the accounting methods or practices followed by
the Company (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. The Company will
not make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment or consent to any tax
claim or assessment or any waiver of the statute of limitations for any such
claim or assessment. The Company will duly, accurately and timely (without
regard to any extensions of time) file all returns, information statements and
other documents relating to taxes of the Company required to be filed by it,
and pay all taxes required to be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form,
organize and incorporate NewCo in the state of New York, and the articles or
certificate of incorporation and bylaws of NewCo shall be in form and substance
reasonably satisfactory to APP. Except for consummating the Spin-Off
Transaction, NewCo shall not commence business until the Closing Date. On or
prior to the Closing, the Company shall take all actions and execute all
documents, agreements or instruments necessary pursuant to and in compliance
with applicable law to effect the Spin-Off Transaction, including without
limitation, the following: Prior to the Closing, the Company shall transfer to
NewCo good, valid and marketable title to all of the Company's right, title and
interest in and to the Employee Benefit Plans, all contracts and agreements and
other assets listed on the Disclosure Schedules (to be delivered by the Company
prior to Closing, which schedule will be subject to the approval of APP, which
approval shall not be unreasonably withheld) which by law either cannot be
acquired or cannot be used by APP because they relate to the practice of
medicine or radiology, and shall contribute to NewCo such other consideration
and assets of the Company as may be required under applicable law, in exchange
for the issuance by NewCo of shares of NewCo Common Stock, such shares being
all of the issued and outstanding shares of NewCo Common Stock. The Company
shall then distribute the shares of NewCo Common Stock to the Stockholders in
proportion to their respective ownership interest in the Company.
Section 7.13 "F" Reorganization. The Company shall convert its
corporate status from that of a professional medical corporation to that of a
general business corporation in a transaction which will qualify as a tax-free
transaction under Section 368(a)(2)(F) of the Code (the "F" Reorganization").
The Company shall prepare and execute all documents necessary to effectuate the
"F" Reorganization prior to the Closing. At or prior to the Closing, the
Company shall cause an amendment to this Agreement to be executed which will
reflect the changes which result from the "F" Reorganization.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Merger; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
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Section 8.2 Requirements to Effect the Merger and Acquisitions.
APP will use its best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and their authorized representatives to
inspect and, at the Company's sole expense, make copies of all documents,
records and information with respect to the affairs of APP as the Company and
their representatives may reasonably request, all for the sole purpose of
permitting the Company to become familiar with the business and assets and
liabilities of APP. No investigation by the Company or the Stockholders shall
diminish or otherwise affect any of the representations, warranties, covenants
or agreements of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly
inform the Company in writing of (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by APP subsequent to the date of this
Agreement and prior to the Effective Time under any contract, agreement or
investment material to APP's condition (financial or otherwise), operations,
assets, liabilities or business and to which it is subject; (b) any material
adverse change in APP's condition (financial or otherwise), operations, assets,
liabilities or business or (c) defaults or disputes regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP shall use its best
efforts to establish a qualified plan and trust for NewCo, within the meaning
of Section 401(a) and 501(a), respectively, of the Code ("New Qualified Plan")
that will provide benefits comparable (as determined under Section 401(a)(4) of
the Code) to the benefits provided under the qualified plans referenced in the
Disclosure Schedules, if any, sponsored by the Company as of March 31, 1997.
APP will file for a favorable determination letter from the IRS on the New
Qualified Plan and request a favorable determination from the IRS that NewCo is
not a member of an affiliated service group (as defined in Section 414(m) of
the Code) or a recipient organization of leased employee services (as defined
in Section 414(n) of the Code). Any benefits provided under the New Qualified
Plan shall be conditioned on a favorable determination letter from the IRS.
Costs associated with the establishment and design of the New Qualified Plan
shall be paid by APP. The NewCo shall be responsible for funding any
contributions to, or any ongoing administrative costs of, the New Qualified
Plan.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and
file with the SEC the Registration Statements on Form S-1 and Form S-4 (or
other appropriate Forms) to be filed by APP in connection with its Initial
Public Offering and offering of the shares of APP Common Stock to the Target
Interest Holders pursuant to the transactions contemplated by this Agreement
and the Other Agreements (including the prospectus constituting parts thereof,
the "Registration Statements"). APP shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. The Company shall cooperate with
APP in the preparation of the Registration Statements and shall furnish all
information concerning the Company and NewCo as may be reasonably requested in
connection with any such action in a timely manner.
(b) The Company and APP and each separately represent and warrant
that (i) in the case of the Company, none of the written information or
documents supplied or to be supplied by it specifically
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for inclusion in the Registration Statements, by exhibit or otherwise and (ii)
in the case of APP, will, at the time the Registration Statements and each
amendment and supplement thereto, if any, becomes effective under the
Securities Act, none of them contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Company shall be entitled to review the
Registration Statements and each of the amendments thereto, if any, prior to
the time each becomes effective under the Securities Act. The Company shall
have no responsibility for information contained in the Registration Statements
except for information provided by the Company specifically for inclusion
therein. The Company's review of the Registration Statements shall not
diminish or otherwise affect the representations, covenants and warranties of
APP contained in this Agreement.
(c) The Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners,
Stockholders and NewCo, and such other matters as may be reasonably requested
by APP in connection with the preparation of the Registration Statements and
each of the amendments or supplements thereto, or any other statement, filing,
notice or application made by or on behalf of each such party or any of its
subsidiaries to any governmental entity in connection with the Merger and the
other transactions contemplated by this Agreement.
Section 9.2 Amendments of Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to supplement or amend promptly the Disclosure Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on the Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Disclosure Schedule that constitutes or reflects a Material Adverse Effect on
APP may be made unless the Company consents to such amendment or supplement.
For purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have
been fulfilled, the Disclosure Schedules hereto shall be deemed to be the
Disclosure Schedules as amended or supplemented pursuant to this Section 9.2.
In the event that the Company seeks to amend or supplement a Disclosure
Schedule pursuant to this Section 9.2 and APP does not consent to such
amendment or supplement, or APP seeks to amend or supplement a Disclosure
Schedule pursuant to this Section 9.2, and the Company does not consent, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto
will knowingly, either before or after the Merger, take any action that would
prevent the Merger from qualifying as a tax-free exchange within the meaning of
Sections 351 or 368 of the Code, as applicable.
Section 9.4 Public Announcements. The parties hereto will
consult with each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable law, will not issue any
such press release or make any such public statement prior to such
consultation, although the foregoing shall not apply to any disclosure by APP
in any filing with the DOJ, FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be
solely responsible for their own fees and expenses with respect to the
transactions contemplated herein including, without limitation, the fees
charged by attorneys, accountants and financial advisors retained by such
parties. The fees and expenses incurred by the Company and NewCo in connection
with the Merger shall be paid by the Company Stockholders in full immediately
prior to the Closing and such expenses shall be the sole responsibility of the
Stockholders following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all
records and information regarding the patients of the Company and NewCo
confidential in accordance with all applicable laws.
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Section 9.7 Registration Statements. APP shall prepare and file
the Registration Statements with the SEC, and shall use its reasonable good
faith efforts to cause the Registration Statements to become effective under
the Securities Act and take any action required to be taken under the
applicable state Blue Sky or other securities laws in connection with the
issuance of the shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations
and warranties of the Company contained herein and each Stockholder contained
in the Stockholders Representation Letter (as delivered pursuant to Section
10.12 hereof) shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects as of the
Effective Date.
Section 10.2 Covenants. The Company shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have
delivered to APP their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse
Effect on the Company shall have occurred since March 31, 1997, whether or not
such change shall have been caused by the deliberate act or omission of the
Company or any Stockholder.
Section 10.6 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, statements, rule, regulation or ordinance to
consummate the transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statements shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate
the transactions contemplated hereby. The APP Common Stock shall have been
approved for listing on the Nasdaq National Market, subject only to official
notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
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Section 10.11 Dissenter's Rights. The Company shall have satisfied
each of its obligations to its Stockholders regarding dissenters or related
rights under New York Business Corporation Law, and the sum of the amount which
may become due to the Stockholders who have dissented to the Merger and have
indicated their intent to seek appraisal rights plus the cash portion of the
Merger Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties
of the Company and its related entities to be transferred to NewCo pursuant to
the Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician
Employee and such other radiologists whose names are set forth on the
Disclosure Schedules shall have entered into a Physician Employment Agreement
between NewCo and each such Physician Employee in a form reasonably consistent
to the form attached as Exhibit E and satisfactory to APP in its sole
discretion (the "Physician Employment Agreements").
Section 10.15 Completion of "F" Reorganization. The Company shall
have (1) completed the "F" Reorganization, and all transfers and dissolutions
related thereto, and (2) amended this Agreement to reflect changes resulting
from the "F" Reorganization.
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations
and warranties of APP contained herein shall be true and correct in all
material respects when initially made and shall be true and correct in all
material respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in
all material respects with all covenants and conditions required by this
Agreement to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered
to the Company their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, contracts or any statute, rule, regulation or
ordinances to consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The
Registration Statements shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the
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Registration Statements shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC. At or prior to the
Effective Date, APP shall have received all state securities and "Blue Sky"
permits necessary to consummate the transactions contemplated hereby. At or
prior to the Effective Date, the APP Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
Section 11.7 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received
all Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to the Company referred to in Section
12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse
Effect on APP shall have occurred since __________, 1997, whether or not such
change shall have been caused by the deliberate act or omission of APP.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its analysis and opinion, in a
form satisfactory to the Company, that the terms of the Service Agreement are
fair and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from
Haynes and Boone, L.L.P., an opinion regarding the tax consequences of the
transactions contemplated by this Agreement and the other Agreements,
substantially in the form set forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the
Effective Date, the Company shall deliver to APP the following, all of which
shall be in a form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of
the Company authorizing the execution, delivery and performance of this
Agreement and the Service Agreement and all related documents and agreements
and consummation of the Merger, each certified by the Secretary of the Company
as being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of
NewCo authorizing the execution, delivery and performance of the Service
Agreement, the Security Agreement and the Physician Employment Agreements each
certified by the Secretary of NewCo as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(c) a certificate of the President of the Company dated
the Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated
the Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by
the Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and
officers of such corporation and as to the signatures of such directors and
officers who have executed documents delivered at the Closing on behalf of that
corporation;
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(f) certificates, dated within ten (10) days prior to
the Effective Date, of the Secretary of State of New York for the Company and
NewCo establishing that each such corporation is in existence, has paid all
franchise or similar taxes, if any, and, if applicable, otherwise is in good
standing to transact business in the state of New York;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the
form attached hereto as Exhibit F, as revised in accordance with changes
reasonably deemed necessary or advisable by legal counsel retained by APP, the
Company and NewCo in the State of New York to address regulatory and compliance
issues (the "Service Agreement");
(k) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Code, of each Stockholder, signed under a
penalty of perjury and dated as of the Closing Date, to the effect that such
Stockholder is a United States citizen or a resident alien (and thus not a
foreign person) and providing such Stockholder's United States taxpayer
identification number;
(m) an executed Stockholder Release by the Stockholders
in substantially the form attached hereto as Exhibit G (the "Stockholder
Release");
(n) intentionally omitted; and
(o) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of
this Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective
Date, APP shall deliver to the Company the following, all of which shall be in
a form reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of
APP authorizing the execution, delivery and performance of this Agreement, and
all related documents and agreements, certified by APP's Secretary as being
true and correct copies of the originals thereof subject to no modifications or
amendments;
(b) Intentionally omitted;
(c) a certificate of the President of APP dated the
Closing Date as to the truth and correctness of the representations and
warranties of APP contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the
Closing Date, (i) as to the performance and compliance by APP with all
covenants contained herein on and as of the Effective Date and (ii) certifying
that all conditions precedent required to be satisfied by APP shall have been
satisfied;
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(e) a certificate of the Secretary of APP certifying as
to the incumbency and to the signatures of the officers of APP who have
executed documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to
the Effective Date, of the secretary of state of incorporation establishing
that APP is in existence, has paid all franchise or similar taxes, if any, and
otherwise is in good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within
ten (10) days prior to the Effective Date, of the Secretaries of State of the
states in which APP is qualified to do business, to the effect that APP is
qualified to do business and is in good standing as a foreign corporation in
such state;
(h) the executed Service Agreement as revised in
accordance with the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article
II and Exhibit B hereof; and
(k) such other instrument or instruments of transfer
prepared by the Company as shall be necessary or appropriate, as the Company or
its counsel shall reasonably request, to carry out and effect the purpose and
intent of this Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the
Closing, at the request of APP or the Surviving Corporation and at APP's sole
cost and expense, the Stockholders and the Company shall deliver any further
instruments of transfer and take all reasonable action as may be necessary or
appropriate to carry out the purpose and intent of this Agreement. Following
the Closing, at the request of NewCo and at NewCo's sole cost and expense, APP
or the Surviving Corporation shall deliver any further instruments of transfer
and take all reasonable action as may be necessary and appropriate to carry out
the purpose and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Code, to
report the Merger as a Reorganization and such opinion either is furnished
prior to the Effective Time or is based on facts or events not known at the
Effective Time. Each party shall provide to each other party such tax
information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Merger as a
Reorganization.
(c) The parties agree that no Stockholder shall be liable for any
taxes incurred by the Company and for which APP has successor liability
therefor which arise solely as a result of the Merger or the consummation of
the transactions contemplated hereby; provided that the foregoing shall not
limit
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or otherwise be deemed a waiver of any right of indemnification under Section
14.1 for a breach of any representation, warranty or covenant of the Company or
any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms
and conditions of this Article XIV, the Company agrees to indemnify, defend and
hold APP and its respective directors, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates harmless from and against all
losses, claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, reasonable attorneys' fees and expenses (including, without
limitation, all costs of experts and all costs incidental to or in connection
with any appellate process) (collectively, "Damages") asserted against or
incurred by such individuals and/or entities arising out of or resulting from:
(a) a breach by the Company of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of the
Company contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company
and/or any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons
in which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any (i) untrue
statement of material fact in any Registration Statement or any prospectus
forming or part thereof, or any amendment thereof or supplement thereto
relating to the Company (including any Company Subsidiary) or NewCo required to
be stated therein or (ii) failure to state information necessary to make the
statements therein not misleading, which untrue statement or failure to state
information arises or results solely from information provided in writing to
APP or its counsel by the Company or any Stockholder or their agents
specifically for inclusion in any such Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP. Subject to the terms and
conditions of this Article XIV, APP hereby agrees to indemnify, defend and hold
the Stockholders, the Company and NewCo and their respective directors,
officers, stockholders, employees, agents, attorneys, consultants and
Affiliates harmless from and against all Damages asserted against or incurred
by such individuals and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of APP contained in
this Agreement or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon
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any untrue statements of material fact in any Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or required to be stated therein or failure to state information
necessary to make the statements therein not misleading (except for any
liability based upon any actual or alleged untrue statement of material fact or
an omission to state a material fact relating to NewCo, the Company or any
Stockholder which was derived from any information provided in writing by the
Company or a Company Subsidiary or any of their agents contained in the
representations and warranties set forth in this Agreement or any certificate,
exhibit, schedule or instrument required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
any of the parties hereto of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the
Agreement (an "Indemnified Party") shall promptly (and, in the event, at least
ten (10) days prior to the due date for any responsive pleadings, filings or
other documents) (i) notify the party for whom indemnification is sought (the
"Indemnifying Party) of any third-party claim or claims asserted against the
Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying
Party a written notice ("Claim Notice") describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), an estimate of the amount of Damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. The failure to promptly deliver a Claim
Notice shall not relieve any Indemnifying Party of its obligations to any
Indemnified Party with respect to the related Third Party Claim except to the
extent that the resulting delay is materially prejudicial to the defense of
such claim. Within thirty (30) days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(x) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article XIV with respect to such Third Party Claim
and (y) whether the Indemnifying Party desires, at the sole cost and expense of
such Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim.
(b) If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall have
the right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set
forth in Section 14.3(f) below, the Indemnifying Party shall have full control
of such defense and proceedings, including any compromise or settlement
thereof. The Indemnified Party is hereby authorized, at the sole cost and
expense of the Indemnifying Party (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period,
any motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party and not prejudicial to the Indemnifying Party. If requested by the
Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Party, to cooperate with the Indemnifying Party and their
counsel in contesting any Third Party Claim that the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 14.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may
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employ separate counsel at the expense of the Indemnifying Party, and upon
written notification thereof, the Indemnifying Party shall not have the right
to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm
of attorneys at any time for the Indemnified Party, which firm shall be
designated in writing by the Indemnified Party. Notwithstanding the foregoing,
the Indemnifying Party shall be prohibited from confessing or settling any
criminal allegations brought against the Indemnified Party without the express
written consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 14.3(b), or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
14.3(b) but fails diligently and promptly to prosecute or settle the Third
Party Claim, then the Indemnified Party shall have the right to defend, at the
sole cost and expense of the Indemnifying Party (if the Indemnified Party is
entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense and proceedings,
provided, however, that the Indemnified Party may not enter into, without the
Indemnifying Party's consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes their
potential liability to the Indemnified Party under this Article XIV and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all costs and expenses of such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
Section 14.3(c), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation; provided, however, that if the
named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnifying Party
has been advised by counsel that there may be one or more legal defenses
available to it that are different from or additional to those available to the
Indemnified Party, then the Indemnifying Party may employ separate counsel and
upon written notification thereof, the Indemnified Party shall not have the
right to assume the defense of such action on behalf of the Indemnifying Party.
(d) In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder that does not involve a Third
Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the
Indemnified Party within sixty (60) days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes such claim, the claim specified by
the Indemnified Party in the Indemnity Notice shall be deemed a liability of
the Indemnifying Party hereunder. If the Indemnifying Party has timely
disputed such claim, as provided above, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction if the parties do
not reach a settlement of such dispute within thirty (30) days after notice of
a dispute is given.
(e) Payments of all amounts owing by any Indemnifying
Party pursuant to this Article XIV relating to a Third Party Claim shall be
made within thirty (30) days after the latest of (i) the settlement of such
Third Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice
period or (ii) the expiration of the period
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for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or
compromise a Third Party Claim against an Indemnified Party. If a firm offer
is made to settle such a claim solely by the payment of money damages and the
Indemnifying Party notifies the Indemnified Party in writing that the
Indemnifying Party agrees to such settlement, but the Indemnified Party elects
not to accept and agree to it, the Indemnified Party may continue to contest or
defend such Third Party Claim and, in such event, the total maximum liability
of the Indemnifying Party to indemnify or otherwise reimburse the Indemnified
Party hereunder with respect to such a claim shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable out-of-pocket costs
and reasonable expenses (including reasonable attorneys' fees and
disbursements) to the date of notice that the Indemnifying Party desired to
accept such settlement.
(g) Notwithstanding any provision herein to the contrary,
the obligation of an Indemnifying Party to provide indemnification to an
Indemnified Party for breach of any representation or warranty as provided in
Sections 14.1(a) or 14.2(a) hereof shall not take effect unless and until the
Damages asserted against or incurred in the aggregate and on a collective basis
by the Indemnified Parties pursuant to either Section 14.1 or 14.2 (as
applicable) as a result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount
of any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and
the Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and
delivered by the Company or any Stockholder pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or any
Stockholder fails to comply in any material respect with any material covenant
or agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within thirty (30) days after receipt
of written notice thereof;
(c) at any time prior to the Effective Date by the
Company if any representation or warranty of APP contained in this Agreement or
in any certificate or other document executed and delivered by APP pursuant to
this Agreement is or becomes untrue in any material respect of if APP fails to
comply in any material respect with any covenant or agreement contained herein,
and any such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
A-1114
<PAGE> 1476
(d) at any time prior to the Effective Date by APP if, as
a result of the conduct of due diligence and regulatory compliance procedures,
APP deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have
been consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in
Section 16.3, in the event this Agreement is terminated pursuant to this
Article XV, this Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo
recognize and acknowledge that each has in the past, currently has, and in the
future may possibly have, access to certain Confidential Information of APP
that is valuable, special and a unique asset of such entity's business. APP
acknowledges that it had in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of the Company and
NewCo that is valuable, special and a unique asset of each such business. The
Company, NewCo and APP, severally, agree that they will not disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to authorized
representatives of APP, NewCo and the Company and (b) to counsel and other
advisers to APP, NewCo and the Company provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 16.1, unless
(i) such information becomes available to or known by the public generally
through no fault of the Company, NewCo or APP, as the case may be, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii) the Company, NewCo or APP, as the case may be, shall, if
possible, give prior written notice thereof to the Company, NewCo or APP and
provide the Company or APP with the opportunity to contest such disclosure,
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, or
(iv) the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Merger or otherwise. In the event of a breach
or threatened breach by the Company, on the one hand, and APP, on the other
hand, of the provisions of this Section, APP, NewCo and the Company shall be
entitled to an injunction restraining the other party, as the case may be, from
disclosing, in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting any of such parties from pursuing any other
available remedy for such breach or threatened breach, including the recovery
of damages.
Section 16.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, NewCo and the Company agree
that, in the event of a breach by either of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
A-1115
<PAGE> 1477
Section 17.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by APP to a wholly owned subsidiary of APP; provided that any such
assignment shall not relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP
acknowledges and agrees that the rights and remedies of the Company under this
Agreement will be directly available to the Stockholders as third party
beneficiaries of the rights and remedies of the Company under this Agreement,
including, without limitation, the rights and remedies under Article 14 hereof
to indemnification from APP against Damages incurred by the Stockholders
resulting from a breach by APP of any representation, warranty or covenant of
APP contained herein. Except as provided in the preceding sentence or as
otherwise provided herein, neither this Agreement nor any other agreement
contemplated hereby shall be deemed to confer upon any person not a party
hereto or thereto any rights or remedies hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and
Covenants. The representations, warranties and covenants contained herein
shall survive the Closing and all statements contained in any certificate,
exhibit or other instrument delivered by or on behalf of the Company, any
Stockholder or APP pursuant to this Agreement shall be deemed to have been
representations and warranties by the Company, such Stockholder and APP.
Notwithstanding any provision in this Agreement to the contrary, the
representations and warranties contained herein shall survive the Closing until
the second anniversary of the Closing Date except that (a) the representations
and warranties set forth in Section 3.21 with respect to environmental matters
shall survive for a period of ten (10) years, (b) the representations and
warranties set forth in Section 3.30 with respect to tax matters shall survive
until such time as the limitations period has run for all tax periods ended
prior to the Closing Date, (c) the representations and warranties contained in
Section 3.27 and Section 3.33 with respect to healthcare matters shall survive
for a period of six (6) years and (d) solely for purposes of Section 14.1(c)
and Section 14.2(c), and solely to the extent that any party to be indemnified
pursuant to such provisions actually incurs liability under the Securities Act,
the Exchange Act or any other federal or state securities law, the
representations and warranties set forth therein shall survive until the
expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
A-1116
<PAGE> 1478
Section 17.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each
party shall keep this Agreement and its terms confidential, and shall make no
press release or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge and
consent of the other parties hereto; provided that the foregoing shall not
prohibit any disclosure (a) by press release, filing or otherwise that APP has
determined in its good faith judgment and after advice of legal counsel to be
required by federal securities laws or the rules of the National Association of
Securities Dealers, (b) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request
or demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by telex,
telegram or courier service, when delivered to the party to whom notice is
sent, (ii) if delivered by facsimile transmission, when so sent and receipt
acknowledged by receipt or (iii) if delivered by mail (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may
designate by written notice to all other parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Mid Rockland Imaging Associates
18 Squadron Boulevard
New City, New York 10956
Fax No.: (914) 634-6254
Attn: Joel Rosenberg, CPA
A-1117
<PAGE> 1479
with a copy to: Drake, Sommers, Loeb, Tarshis &
Catania, P.C.
1 Corwin Court, P.O. Box 1479
Newburgh, New York 12550
Fax. No.: (914) 565-1999
Attn: Steven L. Tarshis, Esq.
Section 17.13 No Waiver; Remedies. No party hereto shall by any
act (except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in
this Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
A-1118
<PAGE> 1480
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
---------------------------------
Gregory L. Solomon, President
THE COMPANY:
WOMEN'S IMAGING CONSULTANTS, P.C.
By:
---------------------------------
Herbert Z. Geller, M.D.
Its: President
A-1119
<PAGE> 1481
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-1120
<PAGE> 1482
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-1121
<PAGE> 1483
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-1122
<PAGE> 1484
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-1123
<PAGE> 1485
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
A-1124
<PAGE> 1486
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
A-1125
<PAGE> 1487
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-1126
<PAGE> 1488
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth therein are
delivered in connection with that certain Agreement and Plan of Reorganization
and Merger dated ____________, 1997, by and between American Physician
Partners, Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules correspond
to the section numbers in the Agreement. If disclosures made pursuant to one
section number can reasonably be interpreted by other parties to be a
disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain exceptions to the
representations and warranties set forth in Article III of the Agreement, the
inclusion of an item on these Disclosure Schedules shall not be deemed an
admission by American Physician Partners, Inc. that such item is material to
American Physician Partners, Inc., the Company, NewCo or any Company Subsidiary
or that it will have a material adverse effect on American Physician Partners,
Inc., the Company, NewCo or any Company Subsidiary.
A-1127
<PAGE> 1489
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and WOMEN'S
IMAGING CONSULTANTS, P.C. (the "Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not have
been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
WOMEN'S IMAGING CONSULTANTS, P.C.
By:_________________________________
Its:________________________________
A-1128
<PAGE> 1490
THE COMPANY:
CARROLL IMAGING ASSOCIATES, P.A.
By:_________________________________
Its:________________________________
DIAGNOSTIC IMAGING ASSOCIATES, P.A.
By:_________________________________
Its:________________________________
DRS. THOMAS, WALLOP, KIM & LEWIS, P.A.
By:_________________________________
Its:________________________________
DRS. COPELAND, HYMAN & SHACKMAN, P.A.
By:_________________________________
Its:________________________________
DRS. DECARLO, LYON, HEARN &
PAZOUREK, P.A.
By:_________________________________
Its:________________________________
HARBOR RADIOLOGISTS, P.A.
By:_________________________________
Its:________________________________
PERILLA, SINDLER & ASSOCIATES, P.A.
By:_________________________________
Its:________________________________
A-1129
<PAGE> 1491
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June 27, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),
[AMERICAN PHYSICIAN PARTNERS SUBSIDIARY, INC.]
(a California corporation),
and
VALLEY RADIOLOGISTS MEDICAL GROUP, INC.
(a California professional medical corporation)
================================================================================
A-1130
<PAGE> 1492
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions....................................................................... 2
Section 1.1 Definitions....................................................................... 2
Section 1.2 Rules Of Interpretation........................................................... 6
ARTICLE II The Merger........................................................................ 6
Section 2.1 The Merger........................................................................ 6
Section 2.2 The Closing....................................................................... 6
Section 2.3 Effective Time.................................................................... 6
Section 2.4 Articles of Incorporation of Surviving Corporation................................ 7
Section 2.5 Bylaws of Surviving Corporation................................................... 7
Section 2.6 Directors of the Surviving Corporation............................................ 7
Section 2.7 Officers of the Surviving Corporation............................................. 7
Section 2.8 Conversion of Company Common Stock................................................ 7
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock...................................................................... 7
Section 2.10 Fractional Shares................................................................. 8
ARTICLE III Representations and Warranties of the Company..................................... 8
Section 3.1 Organization and Good Standing; Qualification..................................... 8
Section 3.2 Authorization and Validity........................................................ 8
Section 3.3 Governmental Authorization........................................................ 9
Section 3.4 Capitalization.................................................................... 9
Section 3.5 Transactions in Capital Stock..................................................... 9
Section 3.6 Continuity of Business Enterprise................................................. 9
Section 3.7 Subsidiaries and Investments...................................................... 9
Section 3.8 Absence of Conflicting Agreements or Required Consents............................ 9
Section 3.9 Intentionally Omitted............................................................. 10
Section 3.10 Absence of Changes................................................................ 10
Section 3.11 No Undisclosed Liabilities........................................................ 11
Section 3.12 Litigation and Claims............................................................. 11
Section 3.13 No Violation of Law............................................................... 11
Section 3.14 Lease Agreements.................................................................. 11
Section 3.15 Real and Personal Property........................................................ 12
Section 3.16 Indebtedness for Borrowed Money................................................... 12
Section 3.17 Contracts and Commitments......................................................... 12
Section 3.18 Employee Matters.................................................................. 13
Section 3.19 Labor Relations................................................................... 13
Section 3.20 Employee Benefit Plans............................................................ 14
Section 3.21 Environmental Matters............................................................. 15
Section 3.22 Filing Reports.................................................................... 16
Section 3.23 Insurance Policies................................................................ 16
Section 3.24 Accounts Receivable; Payors....................................................... 17
Section 3.25 Accounts Payable; Suppliers....................................................... 17
Section 3.26 Inventory......................................................................... 18
Section 3.27 Licenses, Authorization and Provider Programs..................................... 18
Section 3.28 Inspections and Investigations.................................................... 19
Section 3.29 Proprietary Rights and Information................................................ 19
Section 3.30 Taxes............................................................................. 19
Section 3.31 Related Party Arrangements........................................................ 20
</TABLE>
A-1131
<PAGE> 1493
<TABLE>
<S> <C> <C>
Section 3.32 Banking Relations................................................................. 21
Section 3.33 Fraud and Abuse and Self Referral................................................. 21
Section 3.34 Restrictions on Business Activities............................................... 21
Section 3.35 Agreements in Full Force and Effect............................................... 21
Section 3.36 Statements True and Correct....................................................... 21
Section 3.37 Disclosure Schedules.............................................................. 21
Section 3.38 Finders' Fees..................................................................... 21
ARTICLE IV Representations and Warranties of APP............................................. 22
Section 4.1 Organization and Good Standing; Qualification..................................... 22
Section 4.2 Authorization and Validity........................................................ 22
Section 4.3 Governmental Authorization........................................................ 22
Section 4.4 Capitalization.................................................................... 22
Section 4.5 Subsidiaries and Investments...................................................... 23
Section 4.6 Absence of Conflicting Agreements or Required Consents............................ 23
Section 4.7 Absence of Changes................................................................ 23
Section 4.8 No Undisclosed Liabilities........................................................ 23
Section 4.9 Litigation and Claims............................................................. 23
Section 4.10 No Violation of Law............................................................... 23
Section 4.11 Employee Matters.................................................................. 24
Section 4.12 Taxes............................................................................. 24
Section 4.13 Related Party Arrangements........................................................ 25
Section 4.14 Statements True and Correct....................................................... 25
Section 4.15 Schedules......................................................................... 25
Section 4.16 Finder's Fees..................................................................... 25
Section 4.17 Agreements in Full Force and Effect............................................... 25
ARTICLE V Closing Date Representations and Warranties of the Company........................ 25
Section 5.1 Organization and Good Standing; Qualification..................................... 25
Section 5.2 Capitalization.................................................................... 25
Section 5.3 Corporate Records................................................................. 26
Section 5.4 Authorization and Validity........................................................ 26
Section 5.5 No Violation...................................................................... 26
Section 5.6 No Business, Agreements, Assets or Liabilities.................................... 26
Section 5.7 Compliance with Laws.............................................................. 26
ARTICLE VI Closing Date Representations and Warranties Regarding ............................ 26
Section 6.1 Authorization and Validity........................................................ 26
Section 6.2 No Violation...................................................................... 27
Section 6.3 No Business, Agreements, Assets or Liabilities.................................... 27
ARTICLE VII Covenants of the Company.......................................................... 27
Section 7.1 Conduct of The Company............................................................ 27
Section 7.2 Title to Assets; Indebtedness..................................................... 28
Section 7.3 Access............................................................................ 28
Section 7.4 Acquisition Proposals............................................................. 29
Section 7.5 Compliance With Obligations....................................................... 29
Section 7.6 Notice of Certain Events.......................................................... 29
Section 7.7 Intentionally Omitted............................................................. 30
Section 7.8 Stockholders' Consent............................................................. 30
Section 7.9 Obligations of Company and Stockholders........................................... 30
Section 7.10 Funding of Accrued Employee Benefits.............................................. 30
Section 7.11 Accounting and Tax Matters........................................................ 30
Section 7.12 Spin-Off Transaction.............................................................. 30
</TABLE>
A-1132
<PAGE> 1494
<TABLE>
<S> <C> <C>
ARTICLE VIII Covenants of APP.................................................................. 31
Section 8.1 Consummation of Agreement......................................................... 31
Section 8.2 Requirements to Effect the Merger and Acquisitions................................ 31
Section 8.3 Access............................................................................ 31
Section 8.4 Notification of Certain Matters................................................... 31
Section 8.5 Qualified Retirement Plans........................................................ 31
ARTICLE IX Covenants of APP, APP Sub and the Company......................................... 32
Section 9.1 Filings; Other Action............................................................. 32
Section 9.2 Amendments of Disclosure Schedules................................................ 32
Section 9.3 Actions Contrary to Stated Intent................................................. 33
Section 9.4 Public Announcements.............................................................. 33
Section 9.5 Expenses.......................................................................... 33
Section 9.6 Patient Confidentiality........................................................... 33
Section 9.7 Registration Statements........................................................... 33
ARTICLE X Conditions Precedent of APP....................................................... 33
Section 10.1 Representations and Warranties.................................................... 33
Section 10.2 Covenants......................................................................... 33
Section 10.3 Legal Opinion..................................................................... 33
Section 10.4 Proceedings....................................................................... 33
Section 10.5 No Material Adverse Effect........................................................ 34
Section 10.6 Government Approvals and Required Consents........................................ 34
Section 10.7 Securities Approvals.............................................................. 34
Section 10.8 Closing Deliveries................................................................ 34
Section 10.9 Closing of Initial Public Offering................................................ 34
Section 10.10 Closing of Related Acquisitions................................................... 34
Section 10.11 Dissenter's Rights................................................................ 34
Section 10.12 Stockholder Representation Letter; Indemnification Agreement...................... 34
Section 10.13 Transfer of Assets................................................................ 34
ARTICLE XI Conditions Precedent of the Company............................................... 34
Section 11.1 Representations and Warranties.................................................... 35
Section 11.2 Covenants......................................................................... 35
Section 11.3 Legal Opinions.................................................................... 35
Section 11.4 Proceedings....................................................................... 35
Section 11.5 Government Approvals and Required Consents........................................ 35
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing.............................................. 35
Section 11.7 Closing of Initial Public Offering................................................ 35
Section 11.8 Closing Deliveries................................................................ 35
Section 11.9 No Material Adverse Effect........................................................ 35
Section 11.10 Service Agreement Analysis........................................................ 35
Section 11.11 Tax Opinion....................................................................... 35
ARTICLE XII Closing Deliveries................................................................ 35
Section 12.1 Deliveries of the Company......................................................... 35
Section 12.2 Deliveries of APP. ............................................................... 37
ARTICLE XIII Post Closing Matters.............................................................. 37
Section 13.1 Further Instruments of Transfer................................................... 38
Section 13.2 Merger Tax Covenant............................................................... 38
Section 13.3 Current Public Information........................................................ 38
</TABLE>
A-1133
<PAGE> 1495
<TABLE>
<S> <C> <C>
ARTICLE XIV Remedies.......................................................................... 38
Section 14.1 Indemnification by the Company.................................................... 38
Section 14.2 Indemnification by APP and APP Sub................................................ 39
Section 14.3 Conditions of Indemnification..................................................... 39
Section 14.4 Costs, Expenses and Legal Fees.................................................... 41
Section 14.5 Tax Benefits; Insurance Proceeds.................................................. 42
ARTICLE XV Termination....................................................................... 42
Section 15.1 Termination....................................................................... 42
Section 15.2 Effect of Termination............................................................. 42
ARTICLE XVI Nondisclosure of Confidential Information......................................... 42
Section 16.1 Non-Disclosure Covenant........................................................... 42
Section 16.2 Damages........................................................................... 43
Section 16.3 Survival.......................................................................... 43
ARTICLE XVII Miscellaneous..................................................................... 43
Section 17.1 Amendment; Waivers................................................................ 43
Section 17.2 Assignment........................................................................ 43
Section 17.3 Parties in Interest; No Third Party Beneficiaries................................. 43
Section 17.4 Entire Agreement.................................................................. 43
Section 17.5 Severability...................................................................... 44
Section 17.6 Survival of Representations, Warranties and Covenants............................. 44
Section 17.7 Governing Law..................................................................... 44
Section 17.8 Captions.......................................................................... 44
Section 17.9 Gender and Number................................................................. 44
Section 17.10 Intentionally omitted............................................................. 44
Section 17.11 Confidentiality; Publicity and Disclosures........................................ 44
Section 17.12 Notice............................................................................ 45
Section 17.13 No Waiver; Remedies............................................................... 45
Section 17.14 Counterparts...................................................................... 45
Section 17.15 Defined Terms..................................................................... 45
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A - List of Target Companies........................................................................... A-1
Exhibit B - Merger Consideration............................................................................... B-1
Exhibit C - Stockholder Representation Letter.................................................................. C-1
Exhibit D - Indemnification Agreement.......................................................................... D-1
Exhibit E - Physician Employment Agreement .................................................................... E-1
Exhibit F - Service Agreement.................................................................................. F-1
Exhibit G - Stockholder Release................................................................................ G-1
Exhibit 1.1 - List of Stockholders
Exhibit 2.6 - List of Directors
Exhibit 2.7 - List of Officers
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion
</TABLE>
A-1134
<PAGE> 1496
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP"), [AMERICAN PHYSICIAN PARTNERS
SUBSIDIARY, INC.], a California corporation and a wholly-owned subsidiary of APP
("APP Sub"), and VALLEY RADIOLOGISTS MEDICAL GROUP, INC., a California
professional medical corporation (the "Company").
RECITALS
A. The Company owns and operates a professional medical practice
specializing in radiology. All of the shares of the common stock of the Company
(the "Company Common Stock") are owned beneficially and of record by the
Stockholders.
B. APP Sub is engaged in the business of owning, operating and
acquiring the assets of, and managing the non-medical aspects of, radiology
practices and diagnostic imaging centers.
C. Pursuant to this Agreement, APP, APP Sub, and the Company intend
that APP Sub be merged with and into the Company, and that the Company be the
sole surviving corporation (sometimes referred to hereinafter as the "Surviving
Corporation"), and APP Sub be the disappearing corporation (sometimes referred
to hereinafter as the "Disappearing Corporation").
D. APP, APP Sub and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) APP Sub will merge with
and into the Company upon the terms and conditions set forth herein and in
accordance with the laws of the State of California, (ii) the outstanding shares
of the Company Common Stock shall be converted at such time into cash and shares
of common stock, par value $.0001 per share, of APP (the "APP Common Stock") as
set forth herein, and (iii) the Company shall become a wholly-owned subsidiary
of APP.
E. Prior to the Merger, the Company intends to transfer certain of its
assets most of which relate solely to the practice of medicine to a newly formed
professional corporation ("NewCo") in exchange for all of the capital stock of
NewCo and to thereafter distribute such NewCo stock to the Stockholders (the
"Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter into,
an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Stockholders, the "Target Interest Holders")
of each of the entities listed on Exhibit A (together with the Company, the
"Target Companies").
G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder.
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AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, APP Sub, NewCo and each of their
Affiliates.
"APP Sub" shall have the meaning set forth in the preamble to this
Agreement.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed in Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the recitals
to this Agreement.
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"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section 3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section 3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the terms
hereof, as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement is
declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering of
APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section
14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section 14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or other
fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401
et seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651
et seq., (v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
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"Merger" shall have the meaning set forth in Section 2.1.
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock, of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Physician Employee" shall mean each radiologist employed by the
Company or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Schedules" shall mean the schedules attached hereto as of the date
hereof or otherwise delivered by any party hereto pursuant to the terms hereof,
as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section
12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the recitals
to this Agreement.
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"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
"Third Party Claim" shall have the meaning set forth in Section
14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed to
be a reference to the designated Article number or Section number of this
Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, APP Sub shall be merged with and into the
Company in accordance with this Agreement and the separate corporate existence
of the Disappearing Corporation shall thereupon cease (the "Merger"). The
Company shall be the Surviving Corporation in the Merger and shall continue to
be governed by the laws of the State of California, and the separate corporate
existence of the Company with all its rights, privileges, powers, immunities,
purposes and franchises shall continue unaffected by the Merger, except as set
forth herein. The Surviving Corporation may, at any time concurrent with and/or
after the Effective Time, take any action in the name of or on behalf of the
Disappearing Corporation in order to effectuate the transactions contemplated by
this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take place
at 10:00 a.m., local time, at the offices of APP located at 2301 NationsBank
Plaza, 901 Main Street, Dallas, Texas on the day on which the transactions
contemplated by the Initial Public Offering are consummated. The date on which
the Closing occurs is hereinafter referred to as the "Closing Date."
Section 2.3 Effective Time. If all the conditions to the Merger set
forth in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section
1103 of the California General Corporation Law. The Merger shall become
effective at the time of the filing of such documents with the Secretary of
State of the State of California, in accordance with such law or at such later
time which the parties hereto have theretofore agreed upon and designated in
such filings as the effective time of the Merger (the "Effective Time").
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Section 2.4 Articles of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Articles of Incorporation of the Company in
effect immediately prior to the Effective Time shall be amended and restated in
a manner satisfactory to APP. The Articles of Incorporation, as so amended and
restated, shall be the Articles of Incorporation of the Surviving Corporation.
Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP Sub in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger, until duly amended in accordance with applicable laws.
Section 2.6 Directors of the Surviving Corporation. The persons who are
directors of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time. The directors of the Surviving Corporation following the
Effective Time shall be set forth in Exhibit 2.6.
Section 2.7 Officers of the Surviving Corporation. The persons who are
officers of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time. The officers of the Surviving Corporation following the
Effective Time shall be set forth in Exhibit 2.7.
Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the
part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time shall
be terminated and cancelled, without payment of any consideration therefor, and
shall cease to exist.
(d) Each share of common stock of APP Sub issued and
outstanding at the Effective Time shall be converted to one share of Company
Common Stock.
(e) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged and
remain outstanding as a validly issued, fully paid and nonassessable share of
APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock.
(a) At or after the Effective Time and at the Closing (i) the
Stockholders, as holders of a certificate or certificates representing shares of
the Company's Common Stock, shall upon surrender of each certificate or
certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until each
certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
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each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at the
Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Company
Common Stock or with respect to the stock powers accompanying any Company Common
Stock. Upon such delivery (or completion of appropriate affidavit of lost
certificate and indemnity), each Stockholder shall receive in exchange therefor
the Merger Consideration pursuant to Exhibit B and Section 2.10 hereof, if
applicable.
Section 2.10 Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of APP Common Stock will be issued and any
Stockholder otherwise entitled to receive a fractional share of APP Common Stock
as part of the Merger Consideration hereunder shall receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP and APP Sub to enter into this Agreement and to
consummate the Merger and except as set forth in the Disclosure Schedules
attached hereto and incorporated herein by this reference, the Company
represents and warrants to APP and APP Sub both as of the date hereof and as of
the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. The Company and each Company Subsidiary is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all requisite
corporate power to enter into this Agreement and all other agreements entered
into in connection with the transactions contemplated hereby and to consummate
the transactions contemplated hereby. The execution, delivery and, subject to
approval of this Agreement and the Merger by the Stockholders, performance by
the Company of this Agreement and the agreements contemplated herein, and the
consummation by the Company of the transactions contemplated hereby and thereby
are within the Company's respective corporate powers and have been duly
authorized by all necessary action on the part of the Company's Board of
Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and
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obligations entered into and undertaken in connection with the transactions
contemplated hereby to which the Company is a party constitute, or upon
execution will constitute, valid and binding agreements of the Company,
enforceable against it in accordance with their respective terms, except as
enforceability may be limited by bankruptcy or other laws affecting the
enforcement of creditors' rights generally, or by general equity principles, or
by public policy.
Section 3.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger (as contemplated by Section
2.3) and any other required documents related to the Merger, and other than
consents, filings or notifications required to be made or obtained solely by APP
or APP Sub (including, without limitation, in connection with the Initial Public
Offering, Form S-4 or any Hart-Scott-Rodino filing to be made by APP, if any),
the execution, delivery and performance by the Company of this Agreement and the
agreements provided for herein, and the consummation of the transactions
contemplated hereby and thereby by the Company require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 3.4 Capitalization. The authorized capital stock of the Company
consists of 200,000 shares of the Company Common Stock, of which 19,500 shares
are issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the Company has no securities, bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
Section 3.5 Transactions in Capital Stock. There exist no Company
Rights. The Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership of shares
among any of its Stockholders has been altered or changed in contemplation of
the Merger within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the (2) two
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result
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in a breach of, constitute a default under, require any notice under, or
accelerate or modify, or permit any person to accelerate or modify, any
performance required by the terms of any agreement, instrument, license or
permit, to which the Company is a party or by which the Company or any of its
properties are subject or bound except for such conflict, termination, breach or
default, the occurrence of which would not result in a Material Adverse Effect
on the Company; and (v) except as contemplated by this Agreement, will not
create any Encumbrance or restriction upon the Company Common Stock or any of
the assets or properties of the Company.
Section 3.9 Intentionally omitted.
Section 3.10 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on the Company;
(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent
with past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or accounting
practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with
past practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable, mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;
(j) increased any salaries, wages or any employee benefits for
any employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee except
in the ordinary course of business;
(l) declared, set aside or made any payments, dividends or
other distributions to any Stockholder or any other holder of capital stock of
the Company (except as expressly contemplated herein); or
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(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its knowledge,
the Company does not have any liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted except for
liabilities or obligations reflected or reserved against in the Company's
Current Balance Sheet.
Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder, the Physician Employees or any other licensed professional or other
individual affiliated with the Company affecting or that would reasonably be
likely to affect the Company Common Stock or the operations, business condition,
(financial or otherwise), or results of operations of the Company which (i) if
successful, may, individually or in the aggregate, have a Material Adverse
Effect on the Company or (ii) could adversely affect the ability of the Company
or any Company Subsidiary to effect the transactions contemplated hereby, and to
the knowledge of the Company there is no basis for any such action or any state
of facts or occurrence of any event which would reasonably be likely to give
rise to the foregoing. There are no unsatisfied judgments against the Company or
any Company Subsidiary or any licensed professional or other individual
affiliated with the Company or any Company Subsidiary relating to services
provided on behalf of the Company or any Company Subsidiary or any consent
decrees to which any of the foregoing is subject. Each of the matters, if any,
set forth in this Section 3.12 is fully covered by policies of insurance of the
Company or any Company Subsidiary as in effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any Company
Subsidiary has been, nor shall be as of the Effective Time (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which the Company or any Company Subsidiary is a party and pursuant to which the
Company or any Company Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the operation of its business and which requires payments in excess of
$12,000 per year (the "Lease Agreements"). The Company has delivered to APP true
and complete copies of all of the Lease Agreements. Each Lease Agreement is
valid, effective and in full force in accordance with its terms, and there is
not under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver to
APP or APP Sub in writing such consents as are necessary to effect a valid and
binding transfer or assignment of the Company's or any Company Subsidiary's
rights thereunder. The Company has a good, clear, valid and enforceable
leasehold interest under each of the Lease Agreements. The Lease Agreements
comply with the exceptions to ownership interests and compensation arrangements
set out in 42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar
applicable state law safe harbor or other exemption provisions.
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Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good title
to all of its properties and assets (real, personal and mixed, tangible and
intangible) and any rights or interests therein which it purports to own
including, without limitation, all the property and assets reflected in the
Company Current Financial Statements; and (ii) owns such rights, interests,
assets and property free and clear of all Encumbrances, title defects or
objections (except for taxes not yet due and payable). The personal property
presently used in connection with the operation of the business of the Company
and the Company Subsidiaries constitutes the necessary personal property assets
to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, the Company does not have any
direct or indirect indebtedness for borrowed money, including indebtedness by
way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000 in
any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP or APP Sub of the
assets and properties to be acquired by APP or APP Sub from the Company, or
which could inhibit or prevent the Company from transferring to or vesting in
APP or APP Sub good and sufficient title to the assets and properties to be
acquired by APP or APP Sub and the Surviving Corporation except where the
failure to transfer would not have a Material Adverse Effect on APP or APP Sub.
In every instance where consent is necessary, the Company shall, on or before
the Closing Date, use reasonable good faith efforts to obtain and deliver to APP
or APP Sub in writing, effective as of the Closing Date, such consents as are
necessary to enable the Surviving Corporation to enjoy all of the rights now
enjoyed by the Company under such contracts. Any and all such consents
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shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to APP
or APP Sub any contracts or agreements relating to the provision of professional
medical services or other such agreements and contracts that APP consents to in
writing to be transferred to NewCo in the Spin-off Transaction. No contract with
a health care provider or Payor has been materially amended or terminated within
the last twelve (12) months.
(b) The Company (i) has not received notice of any plan or
intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument required to be disclosed pursuant to Section
3.17(a), and to the knowledge of the Company there are no fact(s) that would
justify the exercise of such a right; and (ii) does not currently contemplate,
or have reason to believe any other Person currently contemplates, any amendment
or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a party to
any employment contract (except for oral employment agreements which are
terminable at will), consulting or collective bargaining contracts, deferred
compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of 32 part-time and 58 full-time employees and 10 per diem
employees. The Disclosure Schedules list each employee of, or consultant to, the
Company who received combined salary, benefits (other than those offered
generally to all other employees) and bonuses for 1996 in excess of $50,000 or
who is expected to receive combined salary, benefits (other than those offered
generally to all other employees) and bonuses in 1997 in excess of $50,000. The
Company is not delinquent in payment to any of its employees or Physician
Employees for wages, salaries, bonuses or other direct compensation for any
services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Upon termination of employment of any employee or
Physician Employee, no severance or other payments will become due and the
Company has no policy, past practice or plan of paying severance on termination
of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair labor
practice, charge or complaint or any other employment-related matter against or
involving the Company pending or threatened before the National Labor Relations
Board or any federal, state or local agency, authority or court;
(c) To the knowledge of the Company, there are no charges,
investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
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(d) The Company is in material compliance with the Immigration
Reform and Control Act of 1986, as amended, and all applicable regulations
promulgated thereunder; and
(e) To the knowledge of the Company, there are no inquiries,
investigations or monitoring activities of any licensed, registered, or
certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof (the "Employee Benefit Plans"). The Company has
provided to APP copies of all plan documents (as they may have been amended to
the date hereof), determination letters, pending determination letter
applications, trust instruments, insurance contracts or policies related to an
Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee Benefit
Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any notice that
any Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency or authority.
(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach of
any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or other
liability to APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the Company's
knowledge, threatened, claims, suits or other proceedings exist with respect to
any Employee Benefit Plan other than normal benefit claims filed by participants
or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or 501(c)(9)
of the Code and/or tax-exempt within the meaning of Section 501(a) of the Code
and, to the best knowledge of the Company and each Stockholder, has been
continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation of
any such favorable determination letter or ruling.
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(g) Funding Status. No accumulated funding deficiency (within
the meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Company is a member (a "Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such plan
are at least equal in value to the present value of accrued benefits determined
on an ongoing basis as of the date hereof. With respect to each Employee Benefit
Plan described in Section 501(c)(9) of the Code, the assets of each such plan
are at least equal in value to the present value of accrued benefits, based upon
the most recent actuarial valuation as of a date no more than ninety (90) days
prior to the date hereof. The Disclosure Schedules contain a complete and
accurate statement of all actuarial assumptions applied to determine the present
value of accrued benefits under all Employee Benefit Plans subject to actuarial
assumptions.
(h) Excise Taxes. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any member of
a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section 412
of the Code.
(j) PBGC. No facts or circumstances are known to the Company
that would result in the imposition of liability against APP, APP Sub or any of
its Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result
of any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any Employee
Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable provisions of ERISA.
(l) Other Compensation Arrangements. Neither the Company nor,
to the Company's knowledge, any Stockholder or Physician Employee is a party to
any compensation or debt arrangement with any Person relating to the provision
of health care related services other than arrangements with the Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has, within
the five (5) years preceding the date hereof, through the Effective Time,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of the Company no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by the Company of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by the Company to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would
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reasonably be likely to have, a Material Adverse Effect on the Company. Neither
the Company nor any Company Subsidiary has engaged in any activity or failed to
undertake any activity which action or failure to act has given, or would
reasonably be likely to give, rise to any Environmental Liabilities or
enforcement action by any federal, state or local regulatory agency or
authority, or has resulted, or would reasonably be likely to result, in any fine
or penalty imposed pursuant to any Environmental Law. The Disclosure Schedules
discloses any known presence of asbestos in or on the Company's or any Company
Subsidiary's owned or leased premises. To the knowledge of the Company, there is
no friable asbestos in or on the Company's or any Company Subsidiary's owned or
leased premises.
(c) To the knowledge of the Company, no soil or water in or
under any assets currently or formerly held for use or sale by the Company or
any Company Subsidiary is or has been contaminated by any Hazardous Substance
while such assets or premises were owned, leased, operated or managed, directly
or indirectly by the Company or any Company Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on the
Company.
(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of the Company,
concerning the Company or any Company Subsidiary within the five (5) years
preceding the date hereof through the Effective Time with respect to any real
property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following terms
have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended to
assure the protection of the environment, or that classify, regulate,
call for the remediation of, require reporting with respect to, or list
or define air, water, groundwater, solid waste, hazardous, toxic, or
radioactive substances, materials, wastes, pollutants or contaminants,
or which are intended to assure the safety of employees, workers or
other persons, including the public in each case as in effect on the
date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials and
wastes defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and
briefly describe the Company's policies of insurance to which the Company or any
Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
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similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by the
Company or any Company Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
the Company and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as the Company
and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which the Company or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies of all Insurance Policies have been provided to APP. Neither the
Company nor any Company Subsidiary nor any officer or director thereof has
received any notice or other written communication from any issuer of any
Current Policy cancelling such policy, materially increasing any deductibles or
retained amounts thereunder, or materially increasing the annual or other
premiums payable thereunder and, to the knowledge of the Company, no such
cancellation or increase of deductibles, retainages or premiums is threatened.
There are no outstanding claims, settlements or premiums owed against any
Insurance Policy, and all required notices have been given and all known
potential or actual claims under any Insurance Policy have been presented in due
and timely fashion. Within the five (5) years preceding the Agreement, neither
the Company nor any Company Subsidiary has filed a written application for any
professional liability insurance coverage which has been denied by an insurance
agency or carrier. The Disclosure Schedules also set forth a list of all claims
under any Insurance Policy in excess of $10,000 per occurrence filed by the
Company or any Company Subsidiary during the immediately preceding three-year
period. Each Physician Employee has, at all times while a Physician Employee,
maintained or been covered by professional malpractice insurance in such types
and amounts as are customary for such a physician practicing the same type of
medicine in the same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of all
accounts receivable of the Company as of March 31, 1997, which list is complete,
true and accurate in all material respects. All such accounts receivable arose
in the ordinary course of business and have not been previously written off as
bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements or
on the accounting records of the Company (which reserves are calculated
consistent with generally accepted accounting principles and past practice).
(b) The Disclosure Schedules set forth (i) a true, correct and
complete list of the names and addresses of each Payor of the Company as of such
date, which accounted for more than 5% of the revenues of the Company in the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for more than 5% of the revenues of the Company for the fiscal year to end
December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i)
list of the accounts payable of the Company as of March 31, 1997, and (ii) list
of each individual indebtedness owned by the Company of $5,000 or more, setting
forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
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Section 3.26 Inventory. All items of inventory on the Company Current
Balance Sheet contained in the Company Financial Statements consisted, and all
such items on hand on the date of this Agreement consist, and all such items on
hand at the Effective Time will consist, net of all applicable reserves with
respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory are not materially in excess of normal
requirements, and none of such purchase commitments are at prices in excess of
prevailing market prices at the time of such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other
licensed employee or independent contractor of the Company (i) is the holder of
all valid licenses, approvals, orders, consents, permits, registrations,
qualifications and other rights and authorizations required by law, ordinance,
regulation or ruling of any governmental regulatory authority necessary to
operate its business or his or her specialty and (ii) is eligible to participate
in and to receive reimbursement under Titles XVIII and XIX of the Social
Security Act (the "Medicare and Medicaid Programs") and any other programs
funded in whole or in part by federal, state or local entities for which the
Company is eligible ("Governmental Programs"). The Company, the Stockholders,
and each Physician Employee has a current provider number for such Governmental
Programs and with such private non-governmental programs (including without
limitation any private insurance program) under which the Company is presently
receiving payments directly or indirectly from any Payor for patient care
provided by such Physician Employee, licensed employee or independent contractor
(such non-governmental programs herein referred to as "Private Programs"). A
true, correct and complete list of such licenses, permits and other
authorizations (including, but not limited to verification of Medicare and
Medicaid provider numbers and participating physician contracts under 1842(h) of
the Social Security Act), and provider agreements, is set forth in the
Disclosure Schedules, true, complete and correct copies of which have been
provided to APP. No violation, default, order or deficiency exists with respect
to any of the items listed in the Disclosure Schedules except for such
violations, defaults, orders or deficiencies which would not be reasonably
likely to have a Material Adverse Effect on the Company, and there is no action
pending or to the Company's knowledge recommended by any state or federal
agencies having jurisdiction over the items listed in the Disclosure Schedules,
either to revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program, and
no event has occurred which, with or without notice or lapse of time, or both,
would constitute grounds for a violation, order or deficiency with respect to
any of the items listed in the Disclosure Schedules to revoke, withdraw or
suspend any material license to operate its business as is presently being
conducted by it. To the knowledge of the Company, there has been no decision not
to renew any existing agreement with any provider or Payor relating to the
Company's business as presently being conducted by it. Neither the Company nor
any Physician Employee (i) has had his/her/its professional license, Drug
Enforcement Agency number, Medicare/Medicaid provider status or staff privileges
at any hospital or diagnostic imaging center suspended, relinquished, terminated
or revoked (including orders that have been entered by any such entities but
stayed), (ii) has been reprimanded in writing, sentenced, or disciplined by any
licensing board, state agency, regulatory body or authority, hospital, Payor or
specialty board (including orders that have been entered by any such entities
but stayed), or (iii) is the subject of an initial or final determination by any
federal or state authority that could result in any demand or reimbursement
under the Medicare, Medicaid or Government Programs or any exclusion or which
monetary penalty under federal or state law or (iv) has had a final judgment or
settlement entered against him/her/it in connection with a malpractice or
similar action.
(b) The Company is not required, or for the 72-month period
prior to the Effective Time was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
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Section 3.28 Inspections and Investigations. Neither the right of the
Company, or any Physician Employee, nor the right of any licensed professional
or other individual affiliated with the Company to receive reimbursements
pursuant to any Governmental Program or Private Program has been terminated or
otherwise materially and adversely affected as a result of any investigation or
action whether by any federal or state governmental regulatory authority or
other third party. No Physician Employee, licensed professional or other
individual affiliated with the business has, during the past three (3) years
prior to the Effective Time, had their professional license or staff privileges
limited, suspended or revoked by any governmental regulatory authority or
agency, hospital, integrated delivery system, trade association, professional
review organization, accrediting organization or certifying agency (including
orders that have been entered by any such entities but stayed). True, correct
and complete copies of all reports, correspondence, notices and other documents
relating to any matter described or referenced in this Section 3.28 have been
provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v) other
similar agreements relating to the foregoing to which the Company or any Company
Subsidiary is a party (including expiration date if applicable) (collectively,
the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate
list and summary description of all agreements relating to technology, trade
secrets, know-how or processes that the Company is licensed or authorized to use
by others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of the Company, no
claim has been asserted by any person to the ownership of or for infringement by
the Company of any Proprietary Right of any other Person, and neither the
Company nor any Stockholder is aware of any valid basis for any such claim. To
the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure
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Schedules, (i) the Company has paid all taxes, penalties, assessments and
interest that have become due with respect to any Tax Returns that it has filed
and has properly accrued on its books and records in accordance with generally
accepted accounting principles for all of the same that have not yet become due
and payable and (ii) the Company is not delinquent in the payment of any tax,
assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated any
applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not
granted an extension to any taxing authority of the statute of limitation period
during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder is
a foreign person, as such term is referred to in Section 1445(f)(3) of the Code
and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of the
Company constitutes property that the Company, APP, APP Sub or any Affiliate of
APP, will be required to treat as being owned by another person pursuant to the
"Safe Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal
by the Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties of the
Company are subject to a lease to a "tax exempt entity" as such term is defined
in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated in
or cooperated with any international boycott as defined in Section 999 of the
Code.
(k) Parachute Payments. No payment required or contemplated to
be made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's
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business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to the Company's
business. There is no commitment to, and no income reflected in the Company
Financial Statements that has been derived from, an Affiliate, and following the
Closing the Company shall not have any obligation of any kind or designation to
any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure Schedules
is a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the Person
or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the Company nor
any Company Subsidiary has engaged and, to the knowledge of the Company, neither
the Company's officers and directors nor the Physician Employees or other
Persons and entities providing professional services for or on behalf of the
Company have engaged, in any activities which are prohibited under 42 U.S.C.
Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Sections 24, 287, 371, 664, 669, 1001, 1027,
1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company, any
Company Subsidiary or officer, director or key employee of the Company or
Company Subsidiary, which has or reasonably could be expected to have the effect
of prohibiting or materially impairing the current medical practice of the
Company or any Company Subsidiary, or the continuation of that medical practice
in the future by NewCo, any acquisition of property by the Company, any Company
Subsidiary or the conduct of business by the Company or any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of the Company, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by the Company or any other party thereto. No
contract with a Physician Employee has been terminated in the last twelve (12)
months.
Section 3.36 Statements True and Correct. No representation or warranty
made herein by the Company or any Stockholder, nor any statement, certificate,
information, exhibit or instrument to be furnished by the Company or any
Stockholder to APP, APP Sub or any of their respective representatives pursuant
to this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required by
Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of any
of the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
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ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the Merger
and the transactions contemplated hereby, all of which have been or will be made
available to the Company for review, are true, correct and complete as in effect
on the date of this Agreement and accurately reflect all material proceedings of
the stockholders and directors of APP (and all committees thereof) regarding the
Merger and the transactions contemplated hereby. The stock record books of APP,
which have been or will be made available to the Company for review, contain
true, complete and accurate records of the stock ownership of APP and the
transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and the Other Agreements and to
consummate the Merger and the transactions contemplated hereby. The execution,
delivery and performance by APP of this Agreement and the agreements provided
for herein, including the Other Agreements and the consummation by APP of the
transactions contemplated hereby and thereby are within APP's corporate powers
and have been duly authorized by all necessary action on the part of APP's Board
of Directors. This Agreement has and the Other Agreements have been duly
executed by APP. This Agreement and all other agreements and obligations entered
into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements of APP, enforceable against it in
accordance with their respective terms, except as may be limited by bankruptcy
or other laws affecting creditors' rights generally, or by general equity
principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the Merger and the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP
consists of [20,000,000] shares of APP Common Stock, of which [2,000,000] shares
are issued and outstanding and [10,000,000] shares of APP Preferred Stock, none
of which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants,
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subscriptions, calls, commitments or other rights to purchase, or securities
convertible into or exchangeable for, any of the authorized or outstanding
securities of APP and no option, warrant, subscription, call, or commitment or
commission right of any kind exists which obligates APP to issue any of its
authorized but unissued capital stock. APP has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or obligation accrued, contingent or
otherwise, that is reasonably likely to have a Material Adverse Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of
the Effective Time (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever), in violation of
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business or
its advertising, sales or pricing practices, except
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for violations which are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted an
extension to any taxing authority of the limitation period during which any tax
liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither APP nor any holders of APP Common
Stock is a foreign person, as such term is referred to in Section 1445(f)(3) of
the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Code.
(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated to
be made by APP will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
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(k) S Corporation. APP has not made an election to be taxed as
an "S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. Schedule 4.13 or Form S-4 sets
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of APP in any property, real or personal or
mixed, tangible or intangible, used in or pertaining to APP's business and any
arrangement or agreement with any such person concerning the provision of goods
or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to the Company or a Stockholder pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Schedules. All Schedules required by Article IV hereof and
attached hereto are true, correct and complete in all material respects as of
the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to such
agreements, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true and
correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo is a
professional corporation duly organized, validly existing and in good standing
under the laws of its state of organization, with all requisite corporate power
and authority to carry on the business in which it intends to engage, to own the
properties it intends to own, and to execute and deliver the Service Agreement,
the Security Agreement and the Physician Employment Agreements and consummate
the transactions and perform the services contemplated thereby. NewCo is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its intended business makes such qualification
necessary, which jurisdictions are listed in the Disclosure Schedules, except
where the failure to be so qualified shall not have a Material Adverse Effect on
NewCo.
Section 5.2 Capitalization. The authorized capital stock of NewCo
consists of [_____] shares of NewCo Common Stock, of which [______] shares are
issued and outstanding, and no shares of capital stock of NewCo are held in
treasury. The Stockholders own all of the issued and outstanding shares of NewCo
Common Stock, free and clear of any Encumbrance. Each outstanding share of NewCo
Common
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Stock has been legally and validly issued and is fully paid and nonassessable.
There exist no options, warrants, subscriptions or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of NewCo. No shares of capital stock of NewCo have been
issued or disposed of in violation of the preemptive rights, rights of first
refusal or similar rights of any of NewCo's stockholders.
Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and complete
copies thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery and
performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict with
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities. NewCo has
not commenced business since its incorporation. Other than its articles or
certificate of incorporation and bylaws, and as of the Closing Date, the Service
Agreement, the Security Agreement, the Physician Employment Agreements, and the
other contracts and agreements assigned to NewCo as part of the Spin-Off
Transaction, NewCo is not a party to or subject to any agreement, indenture or
other instrument. NewCo does not own any assets (tangible or intangible) other
than the consideration received upon the issuance of shares of its capital stock
or pursuant to the Spin-Off Transaction, and NewCo does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted) other than those assumed pursuant to the Spin-Off Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure to
so comply or file would not, individually or in the aggregate, have a Material
Adverse Effect on NewCo.
ARTICLE VI
Closing Date Representations and Warranties Regarding APP Sub
APP and APP Sub, jointly and severally, represent and warrant that the
following will be true and correct on the Closing Date as if made on that date:
Section 6.1 Authorization and Validity. The execution, delivery and
performance by APP Sub of this Agreement and the consummation of the
transactions contemplated thereby, have been duly authorized by APP Sub. This
Agreement will be as of the Closing Date duly executed and delivered by APP Sub
and will constitute the legal, valid and binding obligation of APP Sub
enforceable against APP
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Sub in accordance with its respective terms, except as may be limited by
bankruptcy or other laws affecting creditors' rights generally, or by equity
principles, or by public policy.
Section 6.2 No Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby will conflict with, or result in a violation or breach of
the terms, conditions or provisions of, or constitute a default under, the
certificate of incorporation or bylaws of APP Sub.
Section 6.3 No Business, Agreements, Assets or Liabilities. APP Sub has
not commenced business since its incorporation. APP Sub does not own any assets
(tangible or intangible) other than the consideration received upon the issuance
of shares of its capital stock and APP Sub does not have any liabilities,
accrued, contingent or otherwise (known or unknown and asserted or unasserted)
other than those assumed pursuant to this Agreement.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant to the
Spin-Off Transaction, from the date hereof until the Effective Time, the Company
shall, in all material respects, conduct its business in the ordinary and usual
course consistent with past practices and shall use reasonable efforts to:
(a) preserve intact its business and its relationships with
Payors, referral sources, customers, suppliers, patients, employees and others
having business relations with it;
(b) maintain and keep its properties and assets in good repair
and condition consistent with past practice as is material to the conduct of the
business of the Company;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of
incorporation or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not
limited to, by way of stock split, dividend, recapitalization
or other reclassification) or any subscriptions, options,
warrants, rights or convertible securities, or enter into any
agreements or commitments of any character obligating it to
issue or sell any such securities;
(3) redeem, purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock or any option,
warrant or other right to purchase or acquire any such shares;
(4) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its
capital stock (except as expressly contemplated herein);
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(5) voluntarily sell, transfer, surrender, abandon or
dispose of any of its assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the
ordinary course of business consistent with past practices;
(6) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge
or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital expenditures
which are not reasonably necessary for the conduct of its
business;
(9) grant any increase in the compensation payable or
to become payable to directors, officers, consultants or
employees other than merit increases to employees of the
Company who are not directors or officers of the Company,
except in the ordinary course of business and consistent with
past practices;
(10) change in any manner any accounting principles
or methods other than changes which are consistent with
generally accepted accounting principles;
(11) enter into any material commitment or
transaction other than in the ordinary course of business;
(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;
(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;
(14) agree, whether in writing or otherwise, to do
any of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time,
the Company shall (i) except for sales of assets held as inventory, if any, in
the ordinary course of business prior to the Effective Time and except as
otherwise specifically described in the Disclosure Schedules to this Agreement,
have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or indirect
indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations in
the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation,
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deeds, title documents, leases, patient lists, insurance policies, minute books,
share certificate books, share registers, accounts, tax returns, financial
statements and all other data that, in the reasonable opinion of APP, are
required for APP to make such investigation as it may desire of the properties
and business of the Company. APP shall also be allowed full access upon
reasonable prior notice and during regular business hours (and at such other
times as the parties may reasonably agree) to consult with the officers,
employees (after announcement by the Company of the Merger to its employees
which shall occur no later than three (3) days subsequent to execution hereof by
the Company), accountants, counsel and agents of the Company in connection with
such investigation of the properties and business of the Company. No
investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall be
conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall
cause each of its directors, officers, employees or agents not to directly or
indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or capital stock of the
Company, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of the Company, or, without APP's prior written approval, afford
to any Person other than APP and its agents access to the properties, books or
records of the Company. If the Company receives any offer or proposal after the
date hereof, written or otherwise, of the type referred to above, the Company
shall promptly inform APP of such offer or proposal, decline such offer and
furnish APP with a copy thereof if such offer or proposal is in writing.
Section 7.5 Compliance With Obligations. Prior to the Effective Time,
the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly notify
APP of:
(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
the Company which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
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(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best
efforts to obtain the unanimous approval of its Stockholders to the Merger. In
seeking the approval of its Stockholders, the Company shall provide each
Stockholder with the Form S-4 which shall include information as may be required
by applicable law or as APP shall deem appropriate. The Board of Directors of
the Company shall recommend the approval of the Merger by the Stockholders of
the Company. If the Stockholders' approval is not unanimous, the Company shall
give notice to the nonconsenting Stockholders of the action taken by the
consenting Stockholders as may be required by applicable law; provided, however,
that this covenant shall not require the Company to make any expenditures that
are not expressly set forth in this Agreement or otherwise contemplated herein.
Section 7.9 Obligations of Company and Stockholders. Subject to Section
7.8 hereof, the Company will take all action reasonably necessary to cause the
Company to perform its obligations under this Agreement and all related
agreements and to consummate the Merger and other transactions contemplated
hereby and thereby on the terms and conditions set forth in this Agreement and
such agreements.
Section 7.10 Funding of Accrued Employee Benefits. The Company hereby
covenants and agrees that it will take whatever steps are necessary to pay for
or fund completely any accrued benefits, where applicable, or vested accrued
benefits for which the Company or any entity might have any liability whatsoever
arising from any tax-qualified plan as required under applicable law. The
Company acknowledges that the purpose and intent of this covenant is to assure
that APP Sub shall have no liability whatsoever at any time after the Closing
Date with respect to any such tax-qualified plan, unless such plan is merged
with a plan sponsored by APP or APP Sub.
Section 7.11 Accounting and Tax Matters. The Company will not change in
any material respect the accounting methods or practices followed by the Company
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. The Company will not make
any material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (without regard to any extensions of
time) file all returns, information statements and other documents relating to
taxes of the Company required to be filed by it, and pay all taxes required to
be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form, organize and
incorporate NewCo in the state of California, and the articles or certificate of
incorporation and bylaws of NewCo shall be in form and substance reasonably
satisfactory to APP. Except for consummating the Spin-Off Transaction, NewCo
shall not commence business until the Closing Date. On or prior to the Closing,
the Company shall take all actions and execute all documents, agreements or
instruments necessary pursuant to and in compliance with applicable law to
effect the Spin-Off Transaction, including without limitation, the following:
Prior to the Closing, the Company shall transfer to NewCo good, valid and
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marketable title to all of the Company's right, title and interest in and to the
Employee Benefit Plans, all contracts and agreements and other assets listed on
the Disclosure Schedules (to be delivered by the Company prior to Closing, which
schedule will be subject to the approval of APP, which approval shall not be
unreasonably withheld) which by law either cannot be acquired or cannot be used
by APP because they relate to the practice of medicine or radiology, and shall
contribute to NewCo such other consideration and assets of the Company as may be
required under applicable law, in exchange for the issuance by NewCo of shares
of NewCo Common Stock, such shares being all of the issued and outstanding
shares of NewCo Common Stock. The Company shall then distribute the shares of
NewCo Common Stock to the Stockholders in proportion to their respective
ownership interest in the Company.
ARTICLE VIII
Covenants of APP and APP Sub
APP and APP Sub agree that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP and APP Sub will take all
action reasonably necessary to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions and take all
corporate and other action necessary to approve the Merger; provided, however,
that this covenant shall not require APP and APP Sub to make any expenditures
that are not expressly set forth in this Agreement or otherwise contemplated
herein.
Section 8.2 Requirements to Effect the Merger and Acquisitions. APP and
APP Sub will use their best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all necessary
documents in form approved by counsel for the parties to this Agreement.
Section 8.3 Access. APP and APP Sub shall, at reasonable times during
normal business hours and on reasonable notice, permit the Company and its
authorized representatives of the Company reasonable access to, and make
available for inspection, all of the assets and business of APP and APP Sub,
including its executive officers, and permit the Company and their authorized
representatives to inspect and, at the Company's sole expense, make copies of
all documents, records and information with respect to the affairs of APP and
APP Sub as the Company and their representatives may reasonably request, all for
the sole purpose of permitting the Company to become familiar with the business
and assets and liabilities of APP and APP Sub. No investigation by the Company
or the Stockholders shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of APP under this
Agreement.
Section 8.4 Notification of Certain Matters. APP and APP Sub shall
promptly inform the Company in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or lapse of time
or both, would become a default, received by APP subsequent to the date of this
Agreement and prior to the Effective Time under any contract, agreement or
investment material to APP's or APP Sub's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; (b) any
material adverse change in APP's condition (financial or otherwise), operations,
assets, liabilities or business or (c) defaults or disputes regarding Other
Agreements.
Section 8.5 Qualified Retirement Plans. APP and APP Sub shall use their
best efforts to establish a qualified plan and trust for NewCo, within the
meaning of Section 401(a) and 501(a), respectively, of the Code ("New Qualified
Plan") that will provide benefits comparable (as determined under Section
401(a)(4) of the Code) to the benefits provided under the qualified plans
referenced in the Disclosure Schedules, if any, sponsored by the Company as of
March 31, 1997. APP will file for a favorable determination letter from the IRS
on the New Qualified Plan and request a favorable determination from the IRS
that NewCo is not a member of an affiliated service group (as defined in Section
414(m) of the Code) or a recipient organization of leased employee services (as
defined in Section 414(n) of the Code). Any benefits provided under the New
Qualified Plan shall be conditioned on a favorable determination letter from the
IRS. Costs associated with the establishment and design of the
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New Qualified Plan shall be paid by APP or APP Sub. NewCo shall be responsible
for funding any contributions to, or any ongoing administrative costs of, the
New Qualified Plan.
ARTICLE IX
Covenants of APP, APP Sub and the Company
APP, APP Sub and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP and APP Sub to promptly
prepare and file with the SEC the Registration Statements on Form S-1 and Form
S-4 (or other appropriate Forms) to be filed by APP in connection with its
Initial Public Offering and offering of the shares of APP Common Stock to the
Target Interest Holders pursuant to the transactions contemplated by this
Agreement and the Other Agreements (including the prospectus constituting parts
thereof, the "Registration Statements"). APP shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. The Company shall cooperate with
APP in the preparation of the Registration Statements and shall furnish all
information concerning the Company and NewCo as may be reasonably requested in
connection with any such action in a timely manner.
(b) The Company, APP and APP Sub and each separately represent and
warrant that (i) in the case of the Company, none of the written information or
documents supplied or to be supplied by it specifically for inclusion in the
Registration Statements, by exhibit or otherwise and (ii) in the case of APP or
APP Sub, will, at the time the Registration Statements and each amendment and
supplement thereto, if any, becomes effective under the Securities Act, none of
them contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Company shall be entitled to review the Registration Statements
and each of the amendments thereto, if any, prior to the time each becomes
effective under the Securities Act. The Company shall have no responsibility for
information contained in the Registration Statements except for information
provided by the Company specifically for inclusion therein. The Company's review
of the Registration Statements shall not diminish or otherwise affect the
representations, covenants and warranties of APP and APP Sub contained in this
Agreement.
(c) The Company shall, upon request, furnish APP with all information
concerning itself, its subsidiaries, directors, officers, partners, Stockholders
and NewCo, and such other matters as may be reasonably requested by APP in
connection with the preparation of the Registration Statements and each of the
amendments or supplements thereto, or any other statement, filing, notice or
application made by or on behalf of each such party or any of its subsidiaries
to any governmental entity in connection with the Merger and the other
transactions contemplated by this Agreement.
Section 9.2 Amendments of Disclosure Schedules. Each party hereto
agrees that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to supplement or amend promptly the Disclosure Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Schedule that constitutes or reflects a
Material Adverse Effect on the Company may be made unless APP consents to such
amendment or supplement, and no amendment or supplement to a Disclosure Schedule
that constitutes or reflects a Material Adverse Effect on APP may be made unless
the Company consents to such amendment or supplement. For purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 10.1 and 11.1 have been fulfilled, the
Disclosure Schedules hereto shall be deemed to be the Disclosure Schedules as
amended or supplemented pursuant to this Section 9.2. In the event that the
Company seeks to amend or supplement a Disclosure Schedule pursuant to this
Section 9.2 and APP does not consent to such amendment or supplement, or APP
seeks to amend
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or supplement a Disclosure Schedule pursuant to this Section 9.2, and the
Company does not consent, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Section
351 of the Code.
Section 9.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company and NewCo in connection with the Merger
shall be paid by the Company in full immediately prior to the Closing and such
expenses shall be the sole responsibility of the Stockholders following the
Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP and APP Sub shall agree to
keep all records and information regarding the patients of the Company and NewCo
confidential in accordance with all applicable laws.
Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP and APP Sub
Except as may be waived in writing by APP, the obligations of APP and
APP Sub hereunder are subject to the fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as delivered pursuant to Section 10.12
hereof) shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Effective
Date.
Section 10.2 Covenants. The Company shall have performed and complied
in all material respects with all covenants required by this Agreement to be
performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have delivered
to APP their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
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Section 10.5 No Material Adverse Effect. No Material Adverse Effect on
the Company shall have occurred since March 31, 1997, whether or not such change
shall have been caused by the deliberate act or omission of the Company or any
Stockholder.
Section 10.6 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, statements, rule, regulation or ordinance to consummate the
transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all Disclosure
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 10.11 Dissenter's Rights. The Company shall have satisfied each
of its obligations to its Stockholders regarding dissenters or related rights
under California Corporate Law, and the sum of the amount which may become due
to the Stockholders who have dissented to the Merger and have indicated their
intent to seek appraisal rights plus the cash portion of the Merger
Consideration shall not exceed 25% of the total Merger Consideration due
hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties of
the Company and its related entities to be transferred to NewCo pursuant to the
Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician Employee
and such other radiologists whose names are set forth on Schedule 10.14 shall
have entered into a Physician Employment Agreement between NewCo and each such
Physician Employee in a form reasonably consistent to the form attached as
Exhibit E and satisfactory to APP in its sole discretion (the "Physician
Employment Agreements").
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
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Section 11.1 Representations and Warranties. The representations and
warranties of APP and APP Sub contained herein shall be true and correct in all
material respects when initially made and shall be true and correct in all
material respects as of the Effective Date.
Section 11.2 Covenants. APP and APP Sub shall have performed and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Effective
Date.
Section 11.3 Legal Opinions. Counsel to APP and APP Sub shall have
delivered to the Company their opinion, dated as of the Effective Date, in form
and substance substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any court
or governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo, APP and APP Sub shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, contracts or any statute, rule, regulation or
ordinances to consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statements shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. At or prior to the Effective Date, the APP
Common Stock shall have been approved for listing on the Nasdaq National Market,
subject only to official notification of issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to the Company referred to in Section 12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect on
APP or APP Sub shall have occurred since March 31, 1997, whether or not such
change shall have been caused by the deliberate act or omission of APP or APP
Sub.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its opinion and analysis, in form
satisfactory to the Company, that the terms of the Service Agreement are fair
and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from
Haynes and Boone, L.L.P., counsel to APP, a tax opinion, substantially in
the form set forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Effective
Date, the Company shall deliver to APP the following, all of which shall be in a
form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
and the Service Agreement and all related documents and agreements and
consummation of the Merger, each certified by the Secretary of the
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Company as being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of NewCo
authorizing the execution, delivery and performance of the Service Agreement,
the Security Agreement and the Physician Employment Agreements each certified by
the Secretary of NewCo as being true and correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of the Company dated the
Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the
Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by the
Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and officers
of such corporation and as to the signatures of such directors and officers who
have executed documents delivered at the Closing on behalf of that corporation;
(f) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretary of State of California for the Company and
NewCo establishing that each such corporation is in existence, has paid all
franchise or similar taxes, if any, and, if applicable, otherwise is in good
standing to transact business in the state of California;
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;
(i) the resignations of the directors and officers of the
Company as requested by APP;
(j) the executed Service Agreement in substantially the form
attached hereto as Exhibit F, as revised in accordance with changes reasonably
deemed necessary or advisable by legal counsel retained by APP, the Company and
NewCo in the State of California to address regulatory and compliance issues
(the "Service Agreement");
(k) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to
in Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty
of perjury and dated as of the Closing Date, to the effect that such Stockholder
is a United States citizen or a resident alien (and thus not a foreign person)
and providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit G (the "Stockholder Release");
(n) Intentionally omitted; and
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(o) such other instrument or instruments of transfer prepared
by APP as shall be necessary or appropriate, as APP or its counsel shall
reasonably request, to carry out and effect the purpose and intent of this
Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective Date, APP
shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) a copy of resolutions of the Board of Directors of APP Sub
authorizing the execution, delivery and performance of this Agreement, the
Service Agreement and the Security Agreement, each certified by the Secretary of
APP Sub as being true correct copies of the originals thereof subject to no
modifications or amendments;
(c) a certificate of the President of APP and APP Sub dated
the Closing Date as to the truth and correctness of the representations and
warranties of APP and APP Sub contained herein on and as of the Effective Date;
(d) a certificate of the President of APP and APP Sub dated
the Closing Date, (i) as to the performance and compliance by APP or APP Sub
with all covenants contained herein on and as of the Effective Date and (ii)
certifying that all conditions precedent required to be satisfied by APP and APP
Sub shall have been satisfied;
(e) a certificate of the Secretary of APP and APP Sub
certifying as to the incumbency and to the signatures of the officers of APP or
APP Sub who have executed documents delivered at the Closing on behalf of APP or
APP Sub;
(f) a certificate, dated within ten (10) days prior to the
Effective Date, of the secretary of state of incorporation establishing that APP
and APP Sub are, respectively, in existence, have paid all franchise or similar
taxes, if any, and otherwise are in good standing to transact business in the
states of Delaware and California;
(g) certificates (or photocopies thereof), dated within ten
(10) days prior to the Effective Date, of the Secretaries of State of the states
in which either APP and APP Sub is qualified to do business, to the effect that
APP and APP Sub is qualified to do business and is in good standing as a foreign
corporation in such state;
(h) the executed Service Agreement as revised in accordance
with the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II and
Exhibit B hereof; and
(k) such other instrument or instruments of transfer prepared
by the Company as shall be necessary or appropriate, as the Company or its
counsel shall reasonably request, to carry out and effect the purpose and intent
of this Agreement.
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ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing, at
the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing, at
the request of NewCo and at NewCo's sole cost and expense, APP or the Surviving
Corporation shall deliver any further instruments of transfer and take all
reasonable action as may be necessary and appropriate to carry out the purpose
and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and records
shall be maintained, and all Tax Returns and schedules thereto shall be filed in
a manner consistent with the Merger being treated as a Reorganization. These
obligations are excused as to a party required to maintain the books or file a
Tax Return if such party has provided to the other parties a written opinion of
competent tax counsel to the effect that there is not substantial authority,
within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report the Merger
as a Reorganization and such opinion either is furnished prior to the Effective
Time or is based on facts or events not known at the Effective Time. Each party
shall provide to each other party such tax information, reports, returns, or
schedules as may be reasonably required to assist such party in accounting for
and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any taxes
incurred by the Company and for which APP has successor liability therefor which
arise solely as a result of the Merger or the consummation of the transactions
contemplated hereby; provided that the foregoing shall not limit or otherwise be
deemed a waiver of any right of indemnification under Section 14.1 for a breach
of any representation, warranty or covenant of the Company or any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms and
conditions of this Article XIV, the Company agrees to indemnify, defend and hold
APP and the Surviving Corporation and their respective directors, officers,
stockholders, employees, agents, attorneys, consultants and Affiliates harmless
from and against all losses, claims, obligations, demands, assessments,
penalties, liabilities, costs, damages, reasonable attorneys' fees and expenses
(including, without limitation, all costs of experts and all costs incidental to
or in connection with any appellate process) (collectively, "Damages") asserted
against or incurred by such individuals and/or entities arising out of or
resulting from:
(a) a breach by the Company of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of the Company
contained in this Agreement or in any Disclosure Schedule or certificate
delivered thereunder;
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(b) any violation (or alleged violation) by the Company and/or
any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any (i) untrue statement
of material fact in any Registration Statement or any prospectus forming or part
thereof, or any amendment thereof or supplement thereto relating to the Company
(including any Company Subsidiary) or NewCo required to be stated therein or
(ii) failure to state information necessary to make the statements therein not
misleading, which untrue statement or failure to state information arises or
results solely from information provided in writing to APP or its counsel by the
Company or any Stockholder or their agents specifically for inclusion in any
such Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP and APP Sub. Subject to the terms
and conditions of this Article XIV, APP and APP Sub jointly and severally hereby
agree to indemnify, defend and hold the Stockholders, the Company and NewCo and
their respective directors, officers, stockholders, employees, agents,
attorneys, consultants and Affiliates harmless from and against all Damages
asserted against or incurred by such individuals and/or entities arising out of
or resulting from:
(a) a breach by APP or APP Sub of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of APP or
APP Sub contained in this Agreement or in any schedule or certificate delivered
hereunder; and
(b) any liability under the Securities Act, the Exchange Act
or any other federal or state "blue sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any untrue statements of
material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, required to be stated
therein or failure to state information necessary to make the statements therein
not misleading (except for any liability based upon any actual or alleged untrue
statement of material fact or an omission to state a material fact relating to
NewCo, the Company or any Stockholder to the extent derived from any information
provided in writing by the Company or a Company Subsidiary or any of their
agents contained in the representations and warranties set forth in this
Agreement or any certificate, exhibit, schedule or instrument required to be
delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
of any of the parties hereto of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement (an
"Indemnified Party") shall promptly (and, in the event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party for whom indemnification is sought (the "Indemnifying
Party) of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the
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amount of Damages attributable to the Third Party Claim and the basis of the
Indemnified Party's request for indemnification under this Agreement. The
failure to promptly deliver a Claim Notice shall not relieve any Indemnifying
Party of its obligations to any Indemnified Party with respect to the related
Third Party Claim except to the extent that the resulting delay is materially
prejudicial to the defense of such claim. Within thirty (30) days after receipt
of any Claim Notice (the "Election Period"), the Indemnifying Party shall notify
the Indemnified Party (x) whether the Indemnifying Party disputes its potential
liability to the Indemnified Party under this Article XIV with respect to such
Third Party Claim and (y) whether the Indemnifying Party desires, at the sole
cost and expense of such Indemnifying Party, to defend the Indemnified Party
against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set forth
in Section 14.3(f) below, the Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. The
Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 14.3(b) and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 14.3(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 14.3(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes their potential liability to the Indemnified
Party under this Article XIV and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense
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pursuant to this Section or of the Indemnifying Party's participation therein at
the Indemnified Party's request, and the Indemnified Party shall reimburse the
Indemnifying Party in full for all costs and expenses of such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this Section 14.3(c),
and the Indemnifying Party shall bear its own costs and expenses with respect to
such participation; provided, however, that if the named parties to any such
action (including any impleaded parties) include both the Indemnifying Party and
the Indemnified Party, and the Indemnifying Party has been advised by counsel
that there may be one or more legal defenses available to it that are different
from or additional to those available to the Indemnified Party, then the
Indemnifying Party may employ separate counsel and upon written notification
thereof, the Indemnified Party shall not have the right to assume the defense of
such action on behalf of the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Article XIV relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice period
or (ii) the expiration of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
agrees to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding any provision herein to the contrary, the
obligation of an Indemnifying Party to provide indemnification to an Indemnified
Party for breach of any representation or warranty as provided in Sections
14.1(a) or 14.2(a) hereof shall not take effect unless and until the Damages
asserted against or incurred in the aggregate and on a collective basis by the
Indemnified Parties pursuant to either Section 14.1 or 14.2 (as applicable) as a
result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
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fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the
Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual
agreement of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or any Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any Stockholder
fails to comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(c) at any time prior to the Effective Date by the Company if
any representation or warranty of APP or APP Sub contained in this Agreement or
in any certificate or other document executed and delivered by APP or APP Sub
pursuant to this Agreement is or becomes untrue in any material respect or if
APP fails to comply in any material respect with any covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(d) at any time prior to the Effective Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in Section
16.3, in the event this Agreement is terminated pursuant to this Article XV,
this Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo recognize
and acknowledge that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP and the
Surviving Corporation that is valuable, special and a unique asset of such
entity's business. APP and APP Sub acknowledge that they had in the past,
currently have, and in the future may possibly have, access to certain
Confidential Information of the Company and NewCo that is valuable, special and
a unique asset of each such business. The Company, NewCo, APP, and APP Sub,
severally, agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of APP, APP Sub,
Surviving Corporation, NewCo and the Company and (b) to counsel
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and other advisers to APP, APP Sub, Surviving Corporation, NewCo and the Company
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 16.1, unless (i) such information becomes available
to or known by the public generally through no fault of the Company, NewCo, APP
or APP Sub, as the case may be, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii) the Company, NewCo, APP
or APP Sub, as the case may be, shall, if possible, give prior written notice
thereof to the Company, NewCo, APP or APP Sub and provide the Company, APP or
APP Sub with the opportunity to contest such disclosure, (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, or (iv) the disclosing
party is the sole and exclusive owner of such Confidential Information as a
result of the Merger or otherwise. In the event of a breach or threatened breach
by the Company, on the one hand, and APP or APP Sub, on the other hand, of the
provisions of this Section, APP, APP Sub, the Surviving Corporation, NewCo and
the Company shall be entitled to an injunction restraining the other party, as
the case may be, from disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting any of such
parties from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
Section 16.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, APP Sub, the Surviving Corporation, NewCo and the
Company agree that, in the event of a breach by either of them of the foregoing
covenant, the covenant may be enforced against them by injunctions and
restraining orders.
Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
Section 17.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP and APP Sub
acknowledge and agree that the rights and remedies of the Company under this
Agreement will be directly available to the Stockholders as third party
beneficiaries of the rights and remedies of the Company under this Agreement,
including, without limitation, the rights and remedies under Article 14 hereof
to indemnification from APP and APP Sub against Damages incurred by the
Stockholders resulting from a breach by APP or APP Sub of any representation,
warranty or covenant of APP or APP Sub contained herein. Except as provided in
the preceding sentence or as otherwise provided herein, neither this Agreement
nor any other agreement contemplated hereby shall be deemed to confer upon any
person not a party hereto or thereto any rights or remedies hereunder or
thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior
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agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder, APP or APP
Sub pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder, APP and APP Sub. Notwithstanding
any provision in this Agreement to the contrary, the representations and
warranties contained herein shall survive the Closing until the second
anniversary of the Closing Date except that (a) the representations and
warranties set forth in Section 3.21 with respect to environmental matters shall
survive for a period of ten (10) years, (b) the representations and warranties
set forth in Section 3.30 with respect to tax matters shall survive until such
time as the limitations period has run for all tax periods ended prior to the
Closing Date, (c) the representations and warranties contained in Section 3.27
and Section 3.33 with respect to healthcare matters shall survive for a period
of six (6) years and (d) solely for purposes of Section 14.1(c) and Section
14.2(c), and solely to the extent that any party to be indemnified pursuant to
such provisions actually incurs liability under the Securities Act, the Exchange
Act or any other federal or state securities law, the representations and
warranties set forth therein shall survive until the expiration of any
applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF CALIFORNIA.
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
Section 17.9 Gender and Number. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the
A-1178
<PAGE> 1540
transactions contemplated hereby not be consummated, nothing contained in this
Section shall be construed to prohibit the parties hereto from operating
businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
<TABLE>
<S> <C>
If to APP and APP Sub: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: Valley Radiologists Medical Associates, Inc.
1101 S. Winchester Blvd., Suite J220
San Jose, CA 95128
Attn: Edward A. Lebowitz, M.D.
with a copy to : Hoge Fenton Jones & Appel
60 S. Market Street, #1400
San Jose, California 95113-2334
Fax No.: (408) 287-2583
Attn: Stephen S. McCray, Esq.
</TABLE>
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter
A-1179
<PAGE> 1541
capitalized and not otherwise defined therein shall have the meanings as
assigned to such terms in this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:______________________________________
Gregory L. Solomon, President
APP SUB:
[AMERICAN PHYSICIAN PARTNERS,
SUBSIDIARY, INC.]
By:______________________________________
Its:_____________________________________
THE COMPANY:
VALLEY RADIOLOGISTS MEDICAL GROUP, INC.
By:______________________________________
Its:_____________________________________
A-1180
<PAGE> 1542
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
A-1181
<PAGE> 1543
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
A-1182
<PAGE> 1544
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
A-1183
<PAGE> 1545
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
A-1184
<PAGE> 1546
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
A-1185
<PAGE> 1547
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
A-1186
<PAGE> 1548
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
A-1187
<PAGE> 1549
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997
The following Disclosure Schedules and the disclosures set forth
therein are delivered in connection with that certain Agreement and Plan of
Reorganization and Merger dated ____________, 1997, by and between American
Physician Partners, Inc. and the Company (the "Agreement").
The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made pursuant
to one section number can reasonably be interpreted by other parties to be a
disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.
To the extent that the following Disclosure Schedules contain
exceptions to the representations and warranties set forth in Article III of the
Agreement, the inclusion of an item on these Disclosure Schedules shall not be
deemed an admission by American Physician Partners, Inc. that such item is
material to American Physician Partners, Inc., APP Sub, the Company, NewCo or
any Company Subsidiary or that it will have a material adverse effect on
American Physician Partners, Inc., APP Sub, the Company, NewCo or any Company
Subsidiary.
A-1188
<PAGE> 1550
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and VALLEY
RADIOLOGISTS MEDICAL GROUP, INC., a California professional corporation (the
"Company").
RECITALS
A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").
B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:
(e) by APP or the Company if the Merger shall not
have been consummated by November 30, 1997.
2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_________________________________
Gregory L. Solomon, President
THE COMPANY:
VALLEY RADIOLOGISTS MEDICAL GROUP, INC.
By:_________________________________
Its:________________________________
A-1189
<PAGE> 1551
APPENDIX B
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June __, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),
[AMERICAN PHYSICIAN PARTNERS SUBSIDIARY, INC.]
(a [ ] corporation),
and
TARGET ENTITY
( )
================================================================================
B-1
<PAGE> 1552
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this "Agreement"),
dated as of June __, 1997, is by and among AMERICAN PHYSICIAN PARTNERS, INC., a
Delaware corporation ("APP"), [AMERICAN PHYSICIAN PARTNERS SUBSIDIARY, INC.], a
[ ] corporation and a wholly-owned subsidiary of APP ("APP Sub"), and TARGET
ENTITY, a [ ](the "Company").
RECITALS
A. The Company owns and operates a professional medical practice
specializing in radiology. All of the shares of the common stock of the Company
(the "Company Common Stock") are owned beneficially and of record by the
Stockholders.
B. APP Sub is engaged in the business of owning, operating and acquiring
the assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
C. Pursuant to this Agreement, APP, APP Sub, and the Company intend that
APP Sub be merged with and into the Company, and that the Company be the sole
surviving corporation (sometimes referred to hereinafter as the "Surviving
Corporation"), and APP Sub be the disappearing corporation (sometimes referred
to hereinafter as the "Disappearing Corporation").
D. APP, APP Sub and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) APP Sub will merge with
and into the Company upon the terms and conditions set forth herein and in
accordance with the laws of the State of [ ], (ii) the outstanding shares of the
Company Common Stock shall be converted at such time into cash and shares of
common stock, par value $.0001 per share, of APP (the "APP Common Stock") as set
forth herein, and (iii) the Company shall become a wholly-owned subsidiary of
APP.
E. Prior to the Merger, the Company intends to transfer certain of its
assets most of which relate solely to the practice of medicine to a newly formed
professional corporation ("NewCo") in exchange for all of the capital stock of
NewCo and to thereafter distribute such NewCo stock to the Stockholders (the
"Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter into,
an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Stockholders, the "Target Interest Holders")
of each of the entities listed on Exhibit A (together with the Company, the
"Target Companies").
G. The parties intend for the transaction contemplated by this Agreement
along with the transactions contemplated by the Other Agreements to qualify as a
tax-free exchange within the meaning of Section 351 of the Internal Revenue Code
of 1986, as amended (the "Code") and the regulations promulgated thereunder.
B-2
<PAGE> 1553
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, APP Sub, NewCo and each of their Affiliates.
"APP Sub" shall have the meaning set forth in the preamble to this
Agreement.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall mean
(i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed in Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the recitals
to this Agreement.
B-3
<PAGE> 1554
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section 3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section 3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the terms
hereof, as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement is
declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property interest,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
B-4
<PAGE> 1555
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Form S-1" shall mean the Form S-1 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with its Initial Public
Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with the offering of APP
Common Stock as consideration under the Merger and other mergers contemplated by
the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party to
this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section 14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section 14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or other
fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Section 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651 et seq.,
(v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
B-5
<PAGE> 1556
"Merger" shall have the meaning set forth in Section 2.1.
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock, of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Physician Employee" shall mean each radiologist employed by the Company
or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Schedules" shall mean the schedules attached hereto as of the date
hereof or otherwise delivered by any party hereto pursuant to the terms hereof,
as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section 12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the recitals
to this Agreement.
B-6
<PAGE> 1557
"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the recitals
to this Agreement.
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign income,
excise, corporate, franchise, property, sales, use, payroll, withholding,
provider, environmental, duties, value added and other tax returns (including
information returns).
"Third Party Claim" shall have the meaning set forth in Section 14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number (e.g.,
Article IV) or a Section number (e.g., Section 6.2) shall be construed to be a
reference to the designated Article number or Section number of this Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, APP Sub shall be merged with and into the
Company in accordance with this Agreement and the separate corporate existence
of the Disappearing Corporation shall thereupon cease (the "Merger"). The
Company shall be the Surviving Corporation in the Merger and shall continue to
be governed by the laws of the State of [ ], and the separate corporate
existence of the Company with all its rights, privileges, powers, immunities,
purposes and franchises shall continue unaffected by the Merger, except as set
forth herein. The Surviving Corporation may, at any time concurrent with and/or
after the Effective Time, take any action in the name of or on behalf of the
Disappearing Corporation in order to effectuate the transactions contemplated by
this Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take place at
10:00 a.m., local time, at the offices of APP located at 2301 NationsBank Plaza,
901 Main Street, Dallas, Texas on the day on which the transactions contemplated
by the Initial Public Offering are consummated. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
Section 2.3 Effective Time. If all the conditions to the Merger set
forth in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section [ ]
of the [ ] Corporation Law. The Merger shall become effective at the time of the
filing of such documents with the Secretary of State of the State of [ ], in
accordance with such law or at such later time which the parties hereto have
theretofore agreed upon and designated in such filings as the effective time of
the Merger (the "Effective Time").
B-7
<PAGE> 1558
Section 2.4 Articles of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Articles of Incorporation of the Company in
effect immediately prior to the Effective Time shall be amended and restated in
a manner satisfactory to APP. The Articles of Incorporation, as so amended and
restated, shall be the Articles of Incorporation of the Surviving Corporation.
Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP Sub in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation without any amendment or modification as a result of the
Merger, until duly amended in accordance with applicable laws.
Section 2.6 Directors of the Surviving Corporation. The persons who are
directors of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time. The directors of the Surviving Corporation following the
Effective Time shall be set forth in Exhibit 2.6.
Section 2.7 Officers of the Surviving Corporation. The persons who are
officers of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time. The officers of the Surviving Corporation following the
Effective Time shall be set forth in Exhibit 2.7.
Section 2.8 Conversion of Company Common Stock. The manner of converting
shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the part
of the holder thereof, all shares of Company Common Stock issued and outstanding
at the Effective Time (excluding shares held by APP pursuant to Section 2.8(d)
hereof) shall cease to be outstanding and shall be cancelled and retired and
shall cease to exist, and each holder of a certificate or certificates
representing any such shares of Company Common Stock shall thereafter cease to
have any rights with respect to such shares of Company Common Stock, except the
right to receive, without interest, (i) cash and (ii) validly issued, fully paid
and nonassessable shares of APP Common Stock, all as determined in accordance
with the provisions of Exhibit B attached hereto (the "Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time shall be
terminated and cancelled, without payment of any consideration therefor, and
shall cease to exist.
(d) Each share of common stock of APP Sub issued and outstanding
at the Effective Time shall be converted to one share of Company Common Stock.
(e) At the Effective Time, each share of APP Common Stock issued
and outstanding as of the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, continue unchanged and
remain outstanding as a validly issued, fully paid and nonassessable share of
APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock.
(a) At or after the Effective Time and at the Closing (i) the
Stockholders, as holders of a certificate or certificates representing shares of
the Company's Common Stock, shall upon surrender of each certificate or
certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until each
certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
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each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at the
Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Company
Common Stock or with respect to the stock powers accompanying any Company Common
Stock. Upon such delivery (or completion of appropriate affidavit of lost
certificate and indemnity), each Stockholder shall receive in exchange therefor
the Merger Consideration pursuant to Exhibit B and Section 2.10 hereof, if
applicable.
Section 2.10 Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of APP Common Stock will be issued and any
Stockholder otherwise entitled to receive a fractional share of APP Common Stock
as part of the Merger Consideration hereunder shall receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP and APP Sub to enter into this Agreement and to
consummate the Merger and except as set forth in the Disclosure Schedules
attached hereto and incorporated herein by this reference, the Company
represents and warrants to APP and APP Sub both as of the date hereof and as of
the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. The Company and each Company Subsidiary is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all requisite
corporate power to enter into this Agreement and all other agreements entered
into in connection with the transactions contemplated hereby and to consummate
the transactions contemplated hereby. The execution, delivery and, subject to
approval of this Agreement and the Merger by the Stockholders, performance by
the Company of this Agreement and the agreements contemplated herein, and the
consummation by the Company of the transactions contemplated hereby and thereby
are within the Company's respective corporate powers and have been duly
authorized by all necessary action on the part of the Company's Board of
Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and
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obligations entered into and undertaken in connection with the transactions
contemplated hereby to which the Company is a party constitute, or upon
execution will constitute, valid and binding agreements of the Company,
enforceable against it in accordance with their respective terms, except as
enforceability may be limited by bankruptcy or other laws affecting the
enforcement of creditors' rights generally, or by general equity principles, or
by public policy.
Section 3.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger (as contemplated by Section
2.3) and any other required documents related to the Merger, and other than
consents, filings or notifications required to be made or obtained solely by APP
or APP Sub (including, without limitation, in connection with the Initial Public
Offering, Form S-4 or any Hart-Scott-Rodino filing to be made by APP, if any),
the execution, delivery and performance by the Company of this Agreement and the
agreements provided for herein, and the consummation of the transactions
contemplated hereby and thereby by the Company require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 3.4 Capitalization. The authorized capital stock of the Company
consists of [ ] shares of the Company Common Stock, of which [ ] shares are
issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the Company has no securities, bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
Section 3.5 Transactions in Capital Stock. There exist no Company
Rights. The Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership of shares
among any of its Stockholders has been altered or changed in contemplation of
the Merger within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the (2) two
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result
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in a breach of, constitute a default under, require any notice under, or
accelerate or modify, or permit any person to accelerate or modify, any
performance required by the terms of any agreement, instrument, license or
permit, to which the Company is a party or by which the Company or any of its
properties are subject or bound except for such conflict, termination, breach or
default, the occurrence of which would not result in a Material Adverse Effect
on the Company; and (v) except as contemplated by this Agreement, will not
create any Encumbrance or restriction upon the Company Common Stock or any of
the assets or properties of the Company.
Section 3.9 Intentionally omitted.
Section 3.10 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on the Company;
(b) paid, discharged or satisfied any material liability, other
than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent with
past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or accounting
practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with
past practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable, mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any equity
or other interest in itself;
(j) increased any salaries, wages or any employee benefits for
any employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee except in
the ordinary course of business;
(l) declared, set aside or made any payments, dividends or other
distributions to any Stockholder or any other holder of capital stock of the
Company (except as expressly contemplated herein); or
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(m) agreed, whether in writing or otherwise, to take any action
described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its knowledge,
the Company does not have any liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted except for
liabilities or obligations reflected or reserved against in the Company's
Current Balance Sheet.
Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder, the Physician Employees or any other licensed professional or other
individual affiliated with the Company affecting or that would reasonably be
likely to affect the Company Common Stock or the operations, business condition,
(financial or otherwise), or results of operations of the Company which (i) if
successful, may, individually or in the aggregate, have a Material Adverse
Effect on the Company or (ii) could adversely affect the ability of the Company
or any Company Subsidiary to effect the transactions contemplated hereby, and to
the knowledge of the Company there is no basis for any such action or any state
of facts or occurrence of any event which would reasonably be likely to give
rise to the foregoing. There are no unsatisfied judgments against the Company or
any Company Subsidiary or any licensed professional or other individual
affiliated with the Company or any Company Subsidiary relating to services
provided on behalf of the Company or any Company Subsidiary or any consent
decrees to which any of the foregoing is subject. Each of the matters, if any,
set forth in this Section 3.12 is fully covered by policies of insurance of the
Company or any Company Subsidiary as in effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any Company
Subsidiary has been, nor shall be as of the Effective Time (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which the Company or any Company Subsidiary is a party and pursuant to which the
Company or any Company Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the operation of its business and which requires payments in excess of
$12,000 per year (the "Lease Agreements"). The Company has delivered to APP true
and complete copies of all of the Lease Agreements. Each Lease Agreement is
valid, effective and in full force in accordance with its terms, and there is
not under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver to
APP or APP Sub in writing such consents as are necessary to effect a valid and
binding transfer or assignment of the Company's or any Company Subsidiary's
rights thereunder. The Company has a good, clear, valid and enforceable
leasehold interest under each of the Lease Agreements. The Lease Agreements
comply with the exceptions to ownership interests and compensation arrangements
set out in 42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar
applicable state law safe harbor or other exemption provisions.
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Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good title to
all of its properties and assets (real, personal and mixed, tangible and
intangible) and any rights or interests therein which it purports to own
including, without limitation, all the property and assets reflected in the
Company Current Financial Statements; and (ii) owns such rights, interests,
assets and property free and clear of all Encumbrances, title defects or
objections (except for taxes not yet due and payable). The personal property
presently used in connection with the operation of the business of the Company
and the Company Subsidiaries constitutes the necessary personal property assets
to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, the Company does not have any
direct or indirect indebtedness for borrowed money, including indebtedness by
way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000 in
any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP or APP Sub of the
assets and properties to be acquired by APP or APP Sub from the Company, or
which could inhibit or prevent the Company from transferring to or vesting in
APP or APP Sub good and sufficient title to the assets and properties to be
acquired by APP or APP Sub and the Surviving Corporation except where the
failure to transfer would not have a Material Adverse Effect on APP or APP Sub.
In every instance where consent is necessary, the Company shall, on or before
the Closing Date, use reasonable good faith efforts to obtain and deliver to APP
or APP Sub in writing, effective as of the Closing Date, such consents as are
necessary to enable the Surviving Corporation to enjoy all of the rights now
enjoyed by the Company under such contracts. Any and all such consents
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shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to APP
or APP Sub any contracts or agreements relating to the provision of professional
medical services or other such agreements and contracts that APP consents to in
writing to be transferred to NewCo in the Spin-off Transaction. No contract with
a health care provider or Payor has been materially amended or terminated within
the last twelve (12) months.
(b) The Company (i) has not received notice of any plan or
intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument required to be disclosed pursuant to Section
3.17(a), and to the knowledge of the Company there are no fact(s) that would
justify the exercise of such a right; and (ii) does not currently contemplate,
or have reason to believe any other Person currently contemplates, any amendment
or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a party to
any employment contract (except for oral employment agreements which are
terminable at will), consulting or collective bargaining contracts, deferred
compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [ ] part-time and [ ] full-time employees and [ ] per diem
employees. The Disclosure Schedules list each employee of, or consultant to, the
Company who received combined salary, benefits (other than those offered
generally to all other employees) and bonuses for 1996 in excess of $50,000 or
who is expected to receive combined salary, benefits (other than those offered
generally to all other employees) and bonuses in 1997 in excess of $50,000. The
Company is not delinquent in payment to any of its employees or Physician
Employees for wages, salaries, bonuses or other direct compensation for any
services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Upon termination of employment of any employee or
Physician Employee, no severance or other payments will become due and the
Company has no policy, past practice or plan of paying severance on termination
of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in material
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, occupational
safety and health, and is not engaged in any unfair labor practice within the
meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair labor
practice, charge or complaint or any other employment-related matter against or
involving the Company pending or threatened before the National Labor Relations
Board or any federal, state or local agency, authority or court;
(c) To the knowledge of the Company, there are no charges,
investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
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(d) The Company is in material compliance with the Immigration
Reform and Control Act of 1986, as amended, and all applicable regulations
promulgated thereunder; and
(e) To the knowledge of the Company, there are no inquiries,
investigations or monitoring activities of any licensed, registered, or
certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a complete
and accurate list of all employee benefit plans (within the meaning of Section
3(3) of ERISA) sponsored by the Company or to which the Company contributes on
behalf of its employees and all employee benefit plans previously sponsored or
contributed to on behalf of its employees within the three years preceding the
date hereof (the "Employee Benefit Plans"). The Company has provided to APP
copies of all plan documents (as they may have been amended to the date hereof),
determination letters, pending determination letter applications, trust
instruments, insurance contracts or policies related to an Employee Benefit
Plan, administrative services contracts, annual reports, actuarial valuations,
summary plan descriptions, summaries of material modifications, administrative
forms and other documents that constitute a part of or are incident to the
administration of the Employee Benefit Plans. In addition, the Company has
provided or made available to APP a written description of all existing
practices engaged in by the Company that constitute Employee Benefit Plans.
Subject to the requirements of ERISA, each of the Employee Benefit Plans can be
terminated or amended at will by the Company without any further liability or
obligation on the part of such entity to make further contributions or payments
in connection therewith following such termination. No unwritten amendment
exists with respect to any Employee Benefit Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any notice that
any Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency or authority.
(d) Prohibited Transactions. No prohibited transactions (within
the meaning of Section 4975 of the Code or Section 406 of ERISA) have occurred
with respect to any Employee Benefit Plan. There has been no breach of any duty
under ERISA or applicable law (including, without limitation, any health care
contractor requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan), which would be reasonably
likely to result, directly or indirectly, (including through any obligation of
indemnification or contribution), in any taxes, penalties or other liability to
APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the Company's
knowledge, threatened, claims, suits or other proceedings exist with respect to
any Employee Benefit Plan other than normal benefit claims filed by participants
or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or 501(c)(9)
of the Code and/or tax-exempt within the meaning of Section 501(a) of the Code
and, to the best knowledge of the Company and each Stockholder, has been
continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation of
any such favorable determination letter or ruling.
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(g) Funding Status. No accumulated funding deficiency (within the
meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Company is a member (a "Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such plan
are at least equal in value to the present value of accrued benefits determined
on an ongoing basis as of the date hereof. With respect to each Employee Benefit
Plan described in Section 501(c)(9) of the Code, the assets of each such plan
are at least equal in value to the present value of accrued benefits, based upon
the most recent actuarial valuation as of a date no more than ninety (90) days
prior to the date hereof. The Disclosure Schedules contain a complete and
accurate statement of all actuarial assumptions applied to determine the present
value of accrued benefits under all Employee Benefit Plans subject to actuarial
assumptions.
(h) Excise Taxes. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any member of a
Controlled Group is or ever has been obligated to contribute to a multiemployer
plan within the meaning of Section 3(37) of ERISA or any other Employee Benefit
Plan which has been subject to Title IV of ERISA or Section 412 of the Code.
(j) PBGC. No facts or circumstances are known to the Company that
would result in the imposition of liability against APP, APP Sub or any of its
Affiliates by the Pension Benefit Guaranty Corporation ("PBGC") as a result of
any act or omission by the Company or any member of a Controlled Group. No
reportable event (within the meaning of Section 4043 of ERISA) for which the
notice requirement has not been waived has occurred with respect to any Employee
Benefit Plan subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable provisions of ERISA.
(l) Other Compensation Arrangements. Neither the Company nor, to
the Company's knowledge, any Stockholder or Physician Employee is a party to any
compensation or debt arrangement with any Person relating to the provision of
health care related services other than arrangements with the Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has, within
the five (5) years preceding the date hereof, through the Effective Time,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of the Company no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by the Company of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by the Company to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would
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reasonably be likely to have, a Material Adverse Effect on the Company. Neither
the Company nor any Company Subsidiary has engaged in any activity or failed to
undertake any activity which action or failure to act has given, or would
reasonably be likely to give, rise to any Environmental Liabilities or
enforcement action by any federal, state or local regulatory agency or
authority, or has resulted, or would reasonably be likely to result, in any fine
or penalty imposed pursuant to any Environmental Law. The Disclosure Schedules
discloses any known presence of asbestos in or on the Company's or any Company
Subsidiary's owned or leased premises. To the knowledge of the Company, there is
no friable asbestos in or on the Company's or any Company Subsidiary's owned or
leased premises.
(c) To the knowledge of the Company, no soil or water in or under
any assets currently or formerly held for use or sale by the Company or any
Company Subsidiary is or has been contaminated by any Hazardous Substance while
such assets or premises were owned, leased, operated or managed, directly or
indirectly by the Company or any Company Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on the
Company.
(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of the Company,
concerning the Company or any Company Subsidiary within the five (5) years
preceding the date hereof through the Effective Time with respect to any real
property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following terms
have the following meanings:
"Environmental Laws" shall mean any federal, state or local laws,
ordinances, codes, regulations, rules, policies and orders (including
without limitation, Medical Waste Laws) that are intended to assure the
protection of the environment, or that classify, regulate, call for the
remediation of, require reporting with respect to, or list or define
air, water, groundwater, solid waste, hazardous, toxic, or radioactive
substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons,
including the public in each case as in effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any pollutant
or contaminant, or infectious or radioactive substance or material,
including without limitation, those substances, materials and wastes
defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any Hazardous
Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and
briefly describe the Company's policies of insurance to which the Company or any
Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
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similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by the
Company or any Company Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
the Company and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as the Company
and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which the Company or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies of all Insurance Policies have been provided to APP. Neither the
Company nor any Company Subsidiary nor any officer or director thereof has
received any notice or other written communication from any issuer of any
Current Policy cancelling such policy, materially increasing any deductibles or
retained amounts thereunder, or materially increasing the annual or other
premiums payable thereunder and, to the knowledge of the Company, no such
cancellation or increase of deductibles, retainages or premiums is threatened.
There are no outstanding claims, settlements or premiums owed against any
Insurance Policy, and all required notices have been given and all known
potential or actual claims under any Insurance Policy have been presented in due
and timely fashion. Within the five (5) years preceding the Agreement, neither
the Company nor any Company Subsidiary has filed a written application for any
professional liability insurance coverage which has been denied by an insurance
agency or carrier. The Disclosure Schedules also set forth a list of all claims
under any Insurance Policy in excess of $10,000 per occurrence filed by the
Company or any Company Subsidiary during the immediately preceding three-year
period. Each Physician Employee has, at all times while a Physician Employee,
maintained or been covered by professional malpractice insurance in such types
and amounts as are customary for such a physician practicing the same type of
medicine in the same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of all
accounts receivable of the Company as of March 31, 1997, which list is complete,
true and accurate in all material respects. All such accounts receivable arose
in the ordinary course of business and have not been previously written off as
bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements or
on the accounting records of the Company (which reserves are calculated
consistent with generally accepted accounting principles and past practice).
(b) The Disclosure Schedules set forth (i) a true, correct and
complete list of the names and addresses of each Payor of the Company as of such
date, which accounted for more than 5% of the revenues of the Company in the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for more than 5% of the revenues of the Company for the fiscal year to end
December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i)
list of the accounts payable of the Company as of March 31, 1997, and (ii) list
of each individual indebtedness owned by the Company of $5,000 or more, setting
forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
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Section 3.26 Inventory. All items of inventory on the Company Current
Balance Sheet contained in the Company Financial Statements consisted, and all
such items on hand on the date of this Agreement consist, and all such items on
hand at the Effective Time will consist, net of all applicable reserves with
respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory are not materially in excess of normal
requirements, and none of such purchase commitments are at prices in excess of
prevailing market prices at the time of such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other licensed
employee or independent contractor of the Company (i) is the holder of all valid
licenses, approvals, orders, consents, permits, registrations, qualifications
and other rights and authorizations required by law, ordinance, regulation or
ruling of any governmental regulatory authority necessary to operate its
business or his or her specialty and (ii) is eligible to participate in and to
receive reimbursement under Titles XVIII and XIX of the Social Security Act (the
"Medicare and Medicaid Programs") and any other programs funded in whole or in
part by federal, state or local entities for which the Company is eligible
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any private
insurance program) under which the Company is presently receiving payments
directly or indirectly from any Payor for patient care provided by such
Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid provider
numbers and participating physician contracts under 1842(h) of the Social
Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to APP.
No violation, default, order or deficiency exists with respect to any of the
items listed in the Disclosure Schedules except for such violations, defaults,
orders or deficiencies which would not be reasonably likely to have a Material
Adverse Effect on the Company, and there is no action pending or to the
Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program, and
no event has occurred which, with or without notice or lapse of time, or both,
would constitute grounds for a violation, order or deficiency with respect to
any of the items listed in the Disclosure Schedules to revoke, withdraw or
suspend any material license to operate its business as is presently being
conducted by it. To the knowledge of the Company, there has been no decision not
to renew any existing agreement with any provider or Payor relating to the
Company's business as presently being conducted by it. Neither the Company nor
any Physician Employee (i) has had his/her/its professional license, Drug
Enforcement Agency number, Medicare/Medicaid provider status or staff privileges
at any hospital or diagnostic imaging center suspended, relinquished, terminated
or revoked (including orders that have been entered by any such entities but
stayed), (ii) has been reprimanded in writing, sentenced, or disciplined by any
licensing board, state agency, regulatory body or authority, hospital, Payor or
specialty board (including orders that have been entered by any such entities
but stayed), or (iii) is the subject of an initial or final determination by any
federal or state authority that could result in any demand or reimbursement
under the Medicare, Medicaid or Government Programs or any exclusion or which
monetary penalty under federal or state law or (iv) has had a final judgment or
settlement entered against him/her/it in connection with a malpractice or
similar action.
(b) The Company is not required, or for the 72-month period prior
to the Effective Time was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
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Section 3.28 Inspections and Investigations. Neither the right of the
Company, or any Physician Employee, nor the right of any licensed professional
or other individual affiliated with the Company to receive reimbursements
pursuant to any Governmental Program or Private Program has been terminated or
otherwise materially and adversely affected as a result of any investigation or
action whether by any federal or state governmental regulatory authority or
other third party. No Physician Employee, licensed professional or other
individual affiliated with the business has, during the past three (3) years
prior to the Effective Time, had their professional license or staff privileges
limited, suspended or revoked by any governmental regulatory authority or
agency, hospital, integrated delivery system, trade association, professional
review organization, accrediting organization or certifying agency (including
orders that have been entered by any such entities but stayed). True, correct
and complete copies of all reports, correspondence, notices and other documents
relating to any matter described or referenced in this Section 3.28 have been
provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v) other
similar agreements relating to the foregoing to which the Company or any Company
Subsidiary is a party (including expiration date if applicable) (collectively,
the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate list
and summary description of all agreements relating to technology, trade secrets,
know-how or processes that the Company is licensed or authorized to use by
others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of the Company, no
claim has been asserted by any person to the ownership of or for infringement by
the Company of any Proprietary Right of any other Person, and neither the
Company nor any Stockholder is aware of any valid basis for any such claim. To
the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure
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Schedules, (i) the Company has paid all taxes, penalties, assessments and
interest that have become due with respect to any Tax Returns that it has filed
and has properly accrued on its books and records in accordance with generally
accepted accounting principles for all of the same that have not yet become due
and payable and (ii) the Company is not delinquent in the payment of any tax,
assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated any
applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not
granted an extension to any taxing authority of the statute of limitation period
during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required
to be withheld by the Company and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder is a
foreign person, as such term is referred to in Section 1445(f)(3) of the Code
and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of the
Company constitutes property that the Company, APP, APP Sub or any Affiliate of
APP, will be required to treat as being owned by another person pursuant to the
"Safe Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal
by the Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties of the
Company are subject to a lease to a "tax exempt entity" as such term is defined
in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(k) Parachute Payments. No payment required or contemplated to be
made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company [has]/[has not] made an election
to be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's
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business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to the Company's
business. There is no commitment to, and no income reflected in the Company
Financial Statements that has been derived from, an Affiliate, and following the
Closing the Company shall not have any obligation of any kind or designation to
any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure Schedules is
a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the Person
or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the Company nor
any Company Subsidiary has engaged and, to the knowledge of the Company, neither
the Company's officers and directors nor the Physician Employees or other
Persons and entities providing professional services for or on behalf of the
Company have engaged, in any activities which are prohibited under 42 U.S.C.
Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Sections 24, 287, 371, 664, 669, 1001,
1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company, any
Company Subsidiary or officer, director or key employee of the Company or
Company Subsidiary, which has or reasonably could be expected to have the effect
of prohibiting or materially impairing the current medical practice of the
Company or any Company Subsidiary, or the continuation of that medical practice
in the future by NewCo, any acquisition of property by the Company, any Company
Subsidiary or the conduct of business by the Company or any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of the Company, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by the Company or any other party thereto. No
contract with a Physician Employee has been terminated in the last twelve (12)
months.
Section 3.36 Statements True and Correct. No representation or warranty
made herein by the Company or any Stockholder, nor any statement, certificate,
information, exhibit or instrument to be furnished by the Company or any
Stockholder to APP, APP Sub or any of their respective representatives pursuant
to this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required by
Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of any
of the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
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ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the Merger
and the transactions contemplated hereby, all of which have been or will be made
available to the Company for review, are true, correct and complete as in effect
on the date of this Agreement and accurately reflect all material proceedings of
the stockholders and directors of APP (and all committees thereof) regarding the
Merger and the transactions contemplated hereby. The stock record books of APP,
which have been or will be made available to the Company for review, contain
true, complete and accurate records of the stock ownership of APP and the
transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and the Other Agreements and to
consummate the Merger and the transactions contemplated hereby. The execution,
delivery and performance by APP of this Agreement and the agreements provided
for herein, including the Other Agreements and the consummation by APP of the
transactions contemplated hereby and thereby are within APP's corporate powers
and have been duly authorized by all necessary action on the part of APP's Board
of Directors. This Agreement has and the Other Agreements have been duly
executed by APP. This Agreement and all other agreements and obligations entered
into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements of APP, enforceable against it in
accordance with their respective terms, except as may be limited by bankruptcy
or other laws affecting creditors' rights generally, or by general equity
principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the Merger and the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP consists
of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares are issued
and outstanding and 10,000,000 shares of APP Preferred Stock, none of which are
outstanding. Each outstanding share of APP Common Stock has been legally and
validly issued and is fully paid and nonassessable, and was issued pursuant to a
valid exemption from registration under (i) the Securities Act of 1933, as
amended, and (ii) all applicable state securities laws. No shares of capital
stock are owned by APP in treasury. No shares of capital stock of APP have been
issued or disposed of in violation of the preemptive rights, rights of first
refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants,
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subscriptions, calls, commitments or other rights to purchase, or securities
convertible into or exchangeable for, any of the authorized or outstanding
securities of APP and no option, warrant, subscription, call, or commitment or
commission right of any kind exists which obligates APP to issue any of its
authorized but unissued capital stock. APP has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or obligation accrued, contingent or
otherwise, that is reasonably likely to have a Material Adverse Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of
the Effective Time (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever), in violation of
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business or
its advertising, sales or pricing practices, except
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for violations which are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted an
extension to any taxing authority of the limitation period during which any tax
liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required
to be withheld by APP and paid to governmental agencies for all income, social
security, unemployment insurance, sales, excise, use, and other taxes have been
collected or withheld and paid to the respective governmental agencies.
(f) Foreign Person. Neither APP nor any holders of APP Common
Stock is a foreign person, as such term is referred to in Section 1445(f)(3) of
the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject to a
lease to a "tax exempt entity" as such term is defined in Section 168(h)(2) of
the Code.
(h) Collapsible Corporation. APP has not at any time consented,
and the holders of APP Common Stock will not permit APP to elect, to have the
provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated to be
made by APP will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
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(k) S Corporation. APP has not made an election to be taxed as an
"S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. Schedule 4.13 or Form S-4 sets
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of APP in any property, real or personal or
mixed, tangible or intangible, used in or pertaining to APP's business and any
arrangement or agreement with any such person concerning the provision of goods
or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to the Company or a Stockholder pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Schedules. All Schedules required by Article IV hereof and
attached hereto are true, correct and complete in all material respects as of
the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to such
agreements, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true and
correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo is a
professional corporation duly organized, validly existing and in good standing
under the laws of its state of organization, with all requisite corporate power
and authority to carry on the business in which it intends to engage, to own the
properties it intends to own, and to execute and deliver the Service Agreement,
the Security Agreement and the Physician Employment Agreements and consummate
the transactions and perform the services contemplated thereby. NewCo is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its intended business makes such qualification
necessary, which jurisdictions are listed in the Disclosure Schedules, except
where the failure to be so qualified shall not have a Material Adverse Effect on
NewCo.
Section 5.2 Capitalization. The authorized capital stock of NewCo
consists of [_____] shares of NewCo Common Stock, of which [______] shares are
issued and outstanding, and no shares of capital stock of NewCo are held in
treasury. The Stockholders own all of the issued and outstanding shares of NewCo
Common Stock, free and clear of any Encumbrance. Each outstanding share of NewCo
Common
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Stock has been legally and validly issued and is fully paid and nonassessable.
There exist no options, warrants, subscriptions or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of NewCo. No shares of capital stock of NewCo have been
issued or disposed of in violation of the preemptive rights, rights of first
refusal or similar rights of any of NewCo's stockholders.
Section 5.3 Corporate Records. The copies of the articles or certificate
of incorporation and bylaws, and all amendments thereto, of NewCo that have been
delivered or made available to APP are true, correct and complete copies
thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery and
performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or performance
of the Service Agreement, the Security Agreement, the Physician Employment
Agreements or the other agreements contemplated thereby nor the consummation of
the transactions or provision of services contemplated thereby will (a) conflict
with, or result in a violation or breach of the terms, conditions or provisions
of, or constitute a default under, the articles or certificate of incorporation
or bylaws of NewCo, or (b) violate or conflict with any applicable local, state
or federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency or authority or court binding on
it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities. NewCo has
not commenced business since its incorporation. Other than its articles or
certificate of incorporation and bylaws, and as of the Closing Date, the Service
Agreement, the Security Agreement, the Physician Employment Agreements, and the
other contracts and agreements assigned to NewCo as part of the Spin-Off
Transaction, NewCo is not a party to or subject to any agreement, indenture or
other instrument. NewCo does not own any assets (tangible or intangible) other
than the consideration received upon the issuance of shares of its capital stock
or pursuant to the Spin-Off Transaction, and NewCo does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted) other than those assumed pursuant to the Spin-Off Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all applicable
laws, regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports, except where failure to so
comply or file would not, individually or in the aggregate, have a Material
Adverse Effect on NewCo.
ARTICLE VI
Closing Date Representations and Warranties Regarding APP Sub
APP and APP Sub, jointly and severally, represent and warrant that the
following will be true and correct on the Closing Date as if made on that date:
Section 6.1 Authorization and Validity. The execution, delivery and
performance by APP Sub of this Agreement and the consummation of the
transactions contemplated thereby, have been duly authorized by APP Sub. This
Agreement will be as of the Closing Date duly executed and delivered by APP Sub
and will constitute the legal, valid and binding obligation of APP Sub
enforceable against APP
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Sub in accordance with its respective terms, except as may be limited by
bankruptcy or other laws affecting creditors' rights generally, or by equity
principles, or by public policy.
Section 6.2 No Violation. Neither the execution, delivery or performance
of this Agreement nor the consummation of the transactions contemplated hereby
will conflict with, or result in a violation or breach of the terms, conditions
or provisions of, or constitute a default under, the certificate of
incorporation or bylaws of APP Sub.
Section 6.3 No Business, Agreements, Assets or Liabilities. APP Sub has
not commenced business since its incorporation. APP Sub does not own any assets
(tangible or intangible) other than the consideration received upon the issuance
of shares of its capital stock and APP Sub does not have any liabilities,
accrued, contingent or otherwise (known or unknown and asserted or unasserted)
other than those assumed pursuant to this Agreement.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant to the
Spin-Off Transaction, from the date hereof until the Effective Time, the Company
shall, in all material respects, conduct its business in the ordinary and usual
course consistent with past practices and shall use reasonable efforts to:
(a) preserve intact its business and its relationships with
Payors, referral sources, customers, suppliers, patients, employees and others
having business relations with it;
(b) maintain and keep its properties and assets in good repair
and condition consistent with past practice as is material to the conduct of the
business of the Company;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of incorporation
or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not
limited to, by way of stock split, dividend, recapitalization or
other reclassification) or any subscriptions, options, warrants,
rights or convertible securities, or enter into any agreements
or commitments of any character obligating it to issue or sell
any such securities;
(3) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or any option,
warrant or other right to purchase or acquire any such shares;
(4) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its
capital stock (except as expressly contemplated herein);
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(5) voluntarily sell, transfer, surrender, abandon or
dispose of any of its assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the
ordinary course of business consistent with past practices;
(6) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge or
encumbrance of any kind, except liens for taxes not currently
due and except for liens which arise by operation of law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital expenditures
which are not reasonably necessary for the conduct of its
business;
(9) grant any increase in the compensation payable or to
become payable to directors, officers, consultants or employees
other than merit increases to employees of the Company who are
not directors or officers of the Company, except in the ordinary
course of business and consistent with past practices;
(10) change in any manner any accounting principles or
methods other than changes which are consistent with generally
accepted accounting principles;
(11) enter into any material commitment or transaction
other than in the ordinary course of business;
(12) take any action which could reasonably be expected
to have a Material Adverse Effect on the Company;
(13) apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount
payable directly or indirectly to or for the benefit of any
Affiliate of the Company, other than in the ordinary course and
consistent with past practices;
(14) agree, whether in writing or otherwise, to do any
of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits hereto,
other than as required to discharge its or their fiduciary
duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time, the
Company shall (i) except for sales of assets held as inventory, if any, in the
ordinary course of business prior to the Effective Time and except as otherwise
specifically described in the Disclosure Schedules to this Agreement, have good
and valid title to all of its assets free and clear of all Encumbrances of any
nature whatsoever, except for current year ad valorem taxes and liens which
arise by operation of law, and (ii) have no direct or indirect indebtedness
except for indebtedness disclosed in the Company Financial Statements, the
Disclosure Schedules hereto or for normal and recurring accrued obligations of
the Company arising in connection with its business operations in the ordinary
course of business and which arise from the purchase of merchandise, supplies,
inventory and services used in connection with the provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation,
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<PAGE> 1580
deeds, title documents, leases, patient lists, insurance policies, minute books,
share certificate books, share registers, accounts, tax returns, financial
statements and all other data that, in the reasonable opinion of APP, are
required for APP to make such investigation as it may desire of the properties
and business of the Company. APP shall also be allowed full access upon
reasonable prior notice and during regular business hours (and at such other
times as the parties may reasonably agree) to consult with the officers,
employees (after announcement by the Company of the Merger to its employees
which shall occur no later than three (3) days subsequent to execution hereof by
the Company), accountants, counsel and agents of the Company in connection with
such investigation of the properties and business of the Company. No
investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall be
conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall
cause each of its directors, officers, employees or agents not to directly or
indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or capital stock of the
Company, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of the Company, or, without APP's prior written approval, afford
to any Person other than APP and its agents access to the properties, books or
records of the Company. If the Company receives any offer or proposal after the
date hereof, written or otherwise, of the type referred to above, the Company
shall promptly inform APP of such offer or proposal, decline such offer and
furnish APP with a copy thereof if such offer or proposal is in writing.
Section 7.5 Compliance With Obligations. Prior to the Effective Time,
the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly notify
APP of:
(a) any notice or other communication from any Person or entity
alleging that the consent of such Person or entity is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the Company
who is expected to receive annualized compensation of at least $50,000 in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
the Company which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
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(f) any material adverse change in the operation of the Company,
including but not limited to any licensure or certification deficiencies, or
violations; limitations on a license or a provider agreement; freeze or
reduction in MediCare or Medicaid rates, notice of overpayment; being the
subject of any investigation relating to patient abuse, fraud, kickbacks, false
claims or other alleged illegal payment practices under the Fraud and Abuse
Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best
efforts to obtain the unanimous approval of its Stockholders to the Merger. In
seeking the approval of its Stockholders, the Company shall provide each
Stockholder with the Form S-4 which shall include information as may be required
by applicable law or as APP shall deem appropriate. The Board of Directors of
the Company shall recommend the approval of the Merger by the Stockholders of
the Company. If the Stockholders' approval is not unanimous, the Company shall
give notice to the nonconsenting Stockholders of the action taken by the
consenting Stockholders as may be required by applicable law; provided, however,
that this covenant shall not require the Company to make any expenditures that
are not expressly set forth in this Agreement or otherwise contemplated herein.
Section 7.9 Obligations of Company and Stockholders. Subject to Section
7.8 hereof, the Company will take all action reasonably necessary to cause the
Company to perform its obligations under this Agreement and all related
agreements and to consummate the Merger and other transactions contemplated
hereby and thereby on the terms and conditions set forth in this Agreement and
such agreements.
Section 7.10 Funding of Accrued Employee Benefits. The Company hereby
covenants and agrees that it will take whatever steps are necessary to pay for
or fund completely any accrued benefits, where applicable, or vested accrued
benefits for which the Company or any entity might have any liability whatsoever
arising from any tax-qualified plan as required under applicable law. The
Company acknowledges that the purpose and intent of this covenant is to assure
that APP Sub shall have no liability whatsoever at any time after the Closing
Date with respect to any such tax-qualified plan, unless such plan is merged
with a plan sponsored by APP or APP Sub.
Section 7.11 Accounting and Tax Matters. The Company will not change in
any material respect the accounting methods or practices followed by the Company
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. The Company will not make
any material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (without regard to any extensions of
time) file all returns, information statements and other documents relating to
taxes of the Company required to be filed by it, and pay all taxes required to
be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form, organize and
incorporate NewCo in the state of [ ], and the articles or certificate of
incorporation and bylaws of NewCo shall be in form and substance reasonably
satisfactory to APP. Except for consummating the Spin-Off Transaction, NewCo
shall not commence business until the Closing Date. On or prior to the Closing,
the Company shall take all actions and execute all documents, agreements or
instruments necessary pursuant to and in compliance with applicable law to
effect the Spin-Off Transaction, including without limitation, the following:
Prior to the Closing, the Company shall transfer to NewCo good, valid and
marketable title
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to all of the Company's right, title and interest in and to the Employee Benefit
Plans, all contracts and agreements and other assets listed on the Disclosure
Schedules (to be delivered by the Company prior to Closing, which schedule will
be subject to the approval of APP, which approval shall not be unreasonably
withheld) which by law either cannot be acquired or cannot be used by APP
because they relate to the practice of medicine or radiology, and shall
contribute to NewCo such other consideration and assets of the Company as may be
required under applicable law, in exchange for the issuance by NewCo of shares
of NewCo Common Stock, such shares being all of the issued and outstanding
shares of NewCo Common Stock. The Company shall then distribute the shares of
NewCo Common Stock to the Stockholders in proportion to their respective
ownership interest in the Company.
ARTICLE VIII
Covenants of APP and APP Sub
APP and APP Sub agree that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP and APP Sub will take all
action reasonably necessary to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions and take all
corporate and other action necessary to approve the Merger; provided, however,
that this covenant shall not require APP and APP Sub to make any expenditures
that are not expressly set forth in this Agreement or otherwise contemplated
herein.
Section 8.2 Requirements to Effect the Merger and Acquisitions. APP and
APP Sub will use their best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all necessary
documents in form approved by counsel for the parties to this Agreement.
Section 8.3 Access. APP and APP Sub shall, at reasonable times during
normal business hours and on reasonable notice, permit the Company and its
authorized representatives of the Company reasonable access to, and make
available for inspection, all of the assets and business of APP and APP Sub,
including its executive officers, and permit the Company and their authorized
representatives to inspect and, at the Company's sole expense, make copies of
all documents, records and information with respect to the affairs of APP and
APP Sub as the Company and their representatives may reasonably request, all for
the sole purpose of permitting the Company to become familiar with the business
and assets and liabilities of APP and APP Sub. No investigation by the Company
or the Stockholders shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of APP under this
Agreement.
Section 8.4 Notification of Certain Matters. APP and APP Sub shall
promptly inform the Company in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or lapse of time
or both, would become a default, received by APP subsequent to the date of this
Agreement and prior to the Effective Time under any contract, agreement or
investment material to APP's or APP Sub's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; (b) any
material adverse change in APP's condition (financial or otherwise), operations,
assets, liabilities or business or (c) defaults or disputes regarding Other
Agreements.
Section 8.5 Qualified Retirement Plans. APP and APP Sub shall use their
best efforts to establish a qualified plan and trust for NewCo, within the
meaning of Section 401(a) and 501(a), respectively, of the Code ("New Qualified
Plan") that will provide benefits comparable (as determined under Section
401(a)(4) of the Code) to the benefits provided under the qualified plans
referenced in the Disclosure Schedules, if any, sponsored by the Company as of
March 31, 1997. APP will file for a favorable determination letter from the IRS
on the New Qualified Plan and request a favorable determination from the IRS
that NewCo is not a member of an affiliated service group (as defined in Section
414(m) of the Code) or a recipient organization of leased employee services (as
defined in Section 414(n) of the Code). Any benefits provided under the New
Qualified Plan shall be conditioned on a favorable determination letter from the
IRS. Costs associated with the establishment and design of the
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New Qualified Plan shall be paid by APP or APP Sub. NewCo shall be responsible
for funding any contributions to, or any ongoing administrative costs of, the
New Qualified Plan.
ARTICLE IX
Covenants of APP, APP Sub and the Company
APP, APP Sub and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP and APP Sub to promptly prepare
and file with the SEC the Registration Statements on Form S-1 and Form S-4 (or
other appropriate Forms) to be filed by APP in connection with its Initial
Public Offering and offering of the shares of APP Common Stock to the Target
Interest Holders pursuant to the transactions contemplated by this Agreement and
the Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. The Company shall cooperate with APP in the
preparation of the Registration Statements and shall furnish all information
concerning the Company and NewCo as may be reasonably requested in connection
with any such action in a timely manner.
(b) The Company, APP and APP Sub and each separately represent and
warrant that (i) in the case of the Company, none of the written information or
documents supplied or to be supplied by it specifically for inclusion in the
Registration Statements, by exhibit or otherwise and (ii) in the case of APP or
APP Sub, will, at the time the Registration Statements and each amendment and
supplement thereto, if any, becomes effective under the Securities Act, none of
them contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Company shall be entitled to review the Registration Statements
and each of the amendments thereto, if any, prior to the time each becomes
effective under the Securities Act. The Company shall have no responsibility for
information contained in the Registration Statements except for information
provided by the Company specifically for inclusion therein. The Company's review
of the Registration Statements shall not diminish or otherwise affect the
representations, covenants and warranties of APP and APP Sub contained in this
Agreement.
(c) The Company shall, upon request, furnish APP with all information
concerning itself, its subsidiaries, directors, officers, partners, Stockholders
and NewCo, and such other matters as may be reasonably requested by APP in
connection with the preparation of the Registration Statements and each of the
amendments or supplements thereto, or any other statement, filing, notice or
application made by or on behalf of each such party or any of its subsidiaries
to any governmental entity in connection with the Merger and the other
transactions contemplated by this Agreement.
Section 9.2 Amendments of Disclosure Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party contained
in this Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly the Disclosure Schedules with respect to
any matter that would have been or would be required to be set forth or
described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Schedule that constitutes or reflects a
Material Adverse Effect on the Company may be made unless APP consents to such
amendment or supplement, and no amendment or supplement to a Disclosure Schedule
that constitutes or reflects a Material Adverse Effect on APP may be made unless
the Company consents to such amendment or supplement. For purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 10.1 and 11.1 have been fulfilled, the
Disclosure Schedules hereto shall be deemed to be the Disclosure Schedules as
amended or supplemented pursuant to this Section 9.2. In the event that the
Company seeks to amend or supplement a Disclosure Schedule pursuant to this
Section 9.2 and APP does not consent to such amendment or supplement, or APP
seeks to amend
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or supplement a Disclosure Schedule pursuant to this Section 9.2, and the
Company does not consent, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Section
351 of the Code.
Section 9.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company and NewCo in connection with the Merger
shall be paid by the Company in full immediately prior to the Closing and such
expenses shall be the sole responsibility of the Stockholders following the
Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP and APP Sub shall agree to keep
all records and information regarding the patients of the Company and NewCo
confidential in accordance with all applicable laws.
Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP and APP Sub
Except as may be waived in writing by APP, the obligations of APP and
APP Sub hereunder are subject to the fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as delivered pursuant to Section 10.12
hereof) shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Effective
Date.
Section 10.2 Covenants. The Company shall have performed and complied in
all material respects with all covenants required by this Agreement to be
performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have delivered
to APP their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
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Section 10.5 No Material Adverse Effect. No Material Adverse Effect on
the Company shall have occurred since March 31, 1997, whether or not such change
shall have been caused by the deliberate act or omission of the Company or any
Stockholder.
Section 10.6 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, statements, rule, regulation or ordinance to consummate the
transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all Disclosure
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 10.11 Dissenter's Rights. The Company shall have satisfied each
of its obligations to its Stockholders regarding dissenters or related rights
under [ ] Corporate Law, and the sum of the amount which may become due to the
Stockholders who have dissented to the Merger and have indicated their intent to
seek appraisal rights plus the cash portion of the Merger Consideration shall
not exceed 25% of the total Merger Consideration due hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties of
the Company and its related entities to be transferred to NewCo pursuant to the
Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician Employee
and such other radiologists whose names are set forth on Schedule 10.14 shall
have entered into a Physician Employment Agreement between NewCo and each such
Physician Employee in a form reasonably consistent to the form attached as
Exhibit E and satisfactory to APP in its sole discretion (the "Physician
Employment Agreements").
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
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Section 11.1 Representations and Warranties. The representations and
warranties of APP and APP Sub contained herein shall be true and correct in all
material respects when initially made and shall be true and correct in all
material respects as of the Effective Date.
Section 11.2 Covenants. APP and APP Sub shall have performed and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Effective
Date.
Section 11.3 Legal Opinions. Counsel to APP and APP Sub shall have
delivered to the Company their opinion, dated as of the Effective Date, in form
and substance substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo, APP and APP Sub shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, contracts or any statute, rule, regulation or
ordinances to consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statements shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. At or prior to the Effective Date, the APP
Common Stock shall have been approved for listing on the Nasdaq National Market,
subject only to official notification of issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to the Company referred to in Section 12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect on
APP or APP Sub shall have occurred since March 31, 1997, whether or not such
change shall have been caused by the deliberate act or omission of APP or APP
Sub.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its opinion and analysis, in form
satisfactory to the Company, that the terms of the Service Agreement are fair
and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from Haynes
and Boone, L.L.P. counsel to APP, a tax opinion, substantially in the form set
forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Effective
Date, the Company shall deliver to APP the following, all of which shall be in a
form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
and the Service Agreement and all related documents and agreements and
consummation of the Merger, each certified by the Secretary of the
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Company as being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of NewCo
authorizing the execution, delivery and performance of the Service Agreement,
the Security Agreement and the Physician Employment Agreements each certified by
the Secretary of NewCo as being true and correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of the Company dated the
Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the
Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by the
Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and officers
of such corporation and as to the signatures of such directors and officers who
have executed documents delivered at the Closing on behalf of that corporation;
(f) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretary of State of [ ] for the Company and NewCo
establishing that each such corporation is in existence, has paid all franchise
or similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in the state of [ ];
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and licenses
referenced in Section 3.27;
(i) the resignations of the directors and officers of the Company
as requested by APP;
(j) the executed Service Agreement in substantially the form
attached hereto as Exhibit F, as revised in accordance with changes reasonably
deemed necessary or advisable by legal counsel retained by APP, the Company and
NewCo in the State of [ ] to address regulatory and compliance issues (the
"Service Agreement");
(k) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty of
perjury and dated as of the Closing Date, to the effect that such Stockholder is
a United States citizen or a resident alien (and thus not a foreign person) and
providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit G (the "Stockholder Release");
(n) Intentionally omitted; and
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<PAGE> 1588
(o) such other instrument or instruments of transfer prepared by
APP as shall be necessary or appropriate, as APP or its counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective Date, APP
shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) a copy of resolutions of the Board of Directors of APP Sub
authorizing the execution, delivery and performance of this Agreement, the
Service Agreement and the Security Agreement, each certified by the Secretary of
APP Sub as being true correct copies of the originals thereof subject to no
modifications or amendments;
(c) a certificate of the President of APP and APP Sub dated the
Closing Date as to the truth and correctness of the representations and
warranties of APP and APP Sub contained herein on and as of the Effective Date;
(d) a certificate of the President of APP and APP Sub dated the
Closing Date, (i) as to the performance and compliance by APP or APP Sub with
all covenants contained herein on and as of the Effective Date and (ii)
certifying that all conditions precedent required to be satisfied by APP and APP
Sub shall have been satisfied;
(e) a certificate of the Secretary of APP and APP Sub certifying
as to the incumbency and to the signatures of the officers of APP or APP Sub who
have executed documents delivered at the Closing on behalf of APP or APP Sub;
(f) a certificate, dated within ten (10) days prior to the
Effective Date, of the secretary of state of incorporation establishing that APP
and APP Sub are, respectively, in existence, have paid all franchise or similar
taxes, if any, and otherwise are in good standing to transact business in the
states of Delaware and [ ];
(g) certificates (or photocopies thereof), dated within ten (10)
days prior to the Effective Date, of the Secretaries of State of the states in
which either APP and APP Sub is qualified to do business, to the effect that APP
and APP Sub is qualified to do business and is in good standing as a foreign
corporation in such state;
(h) the executed Service Agreement as revised in accordance with
the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II and
Exhibit B hereof; and
(k) such other instrument or instruments of transfer prepared by
the Company as shall be necessary or appropriate, as the Company or its counsel
shall reasonably request, to carry out and effect the purpose and intent of this
Agreement.
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ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing, at
the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing, at
the request of NewCo and at NewCo's sole cost and expense, APP or the Surviving
Corporation shall deliver any further instruments of transfer and take all
reasonable action as may be necessary and appropriate to carry out the purpose
and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and records
shall be maintained, and all Tax Returns and schedules thereto shall be filed in
a manner consistent with the Merger being treated as a Reorganization. These
obligations are excused as to a party required to maintain the books or file a
Tax Return if such party has provided to the other parties a written opinion of
competent tax counsel to the effect that there is not substantial authority,
within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report the Merger
as a Reorganization and such opinion either is furnished prior to the Effective
Time or is based on facts or events not known at the Effective Time. Each party
shall provide to each other party such tax information, reports, returns, or
schedules as may be reasonably required to assist such party in accounting for
and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any taxes
incurred by the Company and for which APP has successor liability therefor which
arise solely as a result of the Merger or the consummation of the transactions
contemplated hereby; provided that the foregoing shall not limit or otherwise be
deemed a waiver of any right of indemnification under Section 14.1 for a breach
of any representation, warranty or covenant of the Company or any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms and
conditions of this Article XIV, the Company agrees to indemnify, defend and hold
APP and the Surviving Corporation and their respective directors, officers,
stockholders, employees, agents, attorneys, consultants and Affiliates harmless
from and against all losses, claims, obligations, demands, assessments,
penalties, liabilities, costs, damages, reasonable attorneys' fees and expenses
(including, without limitation, all costs of experts and all costs incidental to
or in connection with any appellate process) (collectively, "Damages") asserted
against or incurred by such individuals and/or entities arising out of or
resulting from:
(a) a breach by the Company of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of the Company
contained in this Agreement or in any Disclosure Schedule or certificate
delivered thereunder;
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<PAGE> 1590
(b) any violation (or alleged violation) by the Company and/or
any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act or
any other federal or state "blue sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any (i) untrue statement of
material fact in any Registration Statement or any prospectus forming or part
thereof, or any amendment thereof or supplement thereto relating to the Company
(including any Company Subsidiary) or NewCo required to be stated therein or
(ii) failure to state information necessary to make the statements therein not
misleading, which untrue statement or failure to state information arises or
results solely from information provided in writing to APP or its counsel by the
Company or any Stockholder or their agents specifically for inclusion in any
such Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP and APP Sub. Subject to the terms
and conditions of this Article XIV, APP and APP Sub jointly and severally hereby
agree to indemnify, defend and hold the Stockholders, the Company and NewCo and
their respective directors, officers, stockholders, employees, agents,
attorneys, consultants and Affiliates harmless from and against all Damages
asserted against or incurred by such individuals and/or entities arising out of
or resulting from:
(a) a breach by APP or APP Sub of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of APP or APP Sub
contained in this Agreement or in any schedule or certificate delivered
hereunder; and
(b) any liability under the Securities Act, the Exchange Act or
any other federal or state "blue sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any untrue statements of material
fact in any Registration Statement or any prospectus forming a part thereof, or
any amendment thereof or supplement thereto, required to be stated therein or
failure to state information necessary to make the statements therein not
misleading (except for any liability based upon any actual or alleged untrue
statement of material fact or an omission to state a material fact relating to
NewCo, the Company or any Stockholder to the extent derived from any information
provided in writing by the Company or a Company Subsidiary or any of their
agents contained in the representations and warranties set forth in this
Agreement or any certificate, exhibit, schedule or instrument required to be
delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
of any of the parties hereto of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement (an
"Indemnified Party") shall promptly (and, in the event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party for whom indemnification is sought (the "Indemnifying
Party) of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the
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amount of Damages attributable to the Third Party Claim and the basis of the
Indemnified Party's request for indemnification under this Agreement. The
failure to promptly deliver a Claim Notice shall not relieve any Indemnifying
Party of its obligations to any Indemnified Party with respect to the related
Third Party Claim except to the extent that the resulting delay is materially
prejudicial to the defense of such claim. Within thirty (30) days after receipt
of any Claim Notice (the "Election Period"), the Indemnifying Party shall notify
the Indemnified Party (x) whether the Indemnifying Party disputes its potential
liability to the Indemnified Party under this Article XIV with respect to such
Third Party Claim and (y) whether the Indemnifying Party desires, at the sole
cost and expense of such Indemnifying Party, to defend the Indemnified Party
against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set forth
in Section 14.3(f) below, the Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. The
Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 14.3(b) and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 14.3(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 14.3(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes their potential liability to the Indemnified
Party under this Article XIV and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense
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<PAGE> 1592
pursuant to this Section or of the Indemnifying Party's participation therein at
the Indemnified Party's request, and the Indemnified Party shall reimburse the
Indemnifying Party in full for all costs and expenses of such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this Section 14.3(c),
and the Indemnifying Party shall bear its own costs and expenses with respect to
such participation; provided, however, that if the named parties to any such
action (including any impleaded parties) include both the Indemnifying Party and
the Indemnified Party, and the Indemnifying Party has been advised by counsel
that there may be one or more legal defenses available to it that are different
from or additional to those available to the Indemnified Party, then the
Indemnifying Party may employ separate counsel and upon written notification
thereof, the Indemnified Party shall not have the right to assume the defense of
such action on behalf of the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Article XIV relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice period
or (ii) the expiration of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
agrees to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding any provision herein to the contrary, the
obligation of an Indemnifying Party to provide indemnification to an Indemnified
Party for breach of any representation or warranty as provided in Sections
14.1(a) or 14.2(a) hereof shall not take effect unless and until the Damages
asserted against or incurred in the aggregate and on a collective basis by the
Indemnified Parties pursuant to either Section 14.1 or 14.2 (as applicable) as a
result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
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fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the
Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual agreement
of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or any Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any Stockholder
fails to comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(c) at any time prior to the Effective Date by the Company if any
representation or warranty of APP or APP Sub contained in this Agreement or in
any certificate or other document executed and delivered by APP or APP Sub
pursuant to this Agreement is or becomes untrue in any material respect or if
APP fails to comply in any material respect with any covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(d) at any time prior to the Effective Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in Section 16.3,
in the event this Agreement is terminated pursuant to this Article XV, this
Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo recognize
and acknowledge that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP and the
Surviving Corporation that is valuable, special and a unique asset of such
entity's business. APP and APP Sub acknowledge that they had in the past,
currently have, and in the future may possibly have, access to certain
Confidential Information of the Company and NewCo that is valuable, special and
a unique asset of each such business. The Company, NewCo, APP, and APP Sub,
severally, agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of APP, APP Sub,
Surviving Corporation, NewCo and the Company and (b) to counsel
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and other advisers to APP, APP Sub, Surviving Corporation, NewCo and the Company
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 16.1, unless (i) such information becomes available
to or known by the public generally through no fault of the Company, NewCo, APP
or APP Sub, as the case may be, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii) the Company, NewCo, APP
or APP Sub, as the case may be, shall, if possible, give prior written notice
thereof to the Company, NewCo, APP or APP Sub and provide the Company, APP or
APP Sub with the opportunity to contest such disclosure, (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, or (iv) the disclosing
party is the sole and exclusive owner of such Confidential Information as a
result of the Merger or otherwise. In the event of a breach or threatened breach
by the Company, on the one hand, and APP or APP Sub, on the other hand, of the
provisions of this Section, APP, APP Sub, the Surviving Corporation, NewCo and
the Company shall be entitled to an injunction restraining the other party, as
the case may be, from disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting any of such
parties from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
Section 16.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, APP Sub, the Surviving Corporation, NewCo and the
Company agree that, in the event of a breach by either of them of the foregoing
covenant, the covenant may be enforced against them by injunctions and
restraining orders.
Section 16.3 Survival. The obligations of the parties under this Article
XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
Section 17.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP and APP Sub
acknowledge and agree that the rights and remedies of the Company under this
Agreement will be directly available to the Stockholders as third party
beneficiaries of the rights and remedies of the Company under this Agreement,
including, without limitation, the rights and remedies under Article 14 hereof
to indemnification from APP and APP Sub against Damages incurred by the
Stockholders resulting from a breach by APP or APP Sub of any representation,
warranty or covenant of APP or APP Sub contained herein. Except as provided in
the preceding sentence or as otherwise provided herein, neither this Agreement
nor any other agreement contemplated hereby shall be deemed to confer upon any
person not a party hereto or thereto any rights or remedies hereunder or
thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior
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agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder, APP or APP
Sub pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder, APP and APP Sub. Notwithstanding
any provision in this Agreement to the contrary, the representations and
warranties contained herein shall survive the Closing until the second
anniversary of the Closing Date except that (a) the representations and
warranties set forth in Section 3.21 with respect to environmental matters shall
survive for a period of ten (10) years, (b) the representations and warranties
set forth in Section 3.30 with respect to tax matters shall survive until such
time as the limitations period has run for all tax periods ended prior to the
Closing Date, (c) the representations and warranties contained in Section 3.27
and Section 3.33 with respect to healthcare matters shall survive for a period
of six (6) years and (d) solely for purposes of Section 14.1(c) and Section
14.2(c), and solely to the extent that any party to be indemnified pursuant to
such provisions actually incurs liability under the Securities Act, the Exchange
Act or any other federal or state securities law, the representations and
warranties set forth therein shall survive until the expiration of any
applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF [ ].
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
Section 17.9 Gender and Number. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the
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transactions contemplated hereby not be consummated, nothing contained in this
Section shall be construed to prohibit the parties hereto from operating
businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP and APP Sub: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, [ ] 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: ------------------------------
------------------------------
------------------------------
------------------------------
with a copy to: ------------------------------
------------------------------
------------------------------
------------------------------
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B, Exhibit
C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure Schedules
attached hereto with their initial letter
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capitalized and not otherwise defined therein shall have the meanings as
assigned to such terms in this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
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<PAGE> 1598
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:______________________________________
Gregory L. Solomon, President
APP SUB:
[AMERICAN PHYSICIAN PARTNERS,
SUBSIDIARY, INC.]
By:______________________________________
Its:_____________________________________
THE COMPANY:
TARGET ENTITY
By:______________________________________
Its:_____________________________________
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EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
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<PAGE> 1600
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
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EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
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EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
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EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
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EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
B-54
<PAGE> 1605
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
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APPENDIX C
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
dated as of
June __, 1997
by and between
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)
and
TARGET ENTITY
( )
================================================================================
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this "Agreement"),
dated as of June __, 1997, is by and among AMERICAN PHYSICIAN PARTNERS, INC., a
Delaware corporation ("APP") and TARGET ENTITY, a [ ] (the "Company").
RECITALS
A. The Company owns and operates (i) a professional medical practice(s)
specializing in radiology and (ii) diagnostic imaging centers. All of the shares
of the common stock of the Company (the "Company Common Stock") are owned
beneficially and of record by the Stockholders.
B. APP is engaged in the business of owning, operating and acquiring the
assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
C. Pursuant to this Agreement, APP and the Company intend that the
Company be merged with and into APP, and that APP be the sole surviving
corporation (sometimes referred to hereinafter as the "Surviving Corporation"),
and the Company be the disappearing corporation (sometimes referred to
hereinafter as the "Disappearing Corporation").
D. APP and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) the Company will merge
with and into APP upon the terms and conditions set forth herein and in
accordance with the laws of the State of [ ] and (ii) the outstanding shares of
the Company Common Stock shall be converted at such time into cash and shares of
common stock, par value $.0001 per share, of APP (the "APP Common Stock") as set
forth herein.
E. Prior to the Merger, the Company intends to transfer certain of its
assets most of which relate solely to the practice of medicine to a [newly
formed professional corporation] ("NewCo") in exchange for all of the capital
stock of NewCo and to thereafter distribute such NewCo stock to the Stockholders
(the "Spin-Off Transaction").
F. APP and APP Subsidiaries have entered into, or intend to enter into,
an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Stockholders, the "Target Interest Holders")
of each of the entities listed on Exhibit A (together with the Company, the
"Target Companies").
G. The parties intend for the transaction contemplated by this Agreement
along with the transactions contemplated by the Other Agreements to qualify as a
tax-free exchange within the meaning of Sections 351 and 368 of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder, as applicable.
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AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"APP Group" shall mean APP, NewCo and each of their Affiliates.
"APP Subsidiaries" shall have the meaning set forth in Section 4.5.
"Best knowledge" or "to the knowledge of" and similar phrases shall mean
(i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed in Exhibit 1.1, director or executive officer of such entity
after reasonable investigation and inquiry by the executive officers of such
entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director or
executive officer of the Company actually possesses without the necessity of any
special inquiry as to the matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 14.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.
"Company Common Stock" shall have the meaning set forth in the recitals
to this Agreement.
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.
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"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.
"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.
"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.
"Company Subsidiaries" shall have the meaning set forth in Section 3.7.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Controlled Group" shall have the meaning set forth in Section 3.20(g).
"Damages" shall have the meaning set forth in Section 14.1.
"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.
"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the terms
hereof, as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Registration Statement is
declared effective by the SEC.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 14.3(a).
"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).
"Encumbrance" shall mean any charge, claim, community property interest,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).
"ERISA" shall have the meaning set forth in Section 3.18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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"Form S-1" shall mean the Form S-1 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with its Initial Public
Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with the offering of APP
Common Stock as consideration under the Merger and other mergers contemplated by
the Other Agreements.
"Founding Company" shall mean a Target Company that is either a party to
this Agreement or an Other Agreement that has not been terminated prior to
Closing.
"FTC" shall mean the United States Federal Trade Commission.
"Indemnified Party" shall have the meaning set forth in Section 14.3(a).
"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).
"Indemnity Notice" shall have the meaning set forth in Section 14.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or other
fees in connection with its Initial Public Offering.
"Insurance Policies" shall have the meaning set forth in Section 3.23.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.14.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651 et seq.,
(v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.
"Merger" shall have the meaning set forth in Section 2.1.
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"Merger Consideration" shall have the meaning set forth in Section
2.8(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"NewCo" shall have the meaning set forth in the recitals to this
Agreement.
"NewCo Common Stock" shall mean the common stock[, $_____ par value per
share,] of NewCo.
"New Qualified Plan" shall have the meaning set forth in Section 8.5.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to the Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Physician Employee" shall mean each radiologist employed by the Company
or NewCo, as the case may be.
"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.21(e).
"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 13.2.
"Security Agreement" shall have the meaning set forth in the Service
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service Agreement" shall have the meaning set forth in Section 12.1(j).
"Spin-Off Transaction" shall have the meaning set forth in the recitals
to this Agreement.
"Stockholders" shall mean the stockholders of the Company immediately
prior to the Effective Time.
"Stockholder Release" shall have the meaning set forth in Section
12.1(m).
"Surviving Corporation" shall have the meaning set forth in the recitals
to this Agreement.
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"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign income,
excise, corporate, franchise, property, sales, use, payroll, withholding,
provider, environmental, duties, value added and other tax returns (including
information returns).
"Third Party Claim" shall have the meaning set forth in Section 14.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number (e.g.,
Article IV) or a Section number (e.g., Section 6.2) shall be construed to be a
reference to the designated Article number or Section number of this Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into APP
in accordance with this Agreement and the separate corporate existence of the
Disappearing Corporation shall thereupon cease (the "Merger"). APP shall be the
Surviving Corporation in the Merger and shall continue to be governed by the
laws of the State of [ ], and the separate corporate existence of the Company
with all its rights, privileges, powers, immunities, purposes and franchises
shall continue unaffected by the Merger, except as set forth herein. The
Surviving Corporation may, at any time concurrent with and/or after the
Effective Time, take any action in the name of or on behalf of the Disappearing
Corporation in order to effectuate the transactions contemplated by this
Agreement.
Section 2.2 The Closing. The closing (the "Closing") shall take place at
10:00 a.m., local time, at the offices of APP located at 2301 NationsBank Plaza,
901 Main Street, Dallas, Texas on the day on which the transactions contemplated
by the Initial Public Offering are consummated. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
Section 2.3 Effective Time. If all the conditions to the Merger set
forth in Articles XI and XII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article XVI, the parties hereto shall cause to be properly executed and filed on
the Closing Date, Certificates of Merger meeting the requirements of Section [ ]
of the [ ] Corporation Law. The Merger shall become effective at the time of the
filing of such documents with the Secretary of State of the State of [ ], in
accordance with such law or at such later time which the parties hereto have
theretofore agreed upon and designated in such filings as the effective time of
the Merger (the "Effective Time").
Section 2.4 Certificate of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Certificate of Incorporation of the Company
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation without any amendment or modification
as a result of the Merger.
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Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation without any amendment or modification as a result of the Merger.
Section 2.6 Directors of the Surviving Corporation. The persons who are
directors of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time.
Section 2.7 Officers of the Surviving Corporation. The persons who are
officers of the Company immediately prior to the Effective Time shall submit a
written resignation in form and substance acceptable to APP, effective as of the
Effective Time.
Section 2.8 Conversion of Company Common Stock. The manner of converting
shares of Company Common Stock in the Merger shall be as follows:
(a) As a result of the Merger and without any action on the part
of the holder thereof, all shares of Company Common Stock issued and outstanding
at the Effective Time (excluding shares held by APP pursuant to Section 2.8(d)
hereof) shall cease to be outstanding and shall be cancelled and retired and
shall cease to exist, and each holder of a certificate or certificates
representing any such shares of Company Common Stock shall thereafter cease to
have any rights with respect to such shares of Company Common Stock, except the
right to receive, without interest, (i) cash and (ii) validly issued, fully paid
and nonassessable shares of APP Common Stock, all as determined in accordance
with the provisions of Exhibit B attached hereto (the "Merger Consideration").
(b) Each share of Company Common Stock held in the Company's
treasury, if any, at the Effective Time, by virtue of the Merger, shall be
cancelled and retired without payment of any consideration therefor and shall
cease to exist.
(c) Each Company Right outstanding at the Effective Time shall be
terminated and cancelled, without payment of any consideration therefor, and
shall cease to exist.
(d) At the Effective Time, each share of APP Common Stock issued
and outstanding as of the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, continue unchanged and
remain outstanding as a validly issued, fully paid and nonassessable share of
APP Common Stock.
Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock.
(a) At or after the Effective Time and at the Closing (i) the
Stockholders, as holders of a certificate or certificates representing shares of
the Company's Common Stock, shall upon surrender of each certificate or
certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until each
certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at the
Effective Time.
(b) Each Stockholder shall deliver to APP at the Closing the
certificates representing Company Common Stock owned by him, her or it, duly
endorsed in blank by the Stockholder, or accompanied by duly executed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and cancelled. Each Stockholder
agrees
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to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to such Company Common Stock or with
respect to the stock powers accompanying any Company Common Stock. Upon such
delivery (or completion of appropriate affidavit of lost certificate and
indemnity), each Stockholder shall receive in exchange therefor the Merger
Consideration pursuant to Exhibit B and Section 2.10 hereof, if applicable.
Section 2.10 Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of APP Common Stock will be issued and any
Stockholder otherwise entitled to receive a fractional share of APP Common Stock
as part of the Merger Consideration hereunder shall receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
APP Common Stock multiplied by the Initial Public Offering Price.
ARTICLE III
Representations and Warranties of the Company
As an inducement to APP to enter into this Agreement and to consummate
the Merger and except as set forth in the Disclosure Schedules attached hereto
and incorporated herein by this reference, the Company represents and warrants
to APP both as of the date hereof and as of the Effective Time as follows:
Section 3.1 Organization and Good Standing; Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. The Company and each Company Subsidiary is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except where such failure to be so qualified or in good standing
would not have a Material Adverse Effect on the Company. Copies of the articles
or certificates of incorporation and all amendments thereto of the Company and
each Company Subsidiary and the bylaws of the Company and each Company
Subsidiary, as amended, and copies of the corporate minutes of the Company, all
of which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
corporate minutes, accurately reflect all material proceedings of the
Stockholders and directors of the Company (and all committees thereof). The
stock record books of the Company, which have been or will be made available to
APP for review, contain true, complete and accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.
Section 3.2 Authorization and Validity. The Company has all requisite
corporate power to enter into this Agreement and all other agreements entered
into in connection with the transactions contemplated hereby and to consummate
the transactions contemplated hereby. The execution, delivery and, subject to
approval of this Agreement and the Merger by the Stockholders, performance by
the Company of this Agreement and the agreements contemplated herein, and the
consummation by the Company of the transactions contemplated hereby and thereby
are within the Company's respective corporate powers and have been duly
authorized by all necessary action on the part of the Company's Board of
Directors. Subject to the approval of this Agreement and the Merger by the
Stockholders, this Agreement has been duly executed by the Company, and this
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby to which the Company is
a party constitute, or upon execution will constitute, valid and binding
agreements of the Company, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting the enforcement of creditors' rights generally, or by general
equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger (as contemplated by Section
2.3) and any other required documents related to the Merger, and other than
consents, filings or notifications required to be made or obtained solely by APP
(including,
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without limitation, in connection with the Initial Public Offering, Form S-4 or
any Hart-Scott-Rodino filing to be made by APP, if any), the execution, delivery
and performance by the Company of this Agreement and the agreements provided for
herein, and the consummation of the transactions contemplated hereby and thereby
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority.
Section 3.4 Capitalization. The authorized capital stock of the Company
consists of [ ] shares of the Company Common Stock, of which [ ] shares are
issued and outstanding. The Stockholders collectively are and will be
immediately prior to the Effective Time the record and beneficial owners of all
the issued and outstanding Company Common Stock, free and clear of all
Encumbrances, in the respective amounts set forth in the Disclosure Schedules.
Each outstanding share of Company Common Stock has been legally and validly
issued and is fully paid and nonassessable, and was issued pursuant to a valid
exemption from registration under (i) the Securities Act of 1933, as amended,
and (ii) all applicable state securities laws. No shares of Company Common Stock
are owned by the Company in treasury. No shares of Company Common Stock have
been issued or disposed of in violation of any preemptive rights, rights of
first refusal or similar rights of any of the Stockholders. Other than Company
Common Stock, the Company has no securities, bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
Section 3.5 Transactions in Capital Stock. There exist no Company
Rights. The Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership of shares
among any of its Stockholders has been altered or changed in contemplation of
the Merger within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the (2) two
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").
Section 3.8 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the Stockholders of the
Company, the execution, delivery and performance by the Company of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on the Company; (ii) will not conflict with or result in
a violation of any provision of the Company's articles or certificate of
incorporation or bylaws, (iii) will not conflict with, result in a violation of,
or constitute a default under any law, rule, ordinance, regulation or any
ruling, decree, determination, award, judgment, order or injunction of any court
or governmental instrumentality which is applicable to the Company or by which
the Company or its properties are subject or bound; (iv) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, require any notice under, or accelerate or modify, or permit any
person to accelerate or modify, any performance required by the terms of any
agreement, instrument, license or permit, to which the Company is a party or by
which the Company or any of its properties are subject or bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on the Company; and (v) except as
contemplated by this Agreement, will not create any Encumbrance or restriction
upon the Company Common Stock or any of the assets or properties of the Company.
Section 3.9 Intentionally omitted.
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Section 3.10 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, the Company has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on the Company;
(b) paid, discharged or satisfied any material liability, other
than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent with
past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or accounting
practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with
past practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due and payable, mechanics,
landlords, materialmen, and other statutory liens, purchase money security
interests, sale-leaseback interests granted and all other Encumbrances granted
in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any equity
or other interest in itself;
(j) increased any salaries, wages or any employee benefits for
any employee of the Company, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee except in
the ordinary course of business;
(l) declared, set aside or made any payments, dividends or other
distributions to any Stockholder or any other holder of capital stock of the
Company (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any action
described in this Section 3.10.
Section 3.11 No Undisclosed Liabilities. To the best of its knowledge,
the Company does not have any liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted except for
liabilities or obligations reflected or reserved against in the Company's
Current Balance Sheet.
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Section 3.12 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of the Company,
threatened against, or affecting the Company, any Company Subsidiary, any
Stockholder, the Physician Employees or any other licensed professional or other
individual affiliated with the Company affecting or that would reasonably be
likely to affect the Company Common Stock or the operations, business condition,
(financial or otherwise), or results of operations of the Company which (i) if
successful, may, individually or in the aggregate, have a Material Adverse
Effect on the Company or (ii) could adversely affect the ability of the Company
or any Company Subsidiary to effect the transactions contemplated hereby, and to
the knowledge of the Company there is no basis for any such action or any state
of facts or occurrence of any event which would reasonably be likely to give
rise to the foregoing. There are no unsatisfied judgments against the Company or
any Company Subsidiary or any licensed professional or other individual
affiliated with the Company or any Company Subsidiary relating to services
provided on behalf of the Company or any Company Subsidiary or any consent
decrees to which any of the foregoing is subject. Each of the matters, if any,
set forth in this Section 3.12 is fully covered by policies of insurance of the
Company or any Company Subsidiary as in effect on the date hereof.
Section 3.13 No Violation of Law. Neither the Company nor any Company
Subsidiary has been, nor shall be as of the Effective Time (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever), in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency, authority or court binding on it,
or relating to its properties, assets or business or its advertising, sales or
pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.14 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which the Company or any Company Subsidiary is a party and pursuant to which the
Company or any Company Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the operation of its business and which requires payments in excess of
$12,000 per year (the "Lease Agreements"). The Company has delivered to APP true
and complete copies of all of the Lease Agreements. Each Lease Agreement is
valid, effective and in full force in accordance with its terms, and there is
not under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver to
APP in writing such consents as are necessary to effect a valid and binding
transfer or assignment of the Company's or any Company Subsidiary's rights
thereunder. The Company has a good, clear, valid and enforceable leasehold
interest under each of the Lease Agreements. The Lease Agreements comply with
the exceptions to ownership interests and compensation arrangements set out in
42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any similar applicable
state law safe harbor or other exemption provisions.
Section 3.15 Real and Personal Property.
(a) Neither the Company nor any Company Subsidiary owns any
interest (other than the Lease Agreements) in real property.
(b) The Company and any Company Subsidiary (i) has good title to
all of its properties and assets (real, personal and mixed, tangible and
intangible) and any rights or interests therein
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which it purports to own including, without limitation, all the property and
assets reflected in the Company Current Financial Statements; and (ii) owns such
rights, interests, assets and property free and clear of all Encumbrances, title
defects or objections (except for taxes not yet due and payable). The personal
property presently used in connection with the operation of the business of the
Company and the Company Subsidiaries constitutes the necessary personal property
assets to continue operation of the Company and any Company Subsidiary.
Section 3.16 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, the Company does not have any
direct or indirect indebtedness for borrowed money, including indebtedness by
way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
Section 3.17 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the Company would be required to make, aggregate future
payments in excess of $10,000 in any fiscal year or $25,000 in the aggregate,
(iii) all agreements for capital improvements or acquisitions involving an
amount of $75,000 in any fiscal year or $75,000 in the aggregate, (iv) all
agreements containing a covenant limiting the freedom of the Company (or any
provider employee of the Company) to compete in any line of business with any
person or entity or in any geographic area or (v) all written contracts and
commitments providing for future payments by the Company in excess of $10,000 in
any fiscal year or $25,000 in the aggregate and that are not cancelable by
providing notice of sixty (60) days or less. All such contracts, agreements or
other instruments are in full force and effect, there has been no threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; there are no contracts, agreements or other instruments to
which the Company is a party or is bound (other than physician employment
contracts and insurance policies) which could either singularly or in the
aggregate have a Material Adverse Effect on the value to APP of the assets and
properties to be acquired by APP from the Company, or which could inhibit or
prevent the Company from transferring to or vesting in APP good and sufficient
title to the assets and properties to be acquired by APP and the Surviving
Corporation except where the failure to transfer would not have a Material
Adverse Effect on APP. In every instance where consent is necessary, the Company
shall, on or before the Closing Date, use reasonable good faith efforts to
obtain and deliver to APP in writing, effective as of the Closing Date, such
consents as are necessary to enable the Surviving Corporation to enjoy all of
the rights now enjoyed by the Company under such contracts. Any and all such
consents shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that the Company has fully complied with
and is not in default under any provision of the particular contract or
agreement. Notwithstanding the foregoing, the Company shall not transfer to APP
any contracts or agreements relating to the provision of professional medical
services or other such agreements and contracts that APP consents to in writing
to be transferred to NewCo in the Spin-off Transaction. No contract with a
health care provider or Payor has been materially amended or terminated within
the last twelve (12) months.
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(b) The Company (i) has not received notice of any plan or
intention of any other party to exercise any right to cancel or terminate any
contract, agreement or instrument required to be disclosed pursuant to Section
3.17(a), and to the knowledge of the Company there are no fact(s) that would
justify the exercise of such a right; and (ii) does not currently contemplate,
or have reason to believe any other Person currently contemplates, any amendment
or change to any such contract, agreement or instrument.
Section 3.18 Employee Matters. The Company is not currently a party to
any employment contract (except for oral employment agreements which are
terminable at will), consulting or collective bargaining contracts, deferred
compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed a
collective total of [___] part-time and [____] full-time employees. The
Disclosure Schedules list each employee of, or consultant to, the Company who
received combined salary, benefits (other than those offered generally to all
other employees) and bonuses for 1996 in excess of $50,000 or who is expected to
receive combined salary, benefits (other than those offered generally to all
other employees) and bonuses in 1997 in excess of $50,000. The Company is not
delinquent in payment to any of its employees or Physician Employees for wages,
salaries, bonuses or other direct compensation for any services performed for it
to the date hereof or amounts required to be reimbursed to such employees. Upon
termination of employment of any employee or Physician Employee, no severance or
other payments will become due and the Company has no policy, past practice or
plan of paying severance on termination of employment.
Section 3.19 Labor Relations.
(a) To the knowledge of the Company, the Company is in material
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, occupational
safety and health, and is not engaged in any unfair labor practice within the
meaning of Section 8 of the National Labor Relations Act;
(b) To the knowledge of the Company, there is no unfair labor
practice, charge or complaint or any other employment-related matter against or
involving the Company pending or threatened before the National Labor Relations
Board or any federal, state or local agency, authority or court;
(c) To the knowledge of the Company, there are no charges,
investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;
(d) The Company is in material compliance with the Immigration
Reform and Control Act of 1986, as amended, and all applicable regulations
promulgated thereunder; and
(e) To the knowledge of the Company, there are no inquiries,
investigations or monitoring activities of any licensed, registered, or
certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.
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Section 3.20 Employee Benefit Plans.
(a) Identification. The Disclosure Schedules contain a complete
and accurate list of all employee benefit plans (within the meaning of Section
3(3) of ERISA) sponsored by the Company or to which the Company contributes on
behalf of its employees and all employee benefit plans previously sponsored or
contributed to on behalf of its employees within the three years preceding the
date hereof (the "Employee Benefit Plans"). The Company has provided to APP
copies of all plan documents (as they may have been amended to the date hereof),
determination letters, pending determination letter applications, trust
instruments, insurance contracts or policies related to an Employee Benefit
Plan, administrative services contracts, annual reports, actuarial valuations,
summary plan descriptions, summaries of material modifications, administrative
forms and other documents that constitute a part of or are incident to the
administration of the Employee Benefit Plans. In addition, the Company has
provided or made available to APP a written description of all existing
practices engaged in by the Company that constitute Employee Benefit Plans.
Subject to the requirements of ERISA, each of the Employee Benefit Plans can be
terminated or amended at will by the Company without any further liability or
obligation on the part of such entity to make further contributions or payments
in connection therewith following such termination. No unwritten amendment
exists with respect to any Employee Benefit Plan.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Examinations. The Company has not received any notice that
any Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency or authority.
(d) Prohibited Transactions. No prohibited transactions (within
the meaning of Section 4975 of the Code or Section 406 of ERISA) have occurred
with respect to any Employee Benefit Plan. There has been no breach of any duty
under ERISA or applicable law (including, without limitation, any health care
contractor requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan), which would be reasonably
likely to result, directly or indirectly, (including through any obligation of
indemnification or contribution), in any taxes, penalties or other liability to
APP or any of its Affiliates.
(e) Claims and Litigation. No pending or, to the Company's
knowledge, threatened, claims, suits or other proceedings exist with respect to
any Employee Benefit Plan other than normal benefit claims filed by participants
or beneficiaries.
(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or 501(c)(9)
of the Code and/or tax-exempt within the meaning of Section 501(a) of the Code
and, to the best knowledge of the Company and each Stockholder, has been
continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation of
any such favorable determination letter or ruling.
(g) Funding Status. No accumulated funding deficiency (within the
meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Company is a member (a "Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such plan
are at least equal in value to the present value of accrued benefits determined
on an ongoing basis as of the date hereof. With respect to each Employee Benefit
Plan described in Section 501(c)(9) of the Code, the assets of each such plan
are at least equal in value to the present value of accrued benefits, based upon
the most recent actuarial valuation as of a date no more than ninety (90) days
prior to the date hereof. The Disclosure Schedules
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contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.
(h) Excise Taxes. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Multiemployer Plans. Neither the Company nor any member of a
Controlled Group is or ever has been obligated to contribute to a multiemployer
plan within the meaning of Section 3(37) of ERISA or any other Employee Benefit
Plan which has been subject to Title IV of ERISA or Section 412 of the Code.
(j) PBGC. No facts or circumstances are known to the Company that
would result in the imposition of liability against APP or any of its Affiliates
by the Pension Benefit Guaranty Corporation ("PBGC") as a result of any act or
omission by the Company or any member of a Controlled Group. No reportable event
(within the meaning of Section 4043 of ERISA) for which the notice requirement
has not been waived has occurred with respect to any Employee Benefit Plan
subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable provisions of ERISA.
(l) Other Compensation Arrangements. Neither the Company nor, to
the Company's knowledge, any Stockholder or Physician Employee is a party to any
compensation or debt arrangement with any Person relating to the provision of
health care related services other than arrangements with the Company.
Section 3.21 Environmental Matters.
(a) Neither the Company nor any Company Subsidiary has, within
the five (5) years preceding the date hereof, through the Effective Time,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of the Company no investigation or review is pending by any
governmental entity, with respect to any (i) alleged violation by the Company of
any Environmental Law (as defined in subsection (e) below) (ii) alleged failure
by the Company to have any environmental permit, certificate, license, approval,
registration or authorization required pursuant to any Environmental Law in
connection with the conduct of its business; or (iii) alleged illegal Regulated
Activity (as defined in subsection (e) below) by the Company.
(b) Neither the Company nor any Company Subsidiary has used,
transported, disposed of or arranged for the disposal of (as those terms are
defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein) that
would be reasonably likely to give rise to any Environmental Liabilities (as
defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
Schedule 3.21(b) discloses any known presence of asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises. To the knowledge of the
Company, there is no friable asbestos in or on the Company's or any Company
Subsidiary's owned or leased premises.
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(c) To the knowledge of the Company, no soil or water in or under
any assets currently or formerly held for use or sale by the Company or any
Company Subsidiary is or has been contaminated by any Hazardous Substance while
such assets or premises were owned, leased, operated or managed, directly or
indirectly by the Company or any Company Subsidiary, where such contamination
had, or would be reasonably likely to have, a Material Adverse Effect on the
Company.
(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of the Company,
concerning the Company or any Company Subsidiary within the five (5) years
preceding the date hereof through the Effective Time with respect to any real
property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.
(e) For the purposes of this Section 3.21, the following terms
have the following meanings:
"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended to
assure the protection of the environment, or that classify, regulate,
call for the remediation of, require reporting with respect to, or list
or define air, water, groundwater, solid waste, hazardous, toxic, or
radioactive substances, materials, wastes, pollutants or contaminants,
or which are intended to assure the safety of employees, workers or
other persons, including the public in each case as in effect on the
date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any pollutant
or contaminant, or infectious or radioactive substance or material,
including without limitation, those substances, materials and wastes
defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any Hazardous
Substances.
Section 3.22 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by the Company with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on the Company.
Section 3.23 Insurance Policies. The Disclosure Schedules list and
briefly describe the Company's policies of insurance to which the Company or any
Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and enforceable
policies, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies and all premiums with respect thereto which are due and
payable are currently paid. All Insurance Policies currently maintained by the
Company or any Company Subsidiary ("Current Policies") taken together, (i)
provide adequate insurance coverage for the assets, properties and operations of
the Company and its Affiliates for all risks normally insured against by a
Person carrying on a substantially similar business or businesses as the Company
and its Affiliates, (ii) are sufficient for compliance with legal and
contractual requirements to which the Company or any of its Affiliates is a
party or by which any of them may be bound, and (iii) shall be maintained in
force (including the payment of all premiums and compliance with their terms)
without interruption up to and including the Closing Date. True, complete and
correct copies
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of all Insurance Policies have been provided to APP. Neither the Company nor any
Company Subsidiary nor any officer or director thereof has received any notice
or other written communication from any issuer of any Current Policy cancelling
such policy, materially increasing any deductibles or retained amounts
thereunder, or materially increasing the annual or other premiums payable
thereunder and, to the knowledge of the Company, no such cancellation or
increase of deductibles, retainages or premiums is threatened. There are no
outstanding claims, settlements or premiums owed against any Insurance Policy,
and all required notices have been given and all known potential or actual
claims under any Insurance Policy have been presented in due and timely fashion.
Within the five (5) years preceding the Agreement, neither the Company nor any
Company Subsidiary has filed a written application for any professional
liability insurance coverage which has been denied by an insurance agency or
carrier. The Disclosure Schedules also set forth a list of all claims under any
Insurance Policy in excess of $10,000 per occurrence filed by the Company or any
Company Subsidiary during the immediately preceding three-year period. Each
Physician Employee has, at all times while a Physician Employee, maintained or
been covered by professional malpractice insurance in such types and amounts as
are customary for such a physician practicing the same type of medicine in the
same geographic area.
Section 3.24 Accounts Receivable; Payors.
(a) The Disclosure Schedules set forth a list and aging of all
accounts receivable of the Company as of March 31, 1997, which list is complete,
true and accurate in all material respects. All such accounts receivable arose
in the ordinary course of business and have not been previously written off as
bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements or
on the accounting records of the Company (which reserves are calculated
consistent with generally accepted accounting principles and past practice).
(b) The Disclosure Schedules set forth (i) a true, correct and
complete list of the names and addresses of each Payor of the Company as of such
date, which accounted for more than 5% of the revenues of the Company in the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for more than 5% of the revenues of the Company for the fiscal year to end
December 31, 1997, and (ii) a single line item listing for all private-pay
patients in the aggregate of the Company. The Company has satisfactory relations
with such Payors set forth in (i) above and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any payments due from, or any claims for payment submitted to any such
party.
Section 3.25 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i)
list of the accounts payable of the Company as of March 31, 1997, and (ii) list
of each individual indebtedness owed by the Company of $5,000 or more, setting
forth the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.
Section 3.26 Inventory. All items of inventory on the Company Current
Balance Sheet contained in the Company Financial Statements consisted, and all
such items on hand on the date of this Agreement consist, and all such items on
hand at the Effective Time will consist, net of all applicable reserves with
respect thereto (calculated consistent with past practice), of items of a
quality and a quantity usable and saleable in the ordinary course of the
Company's business and conform to generally accepted standards in the industry
of which the Company is a part. The value of the inventories reflected on the
Company Current Balance Sheet contained in the Company Financial Statements are
net of adequate reserves for damaged, excess, and unusable items. Purchase
commitments of the Company for inventory
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are not materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.
Section 3.27 Licenses, Authorization and Provider Programs.
(a) The Company, and each Physician Employee and other licensed
employee or independent contractor of the Company (i) is the holder of all valid
licenses, approvals, orders, consents, permits, registrations, qualifications
and other rights and authorizations required by law, ordinance, regulation or
ruling of any governmental regulatory authority necessary to operate its
business or practice his or her specialty and (ii) is eligible to participate in
and to receive reimbursement under Titles XVIII and XIX of the Social Security
Act (the "Medicare and Medicaid Programs") and any other programs funded in
whole or in part by federal, state or local entities for which the Company is
eligible and which are listed in the Disclosure Schedules ("Governmental
Programs"). The Company, the Stockholders, and each Physician Employee has a
current provider number for such Governmental Programs and with such private
non-governmental programs (including without limitation any private insurance
program) under which the Company is presently receiving payments directly or
indirectly from any Payor for patient care provided by such Physician Employee,
licensed employee or independent contractor (such non-governmental programs
herein referred to as "Private Programs"). A true, correct and complete list of
such licenses, permits and other authorizations (including, but not limited to
verification of Medicare and Medicaid provider numbers and participating
physician contracts under 1842(h) of the Social Security Act), and provider
agreements, is set forth in the Disclosure Schedules, true, complete and correct
copies of which have been provided to APP. No violation, default, order or
deficiency exists with respect to any of the items listed in the Disclosure
Schedules except for such violations, defaults, orders or deficiencies which
would not be reasonably likely to have a Material Adverse Effect on the Company,
and there is no action pending or to the Company's knowledge recommended by any
state or federal agencies having jurisdiction over the items listed in the
Disclosure Schedules, either to revoke, withdraw or suspend any material license
or to terminate the participation of the Company in any Governmental Program or
Private Program, and no event has occurred which, with or without notice or
lapse of time, or both, would constitute grounds for a violation, order or
deficiency with respect to any of the items listed in the Disclosure Schedules
to revoke, withdraw or suspend any material license to operate its business as
is presently being conducted by it. To the knowledge of the Company, there has
been no decision not to renew any existing agreement with any provider or Payor
relating to the Company's business as presently being conducted by it. Neither
the Company nor any Physician Employee (i) has had his/her/its professional
license, Drug Enforcement Agency number, Medicare/Medicaid provider status or
staff privileges at any hospital or diagnostic imaging center suspended,
relinquished, terminated or revoked (including orders that have been entered by
any such entities but stayed), (ii) has been reprimanded in writing, sentenced,
or disciplined by any licensing board, state agency, regulatory body or
authority, hospital, Payor or specialty board (including orders that have been
entered by any such entities but stayed), or (iii) is the subject of an initial
or final determination by any federal or state authority that could result in
any demand or reimbursement under the Medicare, Medicaid or Government Programs
or any exclusion or which monetary penalty under federal or state law or (iv)
has had a final judgment or settlement entered against him/her/it in connection
with a malpractice or similar action.
(b) The Company is not required, or for the 72-month period prior
to the Effective Time was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.28 Inspections and Investigations. Neither the right of the
Company, or any Physician Employee, nor the right of any licensed professional
or other individual affiliated with the Company to receive reimbursements
pursuant to any Governmental Program or Private Program has been terminated or
otherwise materially and adversely affected as a result of any investigation or
action whether by any federal or state governmental regulatory authority or
other third party. No Physician Employee, licensed professional or other
individual affiliated with the business has, during the past three (3) years
prior to the Effective Time, had their professional license or staff privileges
limited, suspended or revoked by any governmental regulatory authority or
agency, hospital, integrated delivery system, trade association, professional
review organization, accrediting organization or certifying agency
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(including orders that have been entered by any such entities but stayed). True,
correct and complete copies of all reports, correspondence, notices and other
documents relating to any matter described or referenced in this Section 3.28
have been provided to APP.
Section 3.29 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v) other
similar agreements relating to the foregoing to which the Company or any Company
Subsidiary is a party (including expiration date if applicable) (collectively,
the "Proprietary Rights").
(b) The Disclosure Schedules contain a complete and accurate list
and summary description of all agreements relating to technology, trade secrets,
know-how or processes that the Company is licensed or authorized to use by
others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the Company's knowledge, any threatened disputes or
disagreements with respect to any such agreement.
(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of the Company, no
claim has been asserted by any person to the ownership of or for infringement by
the Company of any Proprietary Right of any other Person, and neither the
Company nor any Stockholder is aware of any valid basis for any such claim. To
the best knowledge of the Company, no proceedings have been threatened which
challenge the Proprietary Rights of the Company. The Company has the right to
use, free and clear of any adverse claims or rights of others, all trade
secrets, customer lists and proprietary information required for the performance
and marketing of all medical services.
Section 3.30 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby.
(b) Payment of Taxes. Except for such items as the Company may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) the Company has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records in
accordance with generally accepted accounting principles for all of the same
that have not yet become due and payable and (ii) the Company is not delinquent
in the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
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assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated any
applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.
(d) No Extension of Limitation Period. The Company has not
granted an extension to any taxing authority of the statute of limitation period
during which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required
to be withheld by the Company and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) Foreign Person. Neither the Company nor any Stockholder is a
foreign person, as such term is referred to in Section 1445(f)(3) of the Code
and Treasury Regulations Section 1.1445-2.
(g) Safe Harbor Lease. None of the properties or assets of the
Company constitutes property that the Company, APP or any Affiliate of APP, will
be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
(h) Tax Exempt Entity. None of the assets or properties of the
Company are subject to a lease to a "tax exempt entity" as such term is defined
in Section 168(h)(2) of the Code.
(i) Collapsible Corporation. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(j) Boycotts. The Company has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(k) Parachute Payments. No payment required or contemplated to be
made by the Company will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(l) S Corporation. The Company [has]/[has not] not made an
election to be taxed as an "S" corporation under Section 1362(a) of the Code.
(m) Personal Holding Companies. The Company is not or has not
been a personal holding company within the meaning of Section 542 of the Code.
Section 3.31 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to the
Company's business. There is no commitment to, and no income reflected in the
Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.
Section 3.32 Banking Relations. Set forth in the Disclosure Schedules is
a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such
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as checking account, borrowing arrangements, safe deposit box, etc.) and the
Person or Persons authorized in respect thereof.
Section 3.33 Fraud and Abuse and Self Referral. Neither the Company nor
any Company Subsidiary has engaged and, to the knowledge of the Company, neither
the Company's officers and directors nor the Physician Employees or other
Persons and entities providing professional services for or on behalf of the
Company have engaged, in any activities which are prohibited under 42 U.S.C.
Sections 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the
exceptions or safe harbor provisions set forth in such legislation), or the
regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by applicable rules of
professional conduct or 18 U.S.C. Sections 24, 287, 371, 664, 669, 1001, 1027,
1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.
Section 3.34 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company, any
Company Subsidiary or officer, director or key employee of the Company or
Company Subsidiary, which has or reasonably could be expected to have the effect
of prohibiting or materially impairing the current medical practice of the
Company or any Company Subsidiary or the continuation of that medical practice
in the future by NewCo, any acquisition of property by the Company, any Company
Subsidiary or the conduct of business by the Company or any Company Subsidiary.
Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are valid
and binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of the Company, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by the Company or any other party thereto. No
contract with a Physician Employee has been terminated in the last twelve (12)
months.
Section 3.36 Statements True and Correct. No representation or warranty
made herein by the Company or any Stockholder, nor any statement, certificate,
information, exhibit or instrument to be furnished by the Company or any
Stockholder to APP or any of its respective representatives pursuant to this
Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 3.37 Disclosure Schedules. All Disclosure Schedules required by
Article III hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 3.38 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of any
of the Stockholders or the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
ARTICLE IV
Representations and Warranties of APP
As inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the Merger, and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to the Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:
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Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the Merger
and the transactions contemplated hereby, all of which have been or will be made
available to the Company for review, are true, correct and complete as in effect
on the date of this Agreement and accurately reflect all material proceedings of
the stockholders and directors of APP (and all committees thereof) regarding the
Merger and the transactions contemplated hereby. The stock record books of APP,
which have been or will be made available to the Company for review, contain
true, complete and accurate records of the stock ownership of APP and the
transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and the Other Agreements and to
consummate the Merger and the transactions contemplated hereby. The execution,
delivery and performance by APP of this Agreement and the agreements provided
for herein, including the Other Agreements and the consummation by APP of the
transactions contemplated hereby and thereby are within APP's corporate powers
and have been duly authorized by all necessary action on the part of APP's Board
of Directors. This Agreement has and the Other Agreements have been duly
executed by APP. This Agreement and all other agreements and obligations entered
into and undertaken in connection with the Merger and the transactions
contemplated hereby to which APP is a party constitute, or upon execution will
constitute, valid and binding agreements of APP, enforceable against it in
accordance with their respective terms, except as may be limited by bankruptcy
or other laws affecting creditors' rights generally, or by general equity
principles, or by public policy.
Section 4.3 Governmental Authorization. Other than complying with the
provisions of the applicable state corporate laws regarding the approval of the
Merger and the filing of the Certificates of Merger and any other required
documents related to the Merger, and other than consents, filings or
notifications required to be made or obtained solely by the Company, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the Merger and the transactions
contemplated hereby and thereby by APP requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP consists
of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares are issued
and outstanding and 10,000,000 shares of APP Preferred Stock, none of which are
outstanding. Each outstanding share of APP Common Stock has been legally and
validly issued and is fully paid and nonassessable, and was issued pursuant to a
valid exemption from registration under (i) the Securities Act of 1933, as
amended, and (ii) all applicable state securities laws. No shares of capital
stock are owned by APP in treasury. No shares of capital stock of APP have been
issued or disposed of in violation of the preemptive rights, rights of first
refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
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Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or obligation accrued, contingent or
otherwise, that is reasonably likely to have a Material Adverse Effect on APP.
Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of
the Effective Time (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever), in violation of
any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business or
its advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
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Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted an
extension to any taxing authority of the limitation period during which any tax
liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required
to be withheld by APP and paid to governmental agencies for all income, social
security, unemployment insurance, sales, excise, use, and other taxes have been
collected or withheld and paid to the respective governmental agencies.
(f) Foreign Person. Neither APP nor any holders of APP Common
Stock is a foreign person, as such term is referred to in Section 1445(f)(3) of
the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject to a
lease to a "tax exempt entity" as such term is defined in Section 168(h)(2) of
the Code.
(h) Collapsible Corporation. APP has not at any time consented,
and the holders of APP Common Stock will not permit APP to elect, to have the
provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated to be
made by APP will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed as an
"S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
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Section 4.13 Related Party Arrangements. The Disclosure Schedules or
Form S-4 sets forth a description of any interest held, directly or indirectly,
by any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to the Company or a Stockholder pursuant to
this Agreement, contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.15 Disclosure Schedules. All Disclosure Schedules required by
Article IV hereof and attached hereto are true, correct and complete in all
material respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to such
agreements, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.
ARTICLE V
Closing Date Representations and Warranties of the Company
The Company represents and warrants that the following will be true and
correct on the Closing Date as if made on that date:
Section 5.1 Organization and Good Standing; Qualification. NewCo is a
[ ] duly organized, validly existing and in good standing under the laws of its
state of organization, with all requisite corporate power and authority to carry
on the business in which it intends to engage, to own the properties it intends
to own, and to execute and deliver the Service Agreement, the Security Agreement
and the Physician Employment Agreements and consummate the transactions and
perform the services contemplated thereby. NewCo is duly qualified and licensed
to do business and is in good standing in all jurisdictions where the nature of
its intended business makes such qualification necessary, which jurisdictions
are listed in the Disclosure Schedules, except where the failure to be so
qualified shall not have a Material Adverse Effect on NewCo.
Section 5.2 Capitalization. The authorized capital stock of NewCo
consists of [_____] shares of NewCo Common Stock, of which [______] shares are
issued and outstanding, and no shares of capital stock of NewCo are held in
treasury. The Stockholders own all of the issued and outstanding shares of NewCo
Common Stock, free and clear of any Encumbrance. Each outstanding share of NewCo
Common Stock has been legally and validly issued and is fully paid and
nonassessable. There exist no options, warrants, subscriptions or other rights
to purchase, or securities convertible into or exchangeable for, any of the
authorized or outstanding securities of NewCo. No shares of capital stock of
NewCo have been issued or disposed of in violation of the preemptive rights,
rights of first refusal or similar rights of any of NewCo's stockholders.
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Section 5.3 Corporate Records. The copies of the articles or certificate
of incorporation and bylaws, and all amendments thereto, of NewCo that have been
delivered or made available to APP are true, correct and complete copies
thereof, as in effect on the Closing Date.
Section 5.4 Authorization and Validity. The execution, delivery and
performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
Section 5.5 No Violation. Neither the execution, delivery or performance
of the Service Agreement, the Security Agreement, the Physician Employment
Agreements or the other agreements contemplated thereby nor the consummation of
the transactions or provision of services contemplated thereby will (a) conflict
with, or result in a violation or breach of the terms, conditions or provisions
of, or constitute a default under, the articles or certificate of incorporation
or bylaws of NewCo, or (b) violate or conflict with any applicable local, state
or federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency or authority or court binding on
it, or relating to its property or business.
Section 5.6 No Business, Agreements, Assets or Liabilities. NewCo has
not commenced business since its incorporation. Other than its articles or
certificate of incorporation and bylaws, and as of the Closing Date, the Service
Agreement, the Security Agreement, the Physician Employment Agreements, and the
other contracts and agreements assigned to NewCo as part of the Spin-Off
Transaction, NewCo is not a party to or subject to any agreement, indenture or
other instrument. NewCo does not own any assets (tangible or intangible) other
than the consideration received upon the issuance of shares of its capital stock
or pursuant to the Spin-Off Transaction, and NewCo does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted) other than those assumed pursuant to the Spin-Off Transaction.
Section 5.7 Compliance with Laws. NewCo has complied with all applicable
laws, regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports, except where failure to so
comply or file would not, individually or in the aggregate, have a Material
Adverse Effect on NewCo.
ARTICLE VI
Intentionally Omitted.
ARTICLE VII
Covenants of the Company
The Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:
Section 7.1 Conduct of The Company. Except as required pursuant to the
Spin-Off Transaction or the "F" Reorganization, from the date hereof until the
Effective Time, the Company shall, in all material respects, conduct its
business in the ordinary and usual course consistent with past practices and
shall use reasonable efforts to:
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(a) preserve intact its business and its relationships with
Payors, referral sources, customers, suppliers, patients, employees and others
having business relations with it;
(b) maintain and keep its properties and assets in good repair
and condition consistent with past practice as is material to the conduct of the
business of the Company;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof. In
addition, without the written consent of APP, the Company shall not:
(1) amend its articles or certificate of incorporation
or bylaws, or other charter documents;
(2) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not
limited to, by way of stock split, dividend, recapitalization or
other reclassification) or any subscriptions, options, warrants,
rights or convertible securities, or enter into any agreements
or commitments of any character obligating it to issue or sell
any such securities;
(3) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or any option,
warrant or other right to purchase or acquire any such shares;
(4) declare or pay any dividend or other distribution
(whether in cash, stock or other property) with respect to its
capital stock (except as expressly contemplated herein);
(5) voluntarily sell, transfer, surrender, abandon or
dispose of any of its assets or property rights (tangible or
intangible) other than the sale of inventory, if any, in the
ordinary course of business consistent with past practices;
(6) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge or
encumbrance of any kind, except liens for taxes not currently
due and except for liens which arise by operation of law;
(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;
(8) make or commit to make any capital expenditures
which are not reasonably necessary for the conduct of its
business;
(9) grant any increase in the compensation payable or to
become payable to directors, officers, consultants or employees
other than merit increases to employees of the Company who are
not directors or officers of the Company, except in the ordinary
course of business and consistent with past practices;
(10) change in any manner any accounting principles or
methods other than changes which are consistent with generally
accepted accounting principles;
(11) enter into any material commitment or transaction
other than in the ordinary course of business;
(12) take any action which could reasonably be expected
to have a Material Adverse Effect on the Company;
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(13) apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount
payable directly or indirectly to or for the benefit of any
Affiliate of the Company, other than in the ordinary course and
consistent with past practices;
(14) agree, whether in writing or otherwise, to do any
of the foregoing; and
(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits hereto,
other than as required to discharge its or their fiduciary
duties.
Section 7.2 Title to Assets; Indebtedness. As of the Effective Time, the
Company shall (i) except for sales of assets held as inventory, if any, in the
ordinary course of business prior to the Effective Time and except as otherwise
specifically described in the Disclosure Schedules to this Agreement, have good
and valid title to all of its assets free and clear of all Encumbrances of any
nature whatsoever, except for current year ad valorem taxes and liens which
arise by operation of law, and (ii) have no direct or indirect indebtedness
except for indebtedness disclosed in the Company Financial Statements, the
Disclosure Schedules hereto or for normal and recurring accrued obligations of
the Company arising in connection with its business operations in the ordinary
course of business and which arise from the purchase of merchandise, supplies,
inventory and services used in connection with the provision of services.
Section 7.3 Access. At all times prior to the Effective Time, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of the Company,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, share certificate books, share registers,
accounts, tax returns, financial statements and all other data that, in the
reasonable opinion of APP, are required for APP to make such investigation as it
may desire of the properties and business of the Company. APP shall also be
allowed full access upon reasonable prior notice and during regular business
hours (and at such other times as the parties may reasonably agree) to consult
with the officers, employees (after announcement by the Company of the Merger to
its employees which shall occur no later than three (3) days subsequent to
execution hereof by the Company), accountants, counsel and agents of the Company
in connection with such investigation of the properties and business of the
Company. No investigation by APP shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of the Company under this
Agreement. Any access or investigation referred to in this Section 7.3 shall be
conducted in such a manner as to minimize the disruption to the Company's
ongoing business operations.
Section 7.4 Acquisition Proposals. The Company shall not, and shall
cause each of its directors, officers, employees or agents not to directly or
indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or capital stock of the
Company, whether by merger, consolidation, share exchange, business combination,
purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of the Company, or, without APP's prior written approval, afford
to any Person other than APP and its agents access to the properties, books or
records of the Company. If the Company receives any offer or proposal after the
date hereof, written or otherwise, of the type referred to above, the Company
shall promptly inform APP of such offer or proposal, decline such offer and
furnish APP with a copy thereof if such offer or proposal is in writing.
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Section 7.5 Compliance With Obligations. Prior to the Effective Time,
the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.
Section 7.6 Notice of Certain Events. The Company shall promptly notify
APP of:
(a) any notice or other communication from any Person or entity
alleging that the consent of such Person or entity is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by the Company
who is expected to receive annualized compensation of at least $50,000 in 1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of the
Company;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
the Company which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of the Company,
including but not limited to any licensure or certification deficiencies, or
violations; limitations on a license or a provider agreement; freeze or
reduction in MediCare or Medicaid rates, notice of overpayment; being the
subject of any investigation relating to patient abuse, fraud, kickbacks, false
claims or other alleged illegal payment practices under the Fraud and Abuse
Statutes; and
(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
the Company and, if requested by APP, will exert its reasonable best efforts to
restore the relationship.
Section 7.7 Intentionally omitted.
Section 7.8 Stockholders' Consent. The Company shall use its best
efforts to obtain the unanimous approval of its Stockholders to the Merger. In
seeking the approval of its Stockholders, the Company shall provide each
Stockholder with the Form S-4 which shall include information as may be required
by applicable law or as APP shall deem appropriate. The Board of Directors of
the Company shall recommend the approval of the Merger by the Stockholders of
the Company. If the Stockholders' approval is not unanimous, the Company shall
give notice to the nonconsenting Stockholders of the action taken by the
consenting Stockholders as may be required by applicable law.
Section 7.9 Obligations of Company and Stockholders. Subject to Section
7.8 hereof, the Company will take all action reasonably necessary to cause the
Company to perform its obligations under this Agreement and all related
agreements and to consummate the Merger and other transactions contemplated
hereby and thereby on the terms and conditions set forth in this Agreement and
such agreements; provided, however, that this covenant shall not require the
Company to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
Section 7.10 Funding of Accrued Employee Benefits. The Company hereby
covenants and agrees that it will take whatever steps are necessary to pay for
or fund completely any accrued benefits,
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where applicable, or vested accrued benefits for which the Company or any entity
might have any liability whatsoever arising from any tax-qualified plan as
required under applicable law. The Company acknowledges that the purpose and
intent of this covenant is to assure that APP shall have no liability whatsoever
at any time after the Closing Date with respect to any such tax-qualified plan,
unless such plan is merged with a plan sponsored by APP.
Section 7.11 Accounting and Tax Matters. The Company will not change in
any material respect the accounting methods or practices followed by the Company
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. The Company will not make
any material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (without regard to any extensions of
time) file all returns, information statements and other documents relating to
taxes of the Company required to be filed by it, and pay all taxes required to
be paid by it, on or before the Closing Date.
Section 7.12 Spin-Off Transaction. The Company shall form, organize and
incorporate NewCo in the state of [ ], and the articles or certificate of
incorporation and bylaws of NewCo shall be in form and substance reasonably
satisfactory to APP. Except for consummating the Spin-Off Transaction, NewCo
shall not commence business until the Closing Date. On or prior to the Closing,
the Company shall take all actions and execute all documents, agreements or
instruments necessary pursuant to and in compliance with applicable law to
effect the Spin-Off Transaction, including without limitation, the following:
Prior to the Closing, the Company shall transfer to NewCo good, valid and
marketable title to all of the Company's right, title and interest in and to the
Employee Benefit Plans, all contracts and agreements and other assets listed on
the Disclosure Schedules (to be delivered by the Company prior to Closing, which
schedule will be subject to the approval of APP, which approval shall not be
unreasonably withheld) which by law either cannot be acquired or cannot be used
by APP because they relate to the practice of medicine or radiology, and shall
contribute to NewCo such other consideration and assets of the Company as may be
required under applicable law, in exchange for the issuance by NewCo of shares
of NewCo Common Stock, such shares being all of the issued and outstanding
shares of NewCo Common Stock. The Company shall then distribute the shares of
NewCo Common Stock to the Stockholders in proportion to their respective
ownership interest in the Company.
Section 7.13 "F" Reorganization. The Company shall convert its corporate
status from that of a professional medical corporation to that of a general
business corporation in a transaction which will qualify as a tax-free
transaction under Section 368(a)(2)(F) of the Code (the "F" Reorganization").
The Company shall prepare and execute all documents necessary to effectuate the
"F" Reorganization prior to the Closing. At or prior to the Closing, the Company
shall cause an amendment to this Agreement to be executed which will reflect the
changes which result from the "F" Reorganization.
ARTICLE VIII
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 8.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Merger; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
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Section 8.2 Requirements to Effect the Merger and Acquisitions. APP will
use its best efforts to take, or cause to be taken, all actions necessary to
effect the Merger under applicable law, including without limitation the filing
with the appropriate government officials of all necessary documents in form
approved by counsel for the parties to this Agreement.
Section 8.3 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company and its authorized
representatives of the Company reasonable access to, and make available for
inspection, all of the assets and business of APP, including its executive
officers, and permit the Company and their authorized representatives to inspect
and, at the Company's sole expense, make copies of all documents, records and
information with respect to the affairs of APP as the Company and their
representatives may reasonably request, all for the sole purpose of permitting
the Company to become familiar with the business and assets and liabilities of
APP. No investigation by the Company or the Stockholders shall diminish or
otherwise affect any of the representations, warranties, covenants or agreements
of APP under this Agreement.
Section 8.4 Notification of Certain Matters. APP shall promptly inform
the Company in writing of (a) any notice of, or other communication relating to,
a default or event that, with notice or lapse of time or both, would become a
default, received by APP subsequent to the date of this Agreement and prior to
the Effective Time under any contract, agreement or investment material to APP's
condition (financial or otherwise), operations, assets, liabilities or business
and to which it is subject; (b) any material adverse change in APP's condition
(financial or otherwise), operations, assets, liabilities or business or (c)
defaults or disputes regarding Other Agreements.
Section 8.5 Qualified Retirement Plans. APP shall use its best efforts
to establish a qualified plan and trust for NewCo, within the meaning of Section
401(a) and 501(a), respectively, of the Code ("New Qualified Plan") that will
provide benefits comparable (as determined under Section 401(a)(4) of the Code)
to the benefits provided under the qualified plans referenced in the Disclosure
Schedules, if any, sponsored by the Company as of March 31, 1997. APP will file
for a favorable determination letter from the IRS on the New Qualified Plan and
request a favorable determination from the IRS that NewCo is not a member of an
affiliated service group (as defined in Section 414(m) of the Code) or a
recipient organization of leased employee services (as defined in Section 414(n)
of the Code). Any benefits provided under the New Qualified Plan shall be
conditioned on a favorable determination letter from the IRS. Costs associated
with the establishment and design of the New Qualified Plan shall be paid by
APP. The NewCo shall be responsible for funding any contributions to, or any
ongoing administrative costs of, the New Qualified Plan.
ARTICLE IX
Covenants of APP and the Company
APP and the Company agree as follows:
Section 9.1 Filings; Other Action.
(a) The Company shall cooperate with APP to promptly prepare and file
with the SEC the Registration Statements on Form S-1 and Form S-4 (or other
appropriate Forms) to be filed by APP in connection with its Initial Public
Offering and offering of the shares of APP Common Stock to the Target Interest
Holders pursuant to the transactions contemplated by this Agreement and the
Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. The Company shall cooperate with APP in the
preparation of the Registration Statements and shall furnish all information
concerning the Company and NewCo as may be reasonably requested in connection
with any such action in a timely manner.
(b) The Company and APP and each separately represent and warrant that
(i) in the case of the Company, none of the written information or documents
supplied or to be supplied by it specifically
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for inclusion in the Registration Statements, by exhibit or otherwise and (ii)
in the case of APP, will, at the time the Registration Statements and each
amendment and supplement thereto, if any, becomes effective under the Securities
Act, none of them contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Company shall be entitled to review the Registration
Statements and each of the amendments thereto, if any, prior to the time each
becomes effective under the Securities Act. The Company shall have no
responsibility for information contained in the Registration Statements except
for information provided by the Company specifically for inclusion therein. The
Company's review of the Registration Statements shall not diminish or otherwise
affect the representations, covenants and warranties of APP contained in this
Agreement.
(c) The Company shall, upon request, furnish APP with all information
concerning itself, its subsidiaries, directors, officers, partners, Stockholders
and NewCo, and such other matters as may be reasonably requested by APP in
connection with the preparation of the Registration Statements and each of the
amendments or supplements thereto, or any other statement, filing, notice or
application made by or on behalf of each such party or any of its subsidiaries
to any governmental entity in connection with the Merger and the other
transactions contemplated by this Agreement.
Section 9.2 Amendments of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Disclosure Schedules with respect to any matter
that would have been or would be required to be set forth or described in the
Disclosure Schedules in order to not materially breach any representation,
warranty or covenant of such party contained herein; provided that no amendment
or supplement to a Disclosure Schedule that constitutes or reflects a Material
Adverse Effect on the Company may be made unless APP consents to such amendment
or supplement, and no amendment or supplement to a Disclosure Schedule that
constitutes or reflects a Material Adverse Effect on APP may be made unless the
Company consents to such amendment or supplement. For purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 10.1 and 11.1 have been fulfilled, the
Disclosure Schedules hereto shall be deemed to be the Disclosure Schedules as
amended or supplemented pursuant to this Section 9.2. In the event that the
Company seeks to amend or supplement a Disclosure Schedule pursuant to this
Section 9.2 and APP does not consent to such amendment or supplement, or APP
seeks to amend or supplement a Disclosure Schedule pursuant to this Section 9.2,
and the Company does not consent, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 15.1(a) hereof.
Section 9.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Merger, take any action that would prevent
the Merger from qualifying as a tax-free exchange within the meaning of Sections
351 or 368 of the Code, as applicable.
Section 9.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 9.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and expenses incurred by the Company and NewCo in connection with the Merger
shall be paid by the Company Stockholders in full immediately prior to the
Closing and such expenses shall be the sole responsibility of the Stockholders
following the Closing Date and not APP.
Section 9.6 Patient Confidentiality. APP shall agree to keep all records
and information regarding the patients of the Company and NewCo confidential in
accordance with all applicable laws.
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Section 9.7 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state Blue Sky or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the Merger.
ARTICLE X
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Effective Date of
each of the following conditions:
Section 10.1 Representations and Warranties. The representations and
warranties of the Company contained herein and each Stockholder contained in the
Stockholders Representation Letter (as delivered pursuant to Section 10.12
hereof) shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Effective
Date.
Section 10.2 Covenants. The Company shall have performed and complied in
all material respects with all covenants required by this Agreement to be
performed and complied with by the Company prior to the Effective Date.
Section 10.3 Legal Opinion. Counsel to the Company shall have delivered
to APP their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 10.3.
Section 10.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 10.5 No Material Adverse Effect. No Material Adverse Effect on
the Company shall have occurred since March 31, 1997, whether or not such change
shall have been caused by the deliberate act or omission of the Company or any
Stockholder.
Section 10.6 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, statements, rule, regulation or ordinance to consummate the
transactions contemplated by this Agreement.
Section 10.7 Securities Approvals. The Registration Statements shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Effective Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
Section 10.8 Closing Deliveries. APP shall have received all Disclosure
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to APP, referred to in Section 12.1.
Section 10.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
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Section 10.11 Dissenter's Rights. The Company shall have satisfied each
of its obligations to its Stockholders regarding dissenters or related rights
under [ ] Corporation Law, and the sum of the amount which may become due to the
Stockholders who have dissented to the Merger and have indicated their intent to
seek appraisal rights plus the cash portion of the Merger Consideration shall
not exceed 25% of the total Merger Consideration due hereunder.
Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal Stockholder shall have executed and delivered to APP the
Indemnification Agreement in substantially the form of Exhibit D.
Section 10.13 Transfer of Assets. All of the assets and properties of
the Company and its related entities to be transferred to NewCo pursuant to the
Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.
Section 10.14 Physician Employment Agreements. Each Physician Employee
and such other radiologists whose names are set forth on the Disclosure
Schedules shall have entered into a Physician Employment Agreement between NewCo
and each such Physician Employee in a form reasonably consistent to the form
attached as Exhibit E and satisfactory to APP in its sole discretion (the
"Physician Employment Agreements").
Section 10.15 Completion of "F" Reorganization. The Company shall have
(1) completed the "F" Reorganization, and all transfers and dissolutions related
thereto, and (2) amended this Agreement to reflect changes resulting from the
"F" Reorganization.
ARTICLE XI
Conditions Precedent of the Company
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:
Section 11.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Effective Date.
Section 11.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Effective Date.
Section 11.3 Legal Opinions. Counsel to APP shall have delivered to the
Company their opinion, dated as of the Effective Date, in form and substance
substantially in the form set forth in Exhibit 11.3.
Section 11.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 11.5 Government Approvals and Required Consents. The Company,
the Stockholders, NewCo and APP shall have obtained all licenses, permits and
all necessary government and other third-party approvals and consents required
under any law, contracts or any statute, rule, regulation or ordinances to
consummate the transactions contemplated by this Agreement.
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the
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Registration Statements shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC. At or prior to the
Effective Date, APP shall have received all state securities and "Blue Sky"
permits necessary to consummate the transactions contemplated hereby. At or
prior to the Effective Date, the APP Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
Section 11.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 11.8 Closing Deliveries. The Company shall have received all
Schedules, documents, assignments and agreements, duly executed and delivered in
form reasonably satisfactory to the Company referred to in Section 12.2.
Section 11.9 No Material Adverse Effect. No Material Adverse Effect on
APP shall have occurred since __________, 1997, whether or not such change shall
have been caused by the deliberate act or omission of APP.
Section 11.10 Service Agreement Analysis. The Company shall have
received from Shattuck Hammond Partners, Inc. its analysis and opinion, in a
form satisfactory to the Company, that the terms of the Service Agreement are
fair and commercially reasonable.
Section 11.11 Tax Opinion. The Company shall have received from Haynes
and Boone, L.L.P. special counsel to APP, an opinion regarding the tax
consequences of the transactions contemplated by this Agreement and the other
Agreements, substantially in the form set forth in Exhibit 11.11.
ARTICLE XII
Closing Deliveries
Section 12.1 Deliveries of the Company. At or prior to the Effective
Date, the Company shall deliver to APP the following, all of which shall be in a
form reasonably satisfactory to APP:
(a) a copy of resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
and the Service Agreement and all related documents and agreements and
consummation of the Merger, each certified by the Secretary of the Company as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
(b) a copy of resolutions of the Board of Directors of NewCo
authorizing the execution, delivery and performance of the Service Agreement,
the Security Agreement and the Physician Employment Agreements each certified by
the Secretary of NewCo as being true and correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of the Company dated the
Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;
(d) a certificate of the President of the Company dated the
Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by the
Company to be satisfied shall have been satisfied;
(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and officers
of such corporation and as to the signatures of such directors and officers who
have executed documents delivered at the Closing on behalf of that corporation;
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(f) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretary of State of [ ] for the Company and NewCo
establishing that each such corporation is in existence, has paid all franchise
or similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in the state of [ ];
(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and licenses
referenced in Section 3.27;
(i) the resignations of the directors and officers of the Company
as requested by APP;
(j) the executed Service Agreement in substantially the form
attached hereto as Exhibit F, as revised in accordance with changes reasonably
deemed necessary or advisable by legal counsel retained by APP, the Company and
NewCo in the State of [ ] to address regulatory and compliance issues (the
"Service Agreement");
(k) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(l) a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Code, of each Stockholder, signed under a penalty of
perjury and dated as of the Closing Date, to the effect that such Stockholder is
a United States citizen or a resident alien (and thus not a foreign person) and
providing such Stockholder's United States taxpayer identification number;
(m) an executed Stockholder Release by the Stockholders in
substantially the form attached hereto as Exhibit G (the "Stockholder Release");
(n) intentionally omitted; and
(o) such other instrument or instruments of transfer prepared by
APP as shall be necessary or appropriate, as APP or its counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
Section 12.2 Deliveries of APP. At or prior to the Effective Date, APP
shall deliver to the Company the following, all of which shall be in a form
reasonably satisfactory to the Company:
(a) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement, and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(b) Intentionally omitted;
(c) a certificate of the President of APP dated the Closing Date
as to the truth and correctness of the representations and warranties of APP
contained herein on and as of the Effective Date;
(d) a certificate of the President of APP dated the Closing Date,
(i) as to the performance and compliance by APP with all covenants contained
herein on and as of the Effective Date and (ii) certifying that all conditions
precedent required to be satisfied by APP shall have been satisfied;
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(e) a certificate of the Secretary of APP certifying as to the
incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the
Effective Date, of the secretary of state of incorporation establishing that APP
is in existence, has paid all franchise or similar taxes, if any, and otherwise
is in good standing to transact business in the state of Delaware;
(g) certificates (or photocopies thereof), dated within ten (10)
days prior to the Effective Date, of the Secretaries of State of the states in
which APP is qualified to do business, to the effect that APP is qualified to do
business and is in good standing as a foreign corporation in such state;
(h) the executed Service Agreement as revised in accordance with
the changes specified in Section 12.1(j);
(i) executed Certificates of Merger necessary to effect the
Merger referred to in Section 2.1;
(j) the Merger Consideration in accordance with Article II and
Exhibit B hereof; and
(k) such other instrument or instruments of transfer prepared by
the Company as shall be necessary or appropriate, as the Company or its counsel
shall reasonably request, to carry out and effect the purpose and intent of this
Agreement.
ARTICLE XIII
Post Closing Matters
Section 13.1 Further Instruments of Transfer. Following the Closing, at
the request of APP or the Surviving Corporation and at APP's sole cost and
expense, the Stockholders and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement. Following the Closing, at
the request of NewCo and at NewCo's sole cost and expense, APP or the Surviving
Corporation shall deliver any further instruments of transfer and take all
reasonable action as may be necessary and appropriate to carry out the purpose
and intent of this Agreement.
Section 13.2 Merger Tax Covenant.
(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which the Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").
(b) Both prior to and after the Effective Time, all books and records
shall be maintained, and all Tax Returns and schedules thereto shall be filed in
a manner consistent with the Merger being treated as a Reorganization. These
obligations are excused as to a party required to maintain the books or file a
Tax Return if such party has provided to the other parties a written opinion of
competent tax counsel to the effect that there is not substantial authority,
within the meaning of Section 6662(d)(2)(B)(i) of the Code, to report the Merger
as a Reorganization and such opinion either is furnished prior to the Effective
Time or is based on facts or events not known at the Effective Time. Each party
shall provide to each other party such tax information, reports, returns, or
schedules as may be reasonably required to assist such party in accounting for
and reporting the Merger as a Reorganization.
(c) The parties agree that no Stockholder shall be liable for any taxes
incurred by the Company and for which APP has successor liability therefor which
arise solely as a result of the Merger or the consummation of the transactions
contemplated hereby; provided that the foregoing shall not limit
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or otherwise be deemed a waiver of any right of indemnification under Section
14.1 for a breach of any representation, warranty or covenant of the Company or
any Stockholder.
Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of the Company to meet the requirements of Rule
145(d) under the Securities Act.
ARTICLE XIV
Remedies
Section 14.1 Indemnification by the Company. Subject to the terms and
conditions of this Article XIV, the Company agrees to indemnify, defend and hold
APP and its respective directors, officers, stockholders, employees, agents,
attorneys, consultants and Affiliates harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, reasonable attorneys' fees and expenses (including, without limitation,
all costs of experts and all costs incidental to or in connection with any
appellate process) (collectively, "Damages") asserted against or incurred by
such individuals and/or entities arising out of or resulting from:
(a) a breach by the Company of any representation or warranty
(without giving effect to any Material Adverse Effect qualifier contained as
part of any such representation or warranty) or covenant of the Company
contained in this Agreement or in any Schedule or certificate delivered
thereunder;
(b) any violation (or alleged violation) by the Company and/or
any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and
(c) any liability under the Securities Act, the Exchange Act or
any other federal or state "blue sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any (i) untrue statement of
material fact in any Registration Statement or any prospectus forming or part
thereof, or any amendment thereof or supplement thereto relating to the Company
(including any Company Subsidiary) or NewCo required to be stated therein or
(ii) failure to state information necessary to make the statements therein not
misleading, which untrue statement or failure to state information arises or
results solely from information provided in writing to APP or its counsel by the
Company or any Stockholder or their agents specifically for inclusion in any
such Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto.
Section 14.2 Indemnification by APP. Subject to the terms and conditions
of this Article XIV, APP hereby agrees to indemnify, defend and hold the
Stockholders, the Company and NewCo and their respective directors, officers,
stockholders, employees, agents, attorneys, consultants and Affiliates harmless
from and against all Damages asserted against or incurred by such individuals
and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty (without
giving effect to any Material Adverse Effect qualifier contained as part of any
such representation or warranty) or covenant of APP contained in this Agreement
or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act or
any other federal or state "blue sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon
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any untrue statements of material fact in any Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or required to be stated therein or failure to state information
necessary to make the statements therein not misleading (except for any
liability based upon any actual or alleged untrue statement of material fact or
an omission to state a material fact relating to NewCo, the Company or any
Stockholder which was derived from any information provided in writing by the
Company or a Company Subsidiary or any of their agents contained in the
representations and warranties set forth in this Agreement or any certificate,
exhibit, schedule or instrument required to be delivered under this Agreement.)
Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
any of the parties hereto of any liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.
Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) Any party claiming indemnification under the Agreement (an
"Indemnified Party") shall promptly (and, in the event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party for whom indemnification is sought (the "Indemnifying
Party) of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of Damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve any
Indemnifying Party of its obligations to any Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within thirty (30) days
after receipt of any Claim Notice (the "Election Period"), the Indemnifying
Party shall notify the Indemnified Party (x) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XIV
with respect to such Third Party Claim and (y) whether the Indemnifying Party
desires, at the sole cost and expense of such Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set forth
in Section 14.3(f) below, the Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. The
Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 14.3(b) and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may
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employ separate counsel at the expense of the Indemnifying Party, and upon
written notification thereof, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.
(c) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 14.3(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 14.3(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes their potential liability to the Indemnified
Party under this Article XIV and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 14.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within thirty (30) days after notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Article XIV relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of such Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim, or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by the
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the 60-day Indemnity Notice period
or (ii) the expiration of the period
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for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
agrees to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding any provision herein to the contrary, the
obligation of an Indemnifying Party to provide indemnification to an Indemnified
Party for breach of any representation or warranty as provided in Sections
14.1(a) or 14.2(a) hereof shall not take effect unless and until the Damages
asserted against or incurred in the aggregate and on a collective basis by the
Indemnified Parties pursuant to either Section 14.1 or 14.2 (as applicable) as a
result of such a breach or breaches exceeds $100,000.
Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 14.5 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
ARTICLE XV
Termination
Section 15.1 Termination. This Agreement may be terminated and the
Merger and the Acquisitions may be abandoned:
(a) at any time prior to the Effective Date by mutual agreement
of all parties;
(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or any Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any Stockholder
fails to comply in any material respect with any material covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within thirty (30) days after receipt of written
notice thereof;
(c) at any time prior to the Effective Date by the Company if any
representation or warranty of APP contained in this Agreement or in any
certificate or other document executed and delivered by APP pursuant to this
Agreement is or becomes untrue in any material respect of if APP fails to comply
in any material respect with any covenant or agreement contained herein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
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(d) at any time prior to the Effective Date by APP if, as a
result of the conduct of due diligence and regulatory compliance procedures, APP
deems termination to be advisable; or
(e) by APP or the Company if the Merger shall not have been
consummated by September 30, 1997.
Section 15.2 Effect of Termination. Except as set forth in Section 16.3,
in the event this Agreement is terminated pursuant to this Article XV, this
Agreement shall forthwith become void.
ARTICLE XVI
Nondisclosure of Confidential Information
Section 16.1 Non-Disclosure Covenant. The Company and NewCo recognize
and acknowledge that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP that is
valuable, special and a unique asset of such entity's business. APP acknowledges
that it had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of the Company and NewCo that is
valuable, special and a unique asset of each such business. The Company, NewCo
and APP, severally, agree that they will not disclose such Confidential
Information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
APP, NewCo and the Company and (b) to counsel and other advisers to APP, NewCo
and the Company provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 16.1, unless (i) such information
becomes available to or known by the public generally through no fault of the
Company, NewCo or APP, as the case may be, (ii) disclosure is required by law or
the order of any governmental authority under color of law, provided, that prior
to disclosing any information pursuant to this clause (ii) the Company, NewCo or
APP, as the case may be, shall, if possible, give prior written notice thereof
to the Company, NewCo or APP and provide the Company or APP with the opportunity
to contest such disclosure, (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party, or (iv) the disclosing party is the sole and exclusive
owner of such Confidential Information as a result of the Merger or otherwise.
In the event of a breach or threatened breach by the Company, on the one hand,
and APP, on the other hand, of the provisions of this Section, APP, NewCo and
the Company shall be entitled to an injunction restraining the other party, as
the case may be, from disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting any of such
parties from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
Section 16.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, NewCo and the Company agree that, in the event of
a breach by either of them of the foregoing covenant, the covenant may be
enforced against them by injunctions and restraining orders.
Section 16.3 Survival. The obligations of the parties under this Article
XVI shall survive the termination of this Agreement.
ARTICLE XVII
Miscellaneous
Section 17.1 Amendment; Waivers. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
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Section 17.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
Section 17.3 Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP acknowledges
and agrees that the rights and remedies of the Company under this Agreement will
be directly available to the Stockholders as third party beneficiaries of the
rights and remedies of the Company under this Agreement, including, without
limitation, the rights and remedies under Article 14 hereof to indemnification
from APP against Damages incurred by the Stockholders resulting from a breach by
APP of any representation, warranty or covenant of APP contained herein. Except
as provided in the preceding sentence or as otherwise provided herein, neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 17.5 Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 17.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, any Stockholder or APP
pursuant to this Agreement shall be deemed to have been representations and
warranties by the Company, such Stockholder and APP. Notwithstanding any
provision in this Agreement to the contrary, the representations and warranties
contained herein shall survive the Closing until the second anniversary of the
Closing Date except that (a) the representations and warranties set forth in
Section 3.21 with respect to environmental matters shall survive for a period of
ten (10) years, (b) the representations and warranties set forth in Section 3.30
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.27 and Section 3.33 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 14.1(c) and Section 14.2(c), and solely to
the extent that any party to be indemnified pursuant to such provisions actually
incurs liability under the Securities Act, the Exchange Act or any other federal
or state securities law, the representations and warranties set forth therein
shall survive until the expiration of any applicable limitations period.
Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF [ ].
Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
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<PAGE> 1650
Section 17.9 Gender and Number. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
Section 17.10 Intentionally omitted.
Section 17.11 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.
Section 17.12 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to the Company
or any Stockholder: ____________________________
____________________________
____________________________
____________________________
with a copy to: ____________________________
____________________________
____________________________
____________________________
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<PAGE> 1651
Section 17.13 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
Section 17.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B, Exhibit
C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure Schedules
attached hereto with their initial letter capitalized and not otherwise defined
therein shall have the meanings as assigned to such terms in this Agreement.
[SIGNATURES CONTAINED ON NEXT PAGE]
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<PAGE> 1652
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:____________________________________
Gregory L. Solomon, President
THE COMPANY:
TARGET ENTITY
By:____________________________________
Its:
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<PAGE> 1653
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
TARGET COMPANIES
C-48
<PAGE> 1654
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
MERGER CONSIDERATION
C-49
<PAGE> 1655
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SHAREHOLDER REPRESENTATION LETTER
C-50
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EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
INDEMNIFICATION AGREEMENT
C-51
<PAGE> 1657
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
PHYSICIAN EMPLOYMENT AGREEMENT
C-52
<PAGE> 1658
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
SERVICE AGREEMENT
C-53
<PAGE> 1659
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997
STOCKHOLDER RELEASE
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<PAGE> 1660
APPENDIX D
================================================================================
AGREEMENT AND PLAN OF EXCHANGE
dated as of
June __, 1997
by and among
AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),
TARGET ENTITY
( )
and
THE SELLERS LISTED ON THE SIGNATURE PAGES HEREOF
================================================================================
<PAGE> 1661
AGREEMENT AND PLAN OF EXCHANGE
This Agreement and Plan of Exchange ("Agreement") dated June ___, 1997
is by and among American Physician Partners, Inc., a Delaware corporation,
("APP"), Target Entity and each of the individuals whose names appear on Exhibit
A hereto (each individually, a "Seller" and collectively "Sellers").
RECITALS
A. Each Seller is a [limited] partner of Target Entity and the Sellers
together own an aggregate of [ ] percent ([ ]%) of the total interests of the
partners in Target Entity.
B. Target Entity owns a [ ] percent ([ ]%) interest in [ ] which owns
and operates diagnostic imaging centers.
C. APP is engaged in the business of owning, operating and acquiring the
assets of, and managing the non-medical aspects of, radiology practices and
diagnostic imaging centers.
D. Sellers desire to convey to APP and APP desires to acquire from
Sellers, [ ] percent ([ ]%) of the total interests of the partners in Target
Entity (the "Partnership Units") in consideration for cash and shares of common
stock, par value $.0001 per share, of APP (the "APP Common Stock") as set forth
herein (the "Exchange").
[E. The General Partner of Target Entity, a Texas corporation, owns a
one percent (1%) interest in Target Entity, which interest is being acquired
indirectly by APP (the "General Partner Acquisition").]
F. APP and subsidiaries of APP have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement with
interest holders (together with the Sellers, the "Target Interest Holders") of
each of the entities listed on Exhibit B (together with Target Entity, the
"Target Companies").
AGREEMENT
NOW, THEREFORE, in consideration of the preceding recitals mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
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<PAGE> 1662
"Acquisition" shall have the meaning set forth in Section 2.1.
"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"APP" shall have the meaning set forth in the preamble to this
Agreement.
"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"Best knowledge" or "to the knowledge of" and similar phrases shall mean
(i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the partners
set forth in Exhibit A, stockholder or director, as the case may be, or
executive officer of such entity after reasonable investigation and inquiry by
the executive officers of such entity; provided, however, that to the extent any
of the representations, warranties and statements of Seller and Target Entity
made specifically in Section 3.20 is expressly qualified to the knowledge or
best knowledge of Sellers and Target Entity, it shall mean the knowledge of any
of the Sellers set forth in Exhibit A, partner or executive officer of Target
Entity actually possesses without the necessity of any special inquiry as to the
matters which are the subject thereof.
"Claim Notice" shall have the meaning set forth in Section 12.3(a).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including,
but not limited to, information derived from reports, processes, data, know-how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
"Current Policies" shall have the meaning set forth in Section 3.22.
"Damages" shall have the meaning set forth in Section 12.1.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date that the Form S-1 Registration
Statement is declared effective by the SEC.
D-3
<PAGE> 1663
"Election Period" shall have the meaning set forth in Section 12.3(a).
"Encumbrance" shall mean any charge, claim, community property interest,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
"Environmental Laws" shall have the meaning set forth in Section
3.20(e).
"Environmental Liabilities" shall have the meaning set forth in Section
3.20(e).
"ERISA" shall have the meaning set forth in Section 3.17.
"Exchange" shall have the meaning set forth in the recitals.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agreement" shall have the meaning set forth in the recitals to
this Agreement.
"Exchange Consideration" shall have the meaning set forth in Section
2.1.
"Form S-1" shall mean the Form S-1 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with its Initial Public
Offering.
"Form S-4" shall mean the Form S-4 Registration Statement filed with the
SEC by APP pursuant to the Securities Act in connection with the offering of APP
Common Stock as consideration under the Exchange and other mergers or
acquisitions contemplated by the Other Agreements.
"FTC" shall mean the United States Federal Trade Commission.
"General Partner Acquisition" shall have the meaning set forth in the
recitals.
"Governmental Programs" shall have the meaning set forth in Section
3.26(a).
"Hazardous Substance" shall have the meaning set forth in Section
3.20(e).
"Indemnified Party" shall have the meaning set forth in Section 12.1.
"Indemnifying Party" shall have the meaning set forth in Section 12.1.
"Indemnity Notice" shall have the meaning set forth in Section 12.3(d).
"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.
"Insurance Policies" shall have the meaning set forth in Section 3.22.
"IRS" shall mean the Internal Revenue Service.
"Lease Agreements" shall have the meaning set forth in Section 3.13.
D-4
<PAGE> 1664
"Lock-Up Provisions" shall have the meaning set forth in Section 5.12.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred to,
taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.
"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651 et seq.,
(v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state, regional,
county, municipal, or other local laws, regulations, and ordinances insofar as
they are applicable to any of Target Entity's assets or operations and purport
to regulate Medical Waste or impose requirements related to Medical Waste.
"Medicare and Medicaid Programs" shall have the meaning set forth in
Section 3.26(a).
"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.
"Ordinary course of business" shall mean the usual and customary way in
which the particular entity has conducted its business in the past.
"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.
"Partnership Agreement" shall have the meaning set forth in Section 3.1
hereto.
"Partnership Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, partnership interests
of Target Entity, or by which Target Entity is or may be bound to issue
additional Partnership Units or other Partnership Rights.
"Partnership Subsidiary" shall have the meaning set forth in Section
3.7.
"Partnership Units" shall have the meaning set forth in the recitals to
this Agreement.
"Person" shall mean any natural person, corporation, partnership, joint
venture, limited liability company, association, group, organization or other
entity.
"Private Programs" shall have the meaning set forth in Section 3.26(a).
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"Proprietary Right" shall have the meaning set forth in Section 3.28(a).
"Registration Statements" shall mean the Form S-1 and the Form S-4.
"Regulated Activity" shall have the meaning set forth in Section
3.20(e).
"Related Acquisitions" shall mean, collectively, the mergers and
acquisitions of each Founding Company and its related entities and assets
contemplated by the Other Agreements.
"Reorganization" shall have the meaning set forth in Section 11.2.
"Target Entity" shall have the meaning set forth in the preamble to this
Agreement.
"Schedules" shall mean the schedules attached hereto as of the date
hereof or otherwise delivered by any party hereto pursuant to the terms hereof,
as such may be amended or supplemented from time to time pursuant to the
provisions hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller Release" shall have the meaning set forth in Section 11.1(l).
"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.
"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.
"Tax Returns" shall include all federal, state, local or foreign income,
excise, corporate, franchise, property, sales, use, payroll, withholding,
provider, environmental, duties, value added and other tax returns (including
information returns).
"Third Party Claim" shall have the meaning set forth in Section 12.3(a).
Section 1.2 Rules Of Interpretation. The definitions set forth in
Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.
Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in which
such word is used.
Unless otherwise indicated, reference herein to an Article number (e.g.,
Article IV) or a Section number (e.g., Section 6.2) shall be construed to be a
reference to the designated Article number or Section number of this Agreement.
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ARTICLE II
Exchange
Section 2.1 Exchange of Partnership Units for Cash and APP Common Stock.
(a) Subject to and upon the terms and conditions contained
herein, on the Closing Date Sellers shall convey, transfer deliver and assign to
APP [ ] percent ([ ]%) of the total interests of the partners in Target Entity,
free and clear of all obligations, security interests, claims, liens and
encumbrances whatsoever (the "Acquisition"). Subject to and upon the terms and
conditions contained herein, as consideration for such Partnership Units on the
Closing Date each Seller shall receive (i) cash and (ii) validly issued, fully
paid and nonassessable shares of APP Common Stock, all as determined in
accordance with the provisions of Exhibit A attached hereto (the "Exchange
Consideration").
(b) Each Seller shall deliver to APP at the Closing a Bill of
Sale representing the Partnership Units owned by him, her or it. Each Seller
agrees to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Partnership
Units or with respect to the powers accompanying any Partnership Unit. Upon such
delivery, each Seller shall receive in exchange therefor the Exchange
Consideration pursuant to Exhibit A.
Section 2.2 Legends. All APP Common Stock certificates issued to the
Sellers shall bear one or more of the following restrictive legends:
(a) Any legend required to put third-parties on notice of the
existence of the Lock-Up Provisions.
(b) Any legend relating to affiliates of the Company as required
pursuant to the Securities and Exchange Act of 1934.
Section 2.3 Closing. The closing (the "Closing") of the transactions
provided for in Section 2.1 shall take place at 10:00 a.m., local time, at the
offices of APP located at 2301 NationsBank Plaza, 901 Main Street, on the day on
which the transactions contemplated by the Initial Public Offering are
consummated. The date on which the Closing occurs is hereinafter referred to as
the "Closing Date."
ARTICLE III
Representations and Warranties of Sellers and Target Entity
As an inducement to APP to enter into this Agreement, each of Seller and
Target Entity represents and warrants to APP both as of the date hereof and as
of the Closing Date as set forth below, subject to those exceptions set forth in
the Disclosure Schedules attached hereto and incorporated herein by this
reference, specifically identifying the relevant subparagraph hereof, which
exceptions shall be deemed to be representations and warranties as if made
hereunder.
Section 3.1 Organization and Good Standing; Qualification. Target Entity
is a [general]/[limited] partnership duly organized and validly existing under
the laws of its state of organization, with all requisite power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. Target Entity is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except where such failure to be
so qualified or in good standing would not have
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a Material Adverse Effect on Target Entity. Copies of the Certificate of
[Limited] Partnership and all amendments thereto of Target Entity and the
[Limited] Partnership Agreement of Target Entity and all amendments thereto (the
"Partnership Agreement") and copies of the minutes of Target Entity, all of
which have been or will be made available to APP for review, are true and
complete as in effect on the date of this Agreement, and in the case of the
minutes, accurately reflect all material proceedings of the partners of Target
Entity (and all committees thereof).
Section 3.2 Authorization and Validity. Target Entity has all requisite
right, power and authority to execute, deliver and perform this Agreement and
all agreements and other documents executed and delivered by it pursuant to this
Agreement or to be executed and delivered on the Closing Date, and has taken all
action required by law, its Certificate of [Limited] Partnership, its
Partnership Agreement or otherwise, to authorize the execution, delivery and
performance of this Agreement and such related documents. Seller has the legal
capacity to enter into and perform this Agreement and the other agreements to be
executed and delivered in connection herewith. This Agreement and all agreements
and documents executed and delivered in connection herewith have been, or will
be as of the Closing Date, duly executed and delivered by Seller and Target
Entity and constitute or will constitute the legal, valid and binding
obligations of Seller, enforceable against Seller and Target Entity in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
by general equity principles, or by public policy.
Section 3.3 Governmental Authorization. Other than consents, filings or
notifications required to be made or obtained solely by APP (including, without
limitation, in connection with the Initial Public Offering, Form S-4 or any
Hart-Scott-Rodino filing to be made by APP, if any), the execution, delivery and
performance by Seller and Target Entity of this Agreement and the agreements
provided for herein, and the consummation of the transactions contemplated
hereby and thereby by Seller and Target Entity requires no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
Section 3.4 Capitalization and Title. The Sellers collectively are, and
will be immediately prior to the Closing Date, the record and beneficial owners
of all the issued and outstanding Partnership Units of Target Entity and Seller
is the owner of the Partnership Units currently held in his or her name on the
record books of Target Entity, free and clear of all Encumbrances. Each
Partnership Unit held by Seller has been legally and validly issued and is fully
paid and nonassessable, and was issued pursuant to a valid exemption from
registration under (i) the Securities Act and (ii) all applicable state
securities laws.
Section 3.5 Transactions in Partnership Units. There exist no
Partnership Rights. Except for the General Partner Acquisition referenced
herein, Target Entity has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its partnership interests or to pay any
dividend or make any distribution in respect thereof. Neither the equity
structure of Target Entity nor the relative ownership of partnership interests
among any of its partners has been altered or changed in contemplation of the
Exchange within the two (2) years preceding the date of this Agreement.
Section 3.6 Continuity of Business Enterprise. There has not been any
sale, distribution or spin-off of significant assets of Target Entity or any of
its Affiliates other than in the ordinary course of business within the two (2)
years preceding the date of this Agreement.
Section 3.7 Subsidiaries and Investments. Target Entity does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Partnership Subsidiary").
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Section 3.8 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance by Seller and Target Entity of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (i) do not require the consent of
any governmental or regulatory body or authority or any other third party except
for such consents, for which the failure to obtain would not result in a
Material Adverse Effect on Target Entity; (ii) will not conflict with or result
in a violation of any provision of Target Entity's Certificate of [Limited]
Partnership or Partnership Agreement; (iii) will not conflict with, result in a
violation of, or constitute a default under any law, rule, ordinance, regulation
or any ruling, decree, determination, award, judgment, order or injunction of
any court or governmental instrumentality which is applicable to Seller or
Target Entity or by which Seller or Target Entity or Target Entity's properties
are subject or bound; (iv) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, require any
notice under, or accelerate or modify, or permit any person to accelerate or
modify, any performance required by the terms of any agreement, instrument,
license or permit, to which Target Entity is a party or by which Target Entity
or any of its properties are subject or bound except for such conflict,
termination, breach or default, the occurrence of which would not result in a
Material Adverse Effect on Target Entity; and (v) except as contemplated by this
Agreement, will not create any Encumbrance or restriction upon the Partnership
Units or any of the assets or properties of Target Entity.
Section 3.9 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, Target Entity has conducted its business
only in the ordinary course and has not:
(a) suffered any change or changes in its working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations (whether or not covered by insurance) that individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect on Target Entity;
(b) paid, discharged or satisfied any material liability, other
than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) except in the ordinary course of business and consistent with
past practice, cancelled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) entered into any commitment or transaction not in the
ordinary course of business that is material to Target Entity, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;
(f) made any change in any method of accounting or accounting
practice, credit practices, collection policies, or payment policies;
(g) except in the ordinary course of business consistent with
past practice, incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000 individually or $25,000 in the aggregate;
(h) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any claim or Encumbrance, except for
liens for current personal property taxes not yet due
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and payable for mechanics, landlords, materialmen, and other statutory liens,
purchase money security interests, sale-leaseback interests granted and all
other Encumbrances granted in similar transactions;
(i) sold, redeemed, acquired or otherwise transferred any equity
or other interest in itself;
(j) increased any salaries, wages or any employee benefits for
any employee of Target Entity, except in the ordinary course of business and
consistent with past practice;
(k) hired, committed to hire or terminated any employee except in
the ordinary course of business;
(l) declared, set aside or made any payments, dividends or other
distributions to any partner or any other holder of any partnership interest in
Target Entity (except as expressly contemplated herein); or
(m) agreed, whether in writing or otherwise, to take any action
described in this Section 3.9.
Section 3.10 No Undisclosed Liabilities. To the best knowledge of Seller
and Target Entity, Target Entity does not have any liabilities or obligations of
any nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected in the Disclosure
Schedules.
Section 3.11 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of Seller and Target
Entity, threatened against, or affecting Target Entity, any Partnership
Subsidiary, or, to the knowledge of Seller and Target Entity, any Seller or any
other licensed professional or other individual affiliated with Target Entity
affecting or that would reasonably be likely to affect the Partnership Units or
the operations, business condition (financial or otherwise), or results of
operations of Target Entity which (i) if successful, may, individually or in the
aggregate, have a Material Adverse Effect on Target Entity or (ii) could
adversely affect the ability of Target Entity or any Partnership Subsidiary to
effect the transactions contemplated hereby, and to the knowledge of Seller and
Target Entity there is no basis for any such action or any state of facts or
occurrence of any event which would reasonably be likely to give rise to the
foregoing. There are no unsatisfied judgments against Seller, Target Entity or
any Partnership Subsidiary or any licensed professional or other individual
affiliated with Target Entity or any Partnership Subsidiary relating to services
provided on behalf of Target Entity or any Partnership Subsidiary or any consent
decrees to which any of the foregoing is subject. Each of the matters, if any,
set forth in this Section 3.11 is fully covered by policies of insurance of
Target Entity or any Partnership Subsidiary as in effect on the date hereof.
Section 3.12 No Violation of Law. Neither Target Entity nor any
Partnership Subsidiary has been, nor shall be as of the Closing Date (by virtue
of any action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever), in violation of any applicable local,
state or federal law, ordinance, regulation, order, injunction or decree, or any
other requirement of any governmental body, agency, authority or court binding
on it, or relating to its properties, assets or business or its advertising,
sales or pricing practices, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
Target Entity.
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Section 3.13 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which Target Entity or any Partnership Subsidiary is a party and pursuant to
which Target Entity or any Partnership Subsidiary leases (whether as lessor or
lessee) or licenses (whether as licensor or licensee) any real or personal
property related to the operation of its business and which requires payments in
excess of $12,000 per year (the "Lease Agreements"). Target Entity has delivered
to APP true and complete copies of all of the Lease Agreements. Each Lease
Agreement is valid, effective and in full force in accordance with its terms,
and there is not under any such lease (i) any existing or claimed material
default by Target Entity or any Partnership Subsidiary (as applicable) or event
of material default or event which with notice or lapse of time, or both, would
constitute a material default by Target Entity or any Partnership Subsidiary (as
applicable) and, individually or in the aggregate, may reasonably result in a
Material Adverse Effect on Target Entity, or, (ii) to the knowledge of Seller
and Target Entity, any existing material default by any other party under any of
the Lease Agreements or any event of material default or event which with notice
or lapse of time, or both, would constitute a material default by any such
party. To the knowledge of Seller and Target Entity, there is no pending or
threatened reassessment of any property covered by the Lease Agreements. To the
extent necessary to accomplish the intent of the Agreement, Target Entity or any
Partnership Subsidiary shall use reasonable good faith efforts, and Seller shall
use reasonable good faith efforts to cause Target Entity, to obtain prior to the
Closing Date the consent of each landlord or lessor whose consent is required to
the assignment of the Lease Agreements and will use reasonable good faith
efforts to deliver to APP in writing such consents as are necessary to effect a
valid and binding transfer or assignment of Target Entity's or any Partnership
Subsidiary's rights thereunder. Target Entity has a good, clear, valid and
enforceable leasehold interest under each of the Lease Agreements. The Lease
Agreements comply with the exceptions to ownership interests and compensation
arrangements set out in 42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952,
and any similar applicable state law safe harbor or other exemption provisions.
Section 3.14 Real and Personal Property.
(a) Neither Target Entity nor each Partnership Subsidiary owns
any interest (other than the Lease Agreements) in real property.
(b) Target Entity and each Partnership Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein which it purports to own;
and (ii) owns such rights, interests, assets and property free and clear of all
Encumbrances, title defects or objections (except for taxes not yet due and
payable). The personal property presently used in connection with the operation
of the business of Target Entity and each Partnership Subsidiary constitutes the
necessary personal property assets to continue operation of Target Entity and
each Partnership Subsidiary.
Section 3.15 Indebtedness for Borrowed Money. Except for trade payables
incurred in the ordinary course of business, Target Entity does not have any
direct or indirect indebtedness for borrowed money, including indebtedness by
way of lease-purchase arrangements or guarantees, and is not obligated in any
manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.
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Section 3.16 Contracts and Commitments.
(a) The Disclosure Schedules contain a true, accurate and
complete list, and Target Entity has delivered to APP true and complete copies,
of each contract, agreement and other instrument requiring Target Entity to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.22 or Lease Agreements
identified in Section 3.13) to which Target Entity is a party or by which it or
any of its properties or assets are bound including, without limitation, (i) all
agreements between Target Entity, on the one hand, and any government entity,
provider, hospital, health maintenance organization, other managed care
organization or other third-party provider, on the other hand, then in effect
relating to the provision of medical, diagnostic imaging or consulting services,
treatments, patient referrals or other similar activities, (ii) all indentures,
mortgages, notes, loan or credit agreements and other agreements and obligations
relating to the borrowing of money or to the direct or indirect guarantee or
assumption of obligations of third parties requiring Target Entity to make, or
setting forth conditions under which Target Entity would be required to make,
aggregate future payments in excess of $10,000 in any fiscal year or $25,000 in
the aggregate, (iii) all agreements for capital improvements or acquisitions
involving an amount of $75,000 in any fiscal year or $75,000 in the aggregate,
(iv) all agreements containing a covenant limiting the freedom of Target Entity
(or any provider employee of Target Entity) to compete in any line of business
with any person or entity or in any geographic area or (v) all written contracts
and commitments providing for future payments by Target Entity in excess of
$10,000 in any fiscal year or $25,000 in the aggregate and that are not
cancelable by providing notice of sixty (60) days or less. All such contracts,
agreements or other instruments are in full force and effect, there has been no
threatened cancellation thereof, there are no outstanding disputes thereunder,
each is with unrelated third parties and was entered into on an arms-length
basis in the ordinary course of business and, assuming the receipt of the
appropriate consents, all will continue to be binding in accordance with their
terms after consummation of the transaction contemplated herein; there are no
contracts, agreements or other instruments to which Target Entity is a party or
is bound (other than physician employment contracts and insurance policies)
which could either singularly or in the aggregate have a Material Adverse Effect
on the value to APP of the assets and properties to be acquired by APP from
Target Entity, or which could inhibit or prevent Target Entity from transferring
to or vesting in APP good and sufficient title to the assets and properties to
be acquired by APP except where the failure to transfer would not have a
Material Adverse Effect on APP. In every instance where consent is necessary, on
or before the Closing Date Target Entity shall use reasonable good faith
efforts, and Seller shall use reasonable good faith efforts to cause Target
Entity, to obtain and deliver to APP in writing, effective as of the Closing
Date, such consents as are necessary to enable APP to enjoy all of the rights
now enjoyed by Target Entity under such contracts. Any and all such consents
shall be in a form reasonably acceptable to APP and shall contain an
acknowledgment by the consenting party that Target Entity has fully complied
with and is not in default under any provision of the particular contract or
agreement.
(b) (i) Neither Target Entity nor Seller has received notice of
any plan or intention of any other party to exercise any right to cancel or
terminate any contract, agreement or instrument, and to the knowledge of Target
Entity and Seller there are no facts that would justify the exercise of such a
right; and (ii) neither Target Entity nor Seller currently contemplates, or has
reason to believe any other Person currently contemplates, any amendment or
change to any such contract, agreement or instrument.
Section 3.17 Employee Matters. Target Entity does not have employees and
is not currently a party to any employment contract (except for oral employment
agreements which are terminable at will), consulting or collective bargaining
contracts, deferred compensation, pension plan (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended, and all rules
and regulations from time to time promulgated thereunder ("ERISA")), profit
sharing, bonus or other
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nonqualified benefit or compensation commitments, benefit plans, arrangements or
plans (whether written or oral), including all welfare plans (as defined in
Section 3(1) of ERISA) of or pertaining to Target Entity and any of its present
or former employees, or any predecessors in interest.
Section 3.18 Labor Relations. Intentionally omitted.
Section 3.19 Employee Benefit Plans. Intentionally omitted.
Section 3.20 Environmental Matters.
(a) Neither Target Entity nor any Partnership Subsidiary has,
within the five (5) years preceding the date hereof, through the Closing Date,
received from any federal, state or local governmental body, agency, authority
or entity, or any other Person, any written notice, demand, citation, summons,
complaint or order or any notice of any penalty, lien or assessment, and to the
knowledge of Seller and Target Entity no investigation or review is pending by
any governmental entity, with respect to any (i) alleged violation by Target
Entity of any Environmental Law (as defined in subsection (e) below) (ii)
alleged failure by Target Entity to have any environmental permit, certificate,
license, approval, registration or authorization required pursuant to any
Environmental Law in connection with the conduct of its business; or (iii)
alleged illegal Regulated Activity (as defined in subsection (e) below) by
Target Entity.
(b) Neither Target Entity nor any Partnership Subsidiary has
used, transported, disposed of or arranged for the disposal of (as those terms
are defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance that would be reasonably
likely to give rise to any Environmental Liabilities for Target Entity under any
applicable Environmental Law that had, or would reasonably be likely to have, a
Material Adverse Effect on Target Entity. Neither Target Entity nor any
Partnership Subsidiary has engaged in any activity or failed to undertake any
activity which action or failure to act has given, or would reasonably be likely
to give, rise to any Environmental Liabilities or enforcement action by any
federal, state or local regulatory agency or authority, or has resulted, or
would reasonably be likely to result, in any fine or penalty imposed pursuant to
any Environmental Law. The Disclosure Schedules disclose any known presence of
asbestos in or on Target Entity's or any Partnership Subsidiary's owned or
leased premises. To the knowledge of Seller and Target Entity, there is no
friable asbestos in or on Target Entity's or any Partnership Subsidiary's owned
or leased premises.
(c) To the knowledge of Seller and Target Entity, no soil or
water in or under any assets currently or formerly held for use or sale by
Target Entity or any Partnership Subsidiary is or has been contaminated by any
Hazardous Substance while such assets or premises were owned, leased, operated
or managed, directly or indirectly by Target Entity or any Partnership
Subsidiary, where such contamination had, or would be reasonably likely to have,
a Material Adverse Effect on Target Entity.
(d) There have been no environmental audits and other similar
reports which have been prepared by, for or, to the knowledge of Seller and
Target Entity, concerning Target Entity or any Partnership Subsidiary within the
five (5) years preceding the date hereof through the Closing Date with respect
to any real property now or previously owned or leased by Target Entity, any
Partnership Subsidiary or any of its predecessors, true and complete copies of
which have been provided to APP.
(e) For the purposes of this Section 3.20(e), the following terms
have the following meanings:
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"Environmental Laws" shall mean any federal, state or local laws,
ordinances, codes, regulations, rules, policies and orders (including
without limitation, Medical Waste Laws) that are intended to assure the
protection of the environment, or that classify, regulate, call for the
remediation of, require reporting with respect to, or list or define
air, water, groundwater, solid waste, hazardous, toxic, or radioactive
substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons,
including the public in each case as in effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Closing Date.
"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any pollutant
or contaminant, or infectious or radioactive substance or material,
including without limitation, those substances, materials and wastes
defined in or regulated under any Environmental Laws.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any Hazardous
Substances.
Section 3.21 Filing Reports. All returns, reports, plans and filings of
any kind or nature necessary to be filed by Target Entity with any governmental
agency or authority have been properly completed and timely filed in compliance
with all applicable requirements, except where failure to so file would not have
a Material Adverse Effect on Target Entity.
Section 3.22 Insurance Policies. The Disclosure Schedules list and
briefly describe Target Entity's policies of insurance to which Target Entity or
any Partnership Subsidiary is a party or under which Target Entity or any
Partnership Subsidiary, officer or director thereof is or has been covered at
any time during the last five (5) years preceding the date of this Agreement
relating to the business of Target Entity or any Partnership Subsidiary (the
"Insurance Policies"). All of the Insurance Policies are valid, outstanding and
enforceable policies, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies and all premiums with respect thereto which
are due and payable are currently paid. All Insurance Policies currently
maintained by Target Entity or any Partnership Subsidiary ("Current Policies")
taken together, (i) provide adequate insurance coverage for the assets,
properties and operations of Target Entity and its Affiliates for all risks
normally insured against by a Person carrying on a substantially similar
business or businesses as Target Entity and its Affiliates, (ii) are sufficient
for compliance with legal and contractual requirements to which Target Entity or
any of its Affiliates is a party or by which any of them may be bound, and (iii)
shall be maintained in force (including the payment of all premiums and
compliance with their terms) without interruption up to and including the
Closing Date. True, complete and correct copies of all Insurance Policies have
been provided to APP. Neither Target Entity nor any Partnership Subsidiary nor
any officer or partner thereof has received any notice or other written
communication from any issuer of any Current Policy cancelling such policy,
materially increasing any deductibles or retained amounts thereunder, or
materially increasing the annual or other premiums payable thereunder and, to
the knowledge of Seller and Target Entity, no such cancellation or increase of
deductibles, retainages or premiums is threatened. There are no outstanding
claims, settlements or premiums owed against any Insurance Policy, and all
required notices have been given and all known potential or actual claims under
any Insurance Policy have been presented in due and timely fashion. Within the
five (5) years preceding the Agreement, neither Target Entity nor any
Partnership Subsidiary
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has filed a written application for any professional liability insurance
coverage which has been denied by an insurance agency or carrier. The Disclosure
Schedules also set forth a list of all claims under any Insurance Policy in
excess of $10,000 per occurrence filed by Target Entity or any Partnership
Subsidiary during the immediately preceding three-year period.
Section 3.23 Accounts Receivable. The Disclosure Schedules set forth a
list and aging of all accounts receivable of Target Entity as of [ ], which list
is complete, true and accurate in all material respects. All such accounts
receivable arose in the ordinary course of business and have not been previously
written off as bad debts and, are, to the extent still uncollected, to the
knowledge of Seller and Target Entity collectible in the ordinary course of
business, net of reserves for doubtful and uncollectible accounts shown on the
accounting records of Target Entity (which reserves are adequate and calculated
consistent with past practice).
Section 3.24 Accounts Payable; Suppliers.
(a) The Disclosure Schedules set forth a true and complete (i)
list of the accounts payable of Target Entity as of [ ], and (ii) list of each
individual indebtedness owned by Target Entity of $5,000 or more, setting forth
the payee and the amount of indebtedness.
(b) The Disclosure Schedules set forth a true, correct and
complete list of the names and addresses of each of the providers/suppliers of
products or services to Target Entity (including, without limitation all
providers of care to patients) which accounted for a dollar volume of purchases
paid for by Target Entity in excess of $25,000 for the fiscal year ended
[December 31, 1996], or which is reasonably expected to account for a dollar
volume of purchases paid for by Target Entity in excess of $25,000 for the
fiscal year to end [December 31, 1997].
Section 3.25 Inventory. All items of inventory on hand on the date of
this Agreement consist, and all such items on hand on the Closing Date will
consist, net of all applicable reserves with respect thereto (calculated
consistent with past practice), of items of a quality and a quantity usable and
saleable in the ordinary course of Target Entity's business and conform to
generally accepted standards in the industry of which Target Entity is a part.
Purchase commitments of Target Entity for inventory are not materially in excess
of normal requirements, and none of such purchase commitments are at prices in
excess of prevailing market prices at the time of such purchase commitment.
Section 3.26 Licenses, Authorization and Provider Programs.
(a) Target Entity and each other licensed employee or contractor
of Target Entity (i) is the holder of all valid licenses, approvals, orders,
consents, permits, registrations, qualifications and other rights and
authorizations required by law, ordinance, regulation or ruling of any
governmental regulatory authority necessary to operate his/her/its business and
(ii) is eligible to participate in and to receive reimbursement under Titles
XVIII and XIX of the Social Security Act (the "Medicare and Medicaid Programs")
and any other programs funded in whole or in part by federal, state or local
entities for which Target Entity is eligible ("Governmental Programs"). Each of
Target Entity and Seller has a current provider number for such Governmental
Programs and with such private non-governmental programs (including without
limitation any private insurance program) under which Target Entity is presently
receiving payments directly or indirectly from any Payor for technical imaging
services provided by any licensed technician or contractor of Target Entity
(such non-governmental programs herein referred to as "Private Programs"). A
true, correct and complete list of such licenses, permits and other
authorizations (including, but not limited to verification of Medicare and
Medicaid provider numbers and participating physician contracts under 1842(h) of
the Social Security Act) and provider
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agreements is set forth in the Disclosure Schedules, true, complete and correct
copies of which have been provided to APP. No violation, default, order or
deficiency exists with respect to any of the items listed in the Disclosure
Schedules except for such violations, defaults, orders or deficiencies which
would not be reasonably likely to have a Material Adverse Effect on Target
Entity, and there is no action pending or to the knowledge of Seller and Target
Entity recommended by any state or federal agencies having jurisdiction over the
items listed in the Disclosure Schedules, either to revoke, withdraw or suspend
any material license or to terminate the participation of Target Entity in any
Governmental Program or Private Program, and no event has occurred which, with
or without notice or lapse of time, or both, would constitute grounds for a
violation, order or deficiency with respect to any of the items listed in the
Disclosure Schedules to revoke, withdraw or suspend any material license to
operate its business as is presently being conducted by it. To the knowledge of
Seller and Target Entity, there has been no decision not to renew any existing
agreement with any provider or Payor relating to Target Entity's business as
presently being conducted by it. Target Entity (i) has not had its professional
license, Drug Enforcement Agency number, Medicare/Medicaid provider status or
staff privileges at any hospital or diagnostic imaging center suspended,
relinquished, terminated or revoked (including orders that have been entered by
any such entities but stayed), (ii) has not been reprimanded in writing,
sentenced, or disciplined by any licensing board, state agency, regulatory body
or authority, hospital, Payor or specialty board (including orders that have
been entered by any such entities but stayed), (iii) is not the subject of an
initial or final determination by any federal or state authority that could
result in any demand or reimbursement under the Medicare, Medicaid or Government
Programs or any exclusion or which monetary penalty under federal or state law
or (iv) has had a final judgment or settlement entered against it in connection
with a malpractice or similar action.
(b) Target Entity is not required, or for the 72-month period
prior to the Closing Date was not required, to file any cost reports or other
reports with any Governmental Program or Private Program.
Section 3.27 Inspections and Investigations. Neither the right of Target
Entity, nor the right of any licensed professional or other individual
affiliated with Target Entity to receive reimbursements pursuant to any
Governmental Program or Private Program has been terminated or otherwise
materially and adversely affected as a result of any investigation or action
whether by any federal or state governmental regulatory authority or other third
party. No licensed professional or other individual affiliated with the business
has, during the past three (3) years prior to the Closing Date, had their
professional license or staff privileges limited, suspended or revoked by any
governmental regulatory authority or agency, hospital, integrated delivery
system, trade association, professional review organization, accrediting
organization or certifying agency (including orders that have been entered by
any such entities but stayed). True, correct and complete copies of all reports,
correspondence, notices and other documents relating to any matter described or
referenced in this Section 3.27 have been provided to APP.
Section 3.28 Proprietary Rights and Information.
(a) Set forth in the Disclosure Schedules is a complete and
accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by Target Entity or any
Partnership Subsidiary, (ii) all patents and applications therefor and
inventions and discoveries that may be patentable currently owned, in whole or
in part, or used by Target Entity or any Partnership Subsidiary, (iii) all
licenses, royalties, and assignments thereof to which Target Entity or any
Partnership Subsidiary are a party (iv) all copyrights (for published and
unpublished works) currently owned in whole or part, or used by Target Entity or
any
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Partnership Subsidiary and (v) other similar agreements relating to the
foregoing to which Target Entity or any Partnership Subsidiary is a party
(including expiration date if applicable) (collectively, the "Proprietary
Rights").
(b) The Disclosure Schedules contain a complete and accurate list
and summary description of all agreements relating to technology, trade secrets,
know-how or processes that Target Entity is licensed or authorized to use by
others (other than technology, know-how or processes generally available to
other health care providers) or which it licenses or authorizes others to use,
true, correct and complete copies of which have been provided to APP. There are
no outstanding and, to the knowledge of Seller and Target Entity, any threatened
disputes or disagreements with respect to any such agreement.
(c) Target Entity owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. To the knowledge of Seller and
Target Entity, no claim has been asserted by any person to the ownership of or
for infringement by Target Entity of any Proprietary Right of any other Person,
and neither Target Entity nor Seller is aware of any valid basis for any such
claim. To the best knowledge of Seller and Target Entity, no proceedings have
been threatened which challenge the Proprietary Rights of Target Entity. Target
Entity has the right to use, free and clear of any adverse claims or rights of
others, all trade secrets, customer lists and proprietary information required
for the performance and marketing of all medical services.
Section 3.29 Taxes.
(a) Filing of Tax Returns. Target Entity has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of Target Entity for the periods covered thereby.
(b) All Withholding Requirements Satisfied. All monies required
to be withheld by Target Entity and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
(c) Safe Harbor Lease. None of the properties or assets of Target
Entity constitutes property that Target Entity, APP, or any Affiliate of APP,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the
Tax Equity and Fiscal Responsibility Act of 1982.
(d) Tax Exempt Entity. None of the assets or properties of Target
Entity are subject to a lease to a "tax exempt entity" as such term is defined
in Section 168(h)(2) of the Code.
(e) Boycotts. Target Entity has not at any time participated in
or cooperated with any international boycott as defined in Section 999 of the
Code.
Section 3.30 Related Party Arrangements. The Disclosure Schedules set
forth a description of any interest held, directly or indirectly, by any
officer, partner or other Affiliate of Target Entity in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to Target
Entity's
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business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to Target Entity's
business. There is no commitment to, and no income that has been derived from,
an Affiliate, and following the Closing Target Entity shall not have any
obligation of any kind or designation to any such Affiliate.
Section 3.31 Banking Relations. Set forth in the Disclosure Schedules is
a complete and accurate list of all borrowing and investing arrangements that
Target Entity has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the Person
or Persons authorized in respect thereof.
Section 3.32 Fraud and Abuse and Self Referral. Neither Target Entity
nor any Partnership Subsidiary has engaged and, to the knowledge of Seller and
Target Entity, neither Target Entity's officers and partners nor other Persons
and entities providing professional services for or on behalf of Target Entity
have engaged, in any activities which are prohibited under 42 U.S.C. Sections
1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn (subject to the exceptions or safe
harbor provisions set forth in such legislation), or the regulations promulgated
thereunder or pursuant to similar state or local statutes or regulations, or
which are prohibited by applicable rules of professional conduct or 18 U.S.C.
Sections 24, 287, 371, 664, 669, 1001, 1027, 1035, 1341, 1343, 1347, 1518, 1954,
1956(c)(7)(F) and 3486.
Section 3.33 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon Target Entity, any
Partnership Subsidiary or officer, partner or key employee of Target Entity or
Partnership Subsidiary, which has or reasonably could be expected to have the
effect of prohibiting or materially impairing any acquisition of property by
Target Entity or any Partnership Subsidiary or the conduct of business by Target
Entity or any Partnership Subsidiary.
Section 3.34 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of Seller and Target Entity,
threatened bankruptcy, insolvency or similar proceeding with respect to any
other party to such agreements, and no event has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default thereunder by Target Entity or any other party
thereto.
Section 3.35 Statements True and Correct. No representation or warranty
made herein by Target Entity or Seller, nor any statement, certificate,
information, exhibit or instrument to be furnished by Target Entity or Seller to
APP or any of its representatives pursuant to this Agreement, contains or will
contain as of the Closing Date any untrue statement of material fact or omits or
will omit to state a material fact necessary to make the statements contained
herein and therein not misleading.
Section 3.36 Schedules. The Disclosure Schedules required by Article III
hereof and attached hereto are true, correct and complete in all material
respects as of the date of this Agreement.
Section 3.37 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of
Seller or Target Entity who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or referred to
herein.
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ARTICLE IV
Representations and Warranties of APP
As inducement to each Seller and Target Entity to enter into this
Agreement, APP represents and warrants to each Seller and Target Entity both as
of the date hereof and as of the Closing Date as set forth below, subject to
those exceptions set forth in the Disclosure Schedules attached hereto and
incorporated herein by this reference, specifically identifying the relevant
subparagraphs hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder.
Section 4.1 Organization and Good Standing; Qualification. APP is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with all requisite corporate power and authority to
own, operate and lease its assets and properties and to carry on its business as
currently conducted. APP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in good
standing would not have a Material Adverse Effect on APP. Copies of the
certificate of incorporation and all amendments thereto of APP and the bylaws of
APP, as amended, and copies of the corporate minutes of APP regarding the
transactions contemplated hereby, all of which have been or will be made
available to Sellers and Target Entity for review, are true, correct and
complete as in effect on the date of this Agreement and accurately reflect all
material proceedings of the stockholders and directors of APP (and all
committees thereof) regarding the transactions contemplated hereby. The stock
record books of APP, which have been or will be made available to Sellers and
Target Entity for review, contain true, complete and accurate records of the
stock ownership of APP and the transfer of the shares of its capital stock.
Section 4.2 Authorization and Validity. APP has all requisite corporate
power to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by APP of this
Agreement, the agreements provided for herein and the Other Agreements, and the
consummation by APP of the transactions contemplated hereby and thereby are
within APP's corporate powers and have been duly authorized by all necessary
action on the part of APP's Board of Directors. This Agreement and the Other
Agreements have been duly executed by APP. This Agreement and all other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which APP is a party constitute, or upon
execution will constitute, valid and binding agreements of APP, enforceable
against it in accordance with their respective terms, except as may be limited
by bankruptcy or other laws affecting creditors' rights generally, or by general
equity principles, or by public policy.
Section 4.3 Governmental Authorization. Other than consents, filings or
notifications required to be made or obtained solely by Target Entity, the
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, and the consummation of the transactions contemplated
hereby and thereby by APP requires no action by or in respect of, or filing
with, any governmental body, agency, official or authority.
Section 4.4 Capitalization. The authorized capital stock of APP consists
of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares are issued
and outstanding and 10,000,000 shares of APP Preferred Stock, none of which are
outstanding. Each outstanding share of APP Common Stock has been legally and
validly issued and is fully paid and nonassessable, and was issued pursuant to a
valid exemption from registration under (i) the Securities Act, and (ii) all
applicable state securities laws. No shares of capital stock are owned by APP in
treasury. No shares of capital stock of APP have been
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issued or disposed of in violation of the preemptive rights, rights of first
refusal or similar rights of any stockholders of APP. APP has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of APP on any matter. There exist no options,
warrants, subscriptions, calls, commitments or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of APP and no option, warrant, subscription, call, or
commitment or commission right of any kind exists which obligates APP to issue
any of its authorized but unissued capital stock. APP has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof.
Section 4.5 Subsidiaries and Investments. APP does not own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity (the "APP Subsidiaries").
Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does not require the consent of any governmental or
regulatory body or authority or any other third party except for such consents,
for which the failure to obtain would not result in a Material Adverse Effect on
APP; (ii) will not conflict with any provision of APP's Certificate of
Incorporation or Bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP or its properties are subject or bound; (iv) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, breach or default, the occurrence of which would not
result in a Material Adverse Effect on APP; and (v) will not create any
Encumbrance or restriction upon APP Common Stock or any of the assets or
properties of APP. The financial statements of APP contained in the Registration
Statements (a) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto), (b) present fairly the financial position of APP and
APP Subsidiaries as of the dates indicated and present fairly the results of
APP's and APP Subsidiaries' operations for the periods then ended, and (c) are
in accordance with the books and records of APP and APP Subsidiaries, which have
been properly maintained and are complete and correct in all material respects.
Section 4.7 Absence of Changes. Except as permitted or contemplated by
this Agreement, since March 31, 1997, there has not been (i) any change in the
working capital, condition (financial or otherwise), assets, liabilities,
reserves, business or operations of APP that has had or is reasonably likely to
have a Material Adverse Effect on APP; or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the APP Common Stock.
Section 4.8 No Undisclosed Liabilities. Except as set forth in the Form
S-4 or reflected or reserved for in the financial statements included therein,
APP does not have any material liability or obligation accrued, contingent or
otherwise, that is reasonably likely to have a Material Adverse Effect on APP.
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Section 4.9 Litigation and Claims. There are no claims, lawsuits,
actions, arbitrations, administrative or other proceedings, governmental
investigations or inquiries pending or, to the knowledge of APP, threatened
against, or affecting APP. There are no unsatisfied judgments against APP or any
consent decrees to which APP is subject. Each of the matters, if any, set forth
in the Disclosure Schedules are fully covered by policies of insurance of APP as
in effect on that date.
Section 4.10 No Violation of Law. APP has not been, nor shall be as of
the Closing Date (by virtue of any action, omission to act, contract to which it
is a party or any occurrence or state of facts whatsoever), in violation of any
applicable local, state or federal law, ordinance, regulation, order, injunction
or decree, or any other requirement of any governmental body, agency or
authority or court binding on it, or relating to its property or business or its
advertising, sales or pricing practices, except for violations which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on APP.
Section 4.11 Employee Matters. Except as set forth in the Form S-4, APP
does not have any material arrangements, agreements or plans with any person
with respect to the employment by APP of such person or whereby such person is
to serve as an officer or director of APP.
Section 4.12 Taxes.
(a) Filing of Tax Returns. APP has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.
(b) Payment of Taxes. Except for such items as APP may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due and (ii) APP is not delinquent in
the payment of any tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. APP has not received any notice that any tax deficiency or delinquency
has been asserted against APP. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of APP that could be asserted by any taxing authority. There is no taxing
authority audit of APP pending, or to the knowledge of APP, threatened, and the
results of any completed audits are properly reflected in the financial
statements of APP. APP has not violated any federal, state, local or foreign tax
law.
(d) No Extension of Limitation Period. APP has not granted an
extension to any taxing authority of the limitation period during which any tax
liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required
to be withheld by APP and paid to governmental agencies for all income, social
security, unemployment insurance, sales, excise, use, and other taxes have been
collected or withheld and paid to the respective governmental agencies.
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(f) Foreign Person. Neither APP nor any holders of APP Common
Stock is a foreign person, as such term is referred to in Section 1445(f)(3) of
the Code.
(g) Tax Exempt Entity. None of the assets of APP are subject to a
lease to a "tax exempt entity" as such term is defined in Section 168(h)(2) of
the Code.
(h) Collapsible Corporation. APP has not at any time consented,
and the holders of APP Common Stock will not permit APP to elect, to have the
provisions of Section 341(f)(2) of the Code apply to it.
(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the Code.
(j) Parachute Payments. No payment required or contemplated to be
made by APP will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
(k) S Corporation. APP has not made an election to be taxed as an
"S" corporation under Section 1362(a) of the Code.
(l) Personal Holding Companies. APP is not or has not been a
personal holding company within the meaning of Section 542 of the Code.
Section 4.13 Related Party Arrangements. The Disclosure Schedules or
Form S-4 sets forth a description of any interest held, directly or indirectly,
by any officer, director or other Affiliate of APP in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to APP's
business and any arrangement or agreement with any such person concerning the
provision of goods or services or other matters pertaining to APP's business.
Section 4.14 Statements True and Correct. No representation or warranty
made herein by APP, nor any statement, certificate, information, exhibit or
instrument to be furnished by APP to a Seller or Target Entity pursuant to this
Agreement, contains or will contain as of the Closing Date any untrue statement
of material fact or omits or will omit to state a material fact necessary to
make the statements contained herein and therein not misleading.
Section 4.15 Schedules. All Disclosure Schedules required by Article IV
hereof and attached hereto are true, correct and complete in all material
respects as of the date of this Agreement.
Section 4.16 Finder's Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on behalf of APP
who is entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
ARTICLE V
Covenants of Seller and Target Entity
Each of Seller and Target Entity makes the covenants and agreements as
set forth in this Article V, which shall apply with respect to the period from
the date hereof to the Closing Date and, to the extent contemplated herein,
thereafter and agree that:
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Section 5.1 Required Conduct of Seller and Target Entity. From the date
hereof until the Closing Date, Target Entity shall, and Seller shall use
his/her/its best efforts to cause Target Entity to, in all material respects,
conduct the business of Target Entity in the ordinary and usual course
consistent with past practices and shall use reasonable efforts to:
(a) preserve intact Target Entity's business and its
relationships with referral sources, customers, suppliers, patients, employees
and others having business relations with it;
(b) maintain and keep Target Entity's properties and assets in
good repair and condition consistent with past practice as is material to the
conduct of the business of Target Entity;
(c) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof.
Section 5.2 Prohibited Conduct of Seller and Target Entity. Without the
written consent of APP, Target Entity shall not, and Seller shall use
his/her/its best efforts to cause Target Entity not to:
(a) amend Target Entity's Certificate of [Limited] Partnership or
Partnership Agreement or other charter documents;
(b) issue, sell or authorize for issuance or sale, any
partnership interests of Target Entity (except for the General Partner
Acquisition) or any subscriptions, options, warrants, rights or convertible
securities, or enter into any agreements or commitments of any character
obligating it to issue or sell any such interests;
(c) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or any option, warrant or other
right to purchase or acquire any such shares;
(d) declare or pay any dividend or other distribution (whether in
cash, stock or other property) with respect to its partnership interest (except
as expressly contemplated herein);
(e) voluntarily sell, transfer, surrender, abandon or dispose of
any of Target Entity's assets or property rights (tangible or intangible) other
than the sale of inventory, if any, in the ordinary course of business
consistent with past practices;
(f) grant or make any mortgage or pledge or subject Target Entity
or any of Target Entity's properties or assets to any lien, charge or
encumbrance of any kind, except liens for taxes not currently due and except for
liens which arise by operation of law;
(g) voluntarily incur or assume any liability or indebtedness
(contingent or otherwise), except in the ordinary course of business or which is
reasonably necessary for the conduct of Target Entity's business;
(h) make or commit to make any capital expenditures which are not
reasonably necessary for the conduct of Target Entity's business;
(i) grant any increase in the compensation payable or to become
payable to partners, officers, consultants or employees other than merit
increases to employees of Target Entity who are not partners or officers of
Target Entity, except in the ordinary course of business and consistent with
past practices;
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(j) change in any manner any accounting principles or methods
other than changes which are consistent with generally accepted accounting
principles;
(k) enter into any material commitment or transaction other than
in the ordinary course of business;
(l) take any action which could reasonably be expected to have a
Material Adverse Effect on Target Entity;
(m) apply any of its assets to the direct or indirect payment,
discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any Affiliate of Target Entity, other than
in the ordinary course and consistent with past practices;
(n) agree, whether in writing or otherwise, to do any of the
foregoing; and
(o) take any action to in any way amend, revise or otherwise
affect Target Entity's prior approval and effectiveness of this Agreement or any
of the agreements attached as exhibits hereto, other than as required to
discharge their fiduciary duties.
Section 5.3 Title to Assets; Indebtedness. As of the Closing Date,
Target Entity shall (i) except for sales of assets held as inventory, if any, in
the ordinary course of business prior to the Closing Date and except as
otherwise specifically described in the Schedules to this Agreement, have good
and valid title to all of its assets free and clear of all Encumbrances of any
nature whatsoever, except for current year ad valorem taxes and liens which
arise by operation of law, and (ii) have no direct or indirect indebtedness
except for indebtedness disclosed in the Disclosure Schedules hereto or for
normal and recurring accrued obligations of Target Entity arising in connection
with its business operations in the ordinary course of business and which arise
from the purchase of merchandise, supplies, inventory and services used in
connection with the provision of services.
Section 5.4 Access. At all times prior to the Closing Date, APP's
employees, attorneys, accountants, agents and other authorized and designated
representatives will be allowed full access upon reasonable prior notice and
during regular business hours (and at such other times as the parties may
reasonably agree) to the properties, books and records of Target Entity,
including, without limitation, deeds, title documents, leases, patient lists,
insurance policies, minute books, Partnership Unit registers, accounts, tax
returns, financial statements and all other data that, in the reasonable opinion
of APP, are required for APP to make such investigation as it may desire of the
properties and business of Target Entity. APP shall also be allowed full access
upon reasonable prior notice and during regular business hours (and at such
other times as the parties may reasonably agree) to consult with the officers,
employees (after announcement by Target Entity or Seller of the Exchange to the
employees of Target Entity which shall occur no later than three (3) days
subsequent to execution hereof by Target Entity), accountants, counsel and
agents of Target Entity in connection with such investigation of the properties
and business of Target Entity. No investigation by APP shall diminish or
otherwise affect any of the representations, warranties, covenants or agreements
of Target Entity under this Agreement. Any access or investigation referred to
in this Section 5.4 shall be conducted in such a manner as to minimize the
disruption to Target Entity's ongoing business operations.
Section 5.5 Acquisition Proposals. Except for the General Partner
Acquisition, Seller shall not, and shall use his/her/its best efforts to cause
Target Entity not to, and Target Entity shall not, and shall cause each of its
partners, officers, employees or agents not to, directly or indirectly:
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<PAGE> 1684
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or a substantial portion of the business, properties or partnership interests of
Target Entity, whether by merger, consolidation, share exchange, business
combination, purchase of assets or otherwise; or
(b) except as required by law or pursuant to subpoena or court
order, disclose to any Person, other than APP or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of Target Entity, or, without APP's prior written approval, afford
to any Person other than APP and its agents access to the properties, books or
records of Target Entity. If Target Entity receives any offer or proposal after
the date hereof, written or otherwise, of the type referred to above, Target
Entity shall promptly inform APP of such offer or proposal, decline such offer
and furnish APP with a copy thereof if such offer or proposal is in writing.
Section 5.6 Compliance With Obligations. Prior to the Closing Date,
Target Entity shall, and Seller shall use his/her/its best efforts to cause
Target Entity to, comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all material
agreements and obligations, including its Partnership Agreement, by which it or
its properties or its assets (real, personal or mixed, tangible or intangible)
may be bound; and (iii) all decrees, orders, writs, injunctions, judgments,
statutes, rules and regulations applicable to Target Entity, and its respective
properties or assets.
Section 5.7 Notice of Certain Events. Each of Seller and Target Entity
shall, and Seller shall use his/her/its best efforts to cause Target Entity to,
promptly notify APP of:
(a) any notice or other communication from any Person or entity
alleging that the consent of such Person or entity is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any employment of any new non-hourly employee by Target
Entity who is expected to receive annualized compensation of at least $50,000 in
1997;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of Target
Entity;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(e) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
Target Entity which, if pending on the date of this Agreement, would have been
required to have been disclosed to APP hereunder or which relate to the
consummation of the transactions contemplated by this Agreement;
(f) any material adverse change in the operation of Target
Entity, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in Medicare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and
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(g) any notice or other communication indicating a material
deterioration in the relationship with any Payor or supplier or key employee of
Target Entity and, if requested by APP, will exert its reasonable best efforts
to restore the relationship.
Section 5.8 Partners' Consent. Seller hereby consents to this Agreement
and the transactions contemplated hereby, including, without limitation, the
Exchange, on the terms and conditions set forth herein and in the agreements and
documents contemplated hereby, and hereby waives all other rights of first
offer, rights of first refusal and similar rights that Seller may have with
respect to a transfer of Partnership Units by him/her/it or any other Seller.
Section 5.9 Obligations of Seller and Target Entity. Subject to Section
5.8 hereof, each of Seller and Target Entity shall, and Seller shall use
his/her/its best efforts to cause Target Entity to, perform its obligations
under this Agreement and all related agreements, and each of Seller and Target
Entity shall, and Seller shall use his/her/its best efforts to cause Target
Entity to, consummate the transactions contemplated hereby and thereby on the
terms and conditions set forth in this Agreement and such agreements.
Section 5.10 Intentionally omitted.
Section 5.11 Accounting and Tax Matters. Target Entity will not, and
Seller shall use his/her/its best efforts to cause Target Entity not to, change
in any material respect the accounting methods or practices followed by Target
Entity (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. Target Entity will
not, and Seller shall use his/her/its best efforts to cause Target Entity not
to, make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment or consent to any tax
claim or assessment or any waiver of the statute of limitations for any such
claim or assessment. Target Entity will, and Seller shall use his/her/its best
efforts to cause Target Entity to, duly, accurately and timely (without regard
to any extensions of time) file all returns, information statements and other
documents relating to taxes of Target Entity required to be filed by it, and
Target Entity shall, and Seller shall use his/her/its best efforts to cause
Target Entity to, pay all taxes required to be paid by Target Entity, on or
before the Closing Date.
Section 5.12 Lock-Up Provisions. Seller irrevocably agrees that
he/she/it will not, directly or indirectly, sell, offer, contract for sale, make
any short sale, pledge or otherwise transfer or dispose of any of the APP Common
Stock without the prior written consent of APP (which consent may be
unreasonably withheld in APP's absolute and sole discretion) during the two-year
period commencing on the Effective Date. Notwithstanding the preceding, the
restrictions contained in the prior sentence shall no longer apply (i) as to
twenty-five percent (25%) of the Shares of APP Common Stock received by a Seller
pursuant to the Exchange following expiration of a one-year period following the
Effective Date, (ii) as to an additional twenty-five percent (25%) of the Shares
of APP Common Stock received by a Seller pursuant to the Exchange following
expiration of an eighteen-month period following the Effective Date, and (iii)
as to the remaining fifty percent (50%) of the Shares of APP Common Stock
received by Seller pursuant to the Exchange following expiration of a
twenty-four-month period following the Effective Date. Seller understands and
acknowledges that the restrictions contained in this Section 5.12 (the "Lock-Up
Provisions") are irrevocable and shall be binding upon Seller's heirs, legal
representatives, successors and assigns.
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ARTICLE VI
Covenants of APP
APP agrees that between the date hereof and the Closing:
Section 6.1 Consummation of Agreement. APP will take all action
reasonably necessary to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other action necessary to approve the Exchange; provided, however, that this
covenant shall not require APP to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
Section 6.2 Access. APP shall, at reasonable times during normal
business hours and on reasonable notice, permit Target Entity and its authorized
representatives reasonable access to, and make available for inspection, all of
the assets and business of APP, including its executive officers, and permit
Target Entity and its authorized representatives to inspect and, at Target
Entity's sole expense, make copies of all documents, records and information
with respect to the affairs of APP as Target Entity and its representatives may
reasonably request, all for the sole purpose of permitting Target Entity to
become familiar with the business and assets and liabilities of APP. No
investigation by Target Entity or Seller shall diminish or otherwise affect any
of the representations, warranties, covenants or agreements of APP under this
Agreement.
Section 6.3 Notification of Certain Matters. APP shall promptly inform
Target Entity in writing of (a) any notice of, or other communication relating
to, a default or event that, with notice or lapse of time or both, would become
a default, received by APP subsequent to the date of this Agreement and prior to
the Closing Date under any contract, agreement or investment material to APP's
condition (financial or otherwise), operations, assets, liabilities or business
and to which it is subject; (b) any material adverse change in APP's condition
(financial or otherwise), operations, assets, liabilities or business or (c)
defaults or disputes regarding Other Agreements.
ARTICLE VII
Covenants of APP, Seller and Target Entity
APP, Seller and Target Entity agree as follows:
Section 7.1 Filings; Other Action.
(a) Target Entity shall cooperate with APP to promptly prepare and file
with the SEC the Registration Statements on Form S-1 and Form S-4 (or other
appropriate Forms) to be filed by APP in connection with its Initial Public
Offering and offering of the shares of APP Common Stock to the Target Interest
Holders pursuant to the transactions contemplated by this Agreement and the
Other Agreements (including the prospectus constituting parts thereof, the
"Registration Statements"). APP shall obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. Seller and Target Entity shall cooperate with
APP in the preparation of the Registration Statements and shall furnish all
information concerning Target Entity as may be reasonably requested in
connection with any such action in a timely manner.
(b) Seller, Target Entity and APP and each separately represent and
warrant that (i) in the case of Seller and Target Entity, none of the written
information or documents supplied or to be supplied
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by Seller and Target Entity specifically for inclusion in the Registration
Statements, by exhibit or otherwise and (ii) in the case of APP, will, at the
time the Registration Statements and each amendment and supplement thereto, if
any, becomes effective under the Securities Act, none of them contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Seller and Target
Entity shall be entitled to review the Registration Statements and each of the
amendments thereto, if any, prior to the time each becomes effective under the
Securities Act. Seller and Target Entity shall have no responsibility for
information contained in the Registration Statements except for information
provided by Seller or Target Entity specifically for inclusion therein. Seller's
and Target Entity's review of the Registration Statements shall not diminish or
otherwise affect the representations, covenants and warranties of APP contained
in this Agreement.
(c) Seller and Target Entity shall, upon request, furnish APP with all
information concerning Target Entity, its subsidiaries, partners and officers,
and such other matters as may be reasonably requested by APP in connection with
the preparation of the Registration Statements and each of the amendments or
supplements thereto, or any other statement, filing, notice or application made
by or on behalf of each such party or any of its subsidiaries to any
governmental entity in connection with the transactions contemplated by this
Agreement.
Section 7.2 Amendments of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Schedules with respect to any matter that would
have been or would be required to be set forth or described in the Schedules in
order to not materially breach any representation, warranty or covenant of such
party contained herein; provided that no amendment or supplement to a Schedule
that constitutes or reflects a Material Adverse Effect on Target Entity may be
made unless APP consents to such amendment or supplement, and no amendment or
supplement to a Schedule that constitutes or reflects a Material Adverse Effect
on APP may be made unless Sellers and Target Entity consent to such amendment or
supplement. For purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Disclosure Schedules hereto shall be deemed to be the
Disclosure Schedules as amended or supplemented pursuant to this Section 7.2. In
the event that Sellers or Target Entity seek to amend or supplement a Disclosure
Schedule pursuant to this Section 7.2 and APP does not consent to such amendment
or supplement, or APP seeks to amend or supplement a Disclosure Schedule
pursuant to this Section 7.2, and Seller and Target Entity do not consent, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
13.1(a) hereof.
Section 7.3 Actions Contrary to Stated Intent. No party hereto will
knowingly, either before or after the Closing Date, take any action that would
prevent the Exchange from qualifying as a tax-free exchange within the meaning
of Section 351 of the Code.
Section 7.4 Public Announcements. The parties hereto will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by APP in any filing with the DOJ,
FTC or SEC.
Section 7.5 Expenses. Each party to this Agreement shall be solely
responsible for their own fees and expenses with respect to the transactions
contemplated herein including, without limitation, the fees charged by
attorneys, accountants and financial advisors retained by such parties. The fees
and
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expenses incurred by Seller and Target Entity shall be paid by Seller in full
immediately prior to the Closing.
Section 7.6 Registration Statements. APP shall prepare and file the
Registration Statements with the SEC, and shall use its reasonable good faith
efforts to cause the Registration Statements to become effective under the
Securities Act and take any action required to be taken under the applicable
state "Blue Sky" or other securities laws in connection with the issuance of the
shares of APP Common Stock upon consummation of the transactions contemplated
hereby.
ARTICLE VIII
Conditions Precedent of APP
Except as may be waived in writing by APP, the obligations of APP
hereunder are subject to the fulfillment at or prior to the Closing Date of each
of the following conditions:
Section 8.1 Representations and Warranties. The representations and
warranties of the Sellers and Target Entity contained herein shall have been
true and correct in all material respects when initially made and shall be true
and correct in all material respects as of the Closing Date.
Section 8.2 Covenants. Each Seller and Target Entity shall have
performed and complied in all material respects with all covenants required by
this Agreement to be performed and complied with by each Seller and Target
Entity, respectively, prior to the Closing Date.
Section 8.3 Legal Opinion. Counsel to Sellers and Target Entity shall
have delivered to APP their opinion, dated as of the Closing Date, in form and
substance substantially in the form set forth in Exhibit C.
Section 8.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 8.5 No Material Adverse Effect. No Material Adverse Effect on
Target Entity shall have occurred since March 31, 1997, whether or not such
change shall have been caused by the deliberate act or omission of any Seller or
Target Entity.
Section 8.6 Government Approvals and Required Consents. Seller, Target
Entity and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents required under any law,
statements, rule, regulation or ordinance to consummate the transactions
contemplated by this Agreement.
Section 8.7 Securities Approvals. The Registration Statements shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Closing Date, APP shall have received all state securities
and "Blue Sky" permits necessary to consummate the transactions contemplated
hereby. The APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.
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Section 8.8 Closing Deliveries. APP shall have received all Schedules,
documents, assignments and agreements, duly executed and delivered in form
reasonably satisfactory to APP, referred to in Section 10.1.
Section 8.9 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 8.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.
Section 8.11 Closing of General Partner Acquisition. The General Partner
Acquisition shall have closed.
Section 8.12 Execution by Each Seller and Target Entity. Each Seller and
Target Entity shall have executed this Agreement and into respective Partnership
Units shall have been transferred to APP.
ARTICLE IX
Conditions Precedent of Seller and Target Entity
Except as may be waived in writing by Seller and Target Entity, the
obligations of Seller and Target Entity hereunder are subject to fulfillment at
or prior to the Closing Date of each of the following conditions:
Section 9.1 Representations and Warranties. The representations and
warranties of APP contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all material
respects as of the Closing Date.
Section 9.2 Covenants. APP shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Closing Date.
Section 9.3 Legal Opinions. Counsel to APP shall have delivered to
Seller and Target Entity their opinion, dated as of the Closing Date, in form
and substance substantially in the form set forth in Exhibit D.
Section 9.4 Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
Section 9.5 Government Approvals and Required Consents. Sellers, Target
Entity and APP shall have obtained all licenses, permits and all necessary
government and other third-party approvals and consents (including consents of
Sellers required under applicable state law or the Partnership Agreement)
required under any law, contracts or any statute, rule, regulation or ordinances
to consummate the transactions contemplated by this Agreement.
Section 9.6 "Blue Sky" Approvals; Nasdaq Listing. The Registration
Statements shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statements shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Closing Date, APP shall have received
all state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. At or
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prior to the Closing Date, the APP Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
Section 9.7 Closing of Initial Public Offering. The Initial Public
Offering shall have closed.
Section 9.8 Closing Deliveries. Seller and Target Entity shall have
received all Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to Sellers and Target Entity referred
to in Section 10.2.
Section 9.9 No Material Adverse Effect. No Material Adverse Effect on
APP shall have occurred since [__________], 1997, whether or not such change
shall have been caused by the deliberate act or omission of APP.
ARTICLE X
Closing Deliveries
Section 10.1 Deliveries of Seller and Target Entity. At or prior to the
Closing Date, Seller and Target Entity shall deliver to APP the following, all
of which shall be in a form reasonably satisfactory to APP:
(a) a bill of sale representing the Partnership Units held by
each Seller which certificates together shall represent all of the issued and
outstanding Partnership Units of Target Entity;
(b) a copy of resolutions of the partners of Target Entity or of
Seller, if applicable, authorizing the execution, delivery and performance of
this Agreement and all related documents and agreements and consummation of the
transactions contemplated hereby, each certified by an officer as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(c) a certificate of each of Seller and an officer of Target
Entity dated the Closing Date, as to the truth and correctness of the
representations and warranties of Seller and Target Entity, respectively,
contained herein on and as of the Closing Date;
(d) a certificate of each of Seller and an officer of Target
Entity dated the Closing Date, (i) as to the performance of and compliance in
all material respects by Target Entity and Seller, respectively, with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent required by Seller and Target Entity,
respectively, to be satisfied shall have been satisfied;
(e) a certificate of an officer of Target Entity certifying as to
the incumbency and as to the signatures of each of the officers of Target Entity
who have executed documents delivered at the Closing on behalf of Target Entity;
(f) certificates, dated within ten (10) days prior to the Closing
Date, of the Secretary of State of Texas for Target Entity establishing that
Target Entity is in existence and otherwise is in good standing to transact
business in the state of Texas;
(g) certificates, dated within ten (10) days prior to the Closing
Date, of the Secretaries of State of the states in which Target Entity is
qualified to do business, to the effect that
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Target Entity is qualified to do business and, if applicable, is in good
standing as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and licenses
referenced in Section 3.27;
(i) the resignations of officers of Target Entity as requested by
APP;
(j) a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Code, of Seller, signed under a penalty of perjury and
dated as of the Closing Date, to the effect that Seller is a United States
citizen or a resident alien (and thus not a foreign person) and providing
Seller's United States taxpayer identification number;
(k) an executed Seller Release by Seller in substantially the
form attached hereto as Exhibit E (the "Seller Release"); and
(l) such other instrument or instruments of transfer prepared by
APP as shall be necessary or appropriate, as APP or its counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
Section 10.2 Deliveries of APP. At or prior to the Closing Date, APP
shall deliver to each Seller and Target Entity the following, all of which shall
be in a form reasonably satisfactory to Seller and Target Entity:
(a) the Exchange Consideration;
(b) a copy of resolutions of the Board of Directors of APP
authorizing the execution, delivery and performance of this Agreement and all
related documents and agreements, certified by APP's Secretary as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
(c) a certificate of the President of APP dated the Closing Date
as to the truth and correctness of the representations and warranties of APP
contained herein on and as of the Closing Date;
(d) a certificate of the President of APP dated the Closing Date,
(i) as to the performance and compliance by APP with all covenants contained
herein on and as of the Closing Date and (ii) certifying that all conditions
precedent required to be satisfied by APP have been satisfied;
(e) a certificate of the Secretary of APP certifying as to the
incumbency and to the signatures of the officers of APP who have executed
documents delivered at the Closing on behalf of APP;
(f) a certificate, dated within ten (10) days prior to the
Closing Date, of the Secretary of State of Texas establishing that APP is in
existence in the state of Texas;
(g) intentionally omitted;
(h) such other instrument or instruments of transfer prepared by
Seller or Target Entity as shall be necessary or appropriate, as Seller or
Target Entity or his/her/its respective counsel shall reasonably request, to
carry out and effect the purpose and intent of this Agreement.
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ARTICLE XI
Post Closing Matters
Section 11.1 Further Instruments of Transfer. Following the Closing, at
the request of APP and at APP's sole cost and expense, Seller and Target Entity
shall deliver any further instruments of transfer and take all reasonable action
as may be necessary or appropriate to carry out the purpose and intent of this
Agreement.
Section 11.2 Exchange Tax Covenant.
(a) The parties intend that the Exchange will qualify as a
tax-free transaction within the meaning of Section 351 of the Code in which the
Company will not recognize gain or loss, and pursuant to which any gain
recognized by Seller as a result of the Exchange will not exceed the amount of
any cash received by a Seller in the Exchange (a "Reorganization").
(b) Both prior to and after the Closing Date, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Exchange being treated as a
Reorganization. These obligations are excused as to a party required to maintain
the books or file a Tax Return if such party has provided to the other parties a
written opinion of competent tax counsel to the effect that there is not
substantial authority, within the meaning of Section 6662(d)(2)(B)(i) of the
Code, to report the Exchange as a Reorganization and such opinion either is
furnished prior to the Closing Date or is based on facts or events not known at
the Closing Date. Each party shall provide to each other party such tax
information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Exchange as a
Reorganization.
(c) APP shall cause the requirements of Rule 144(c) under the
Securities Act to be met with respect to APP for so long as those requirements
must be met to enable sales by the Sellers who are affiliates of Target Entity
to meet the requirements of Rule 145(d) under the Securities Act.
ARTICLE XII
Remedies
Section 12.1 Indemnification by Sellers. Subject to the terms,
limitations and conditions of this Agreement, Sellers (each an "Indemnifying
Party" and collectively, the "Indemnifying Parties"), severally, agree to
indemnify, defend and hold APP and its directors, officers, employees, agents,
attorneys, consultants and Affiliates (each an "Indemnified Party" and
collectively, the "Indemnified Parties"), harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, reasonable attorneys' fees and expenses (including, without limitation,
all costs of experts and all costs incidental to or in connection with any
appellate process) (collectively, "Damages") asserted against or incurred by an
Indemnified Party arising out of or resulting from:
(a) a breach of any representation, warranty or covenant of any
Seller or Target Entity contained in this Agreement (without giving effect to
any Material Adverse Effect qualifier contained as part of any such
representation or warranty or covenant contained in this Agreement or in any
Schedule or certificate delivered hereunder);
(b) any violation (or alleged violation) by any Seller or Target
Entity and/or any of its past or present directors, officers, partners,
employees, agents, attorneys, consultants and Affiliates
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of any state or federal law governing health care fraud and abuse or prohibition
on referral of patients to Persons in which a licensed professional has a
financial or other form of interest (including, but not limited to, fraud and
abuse in the Medicare and Medicaid Programs) occurring on or before the Closing
Date; and
(c) any liability under the Securities Act, the Exchange Act or
any other federal or state "Blue Sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any (i) untrue statement of a
material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto relating to Target
Entity (including any Partnership Subsidiary) or (ii) failure to state
information necessary to make the statements required to be stated therein not
misleading arising (in the case of either (i) or (ii)) solely from information
provided in writing to APP or its counsel by Target Entity or any Seller or
their agents specifically for inclusion in any such Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto (including, without limitation, schedules, exhibits and certifications
delivered by Target Entity or any of its agents in connection with this
Agreement).
Notwithstanding anything herein to the contrary, nothing contained in
this Agreement shall relieve any Seller or Target Entity of any liability or
limit any liability that he, she or it may have in the case of fraud in
connection with the transactions contemplated by this Agreement.
Section 12.2 Indemnification by APP. Subject to the terms, limitations
and conditions of this Agreement, APP (an "Indemnifying Party") hereby agrees to
indemnify, defend and hold the Sellers, and, as applicable, their respective
directors, partners, officers, stockholders, employees, agents, attorneys,
consultants and Affiliates (each an "Indemnified Party" and collectively, the
"Indemnified Parties") harmless from and against all Damages asserted against or
incurred by such individuals and/or entities arising out of or resulting from:
(a) a breach by APP of any representation or warranty (without
giving effect to any Material Adverse Effect qualifier contained as part of any
such representation or warranty) or covenant of APP contained in this Agreement
or in any schedule or certificate delivered hereunder; and
(b) any liability under the Securities Act, the Exchange Act or
any other federal or state "Blue Sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any (i) untrue statements of a
material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or (ii) failure to
state information necessary to make the statements required to be stated therein
not misleading (except for any liability based upon any actual or alleged untrue
statement of material fact or an omission to state a material fact relating to
Target Entity or any Seller which was derived from any information provided in
writing by the Company or a Company Subsidiary or any of their agents contained
in the representations and warranties set forth in this Agreement or any
certificate, exhibit, schedule or instrument required to be delivered under this
Agreement.)
Notwithstanding anything herein to the contrary, nothing contained in
this Agreement shall relieve APP of any liability or limit any liability that it
may have in the case of fraud in connection with the transactions contemplated
by this Agreement.
Section 12.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
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(a) The Indemnified Party shall promptly (and, in any event, at
least ten (10) days prior to the due date for any responsive pleadings, filings
or other documents) (i) notify each Indemnifying Party of any third-party claim
or claims asserted against the Indemnified Party ("Third Party Claim") that
could give rise to a right of indemnification under this Agreement and (ii)
transmit to the Indemnifying Parties a written notice ("Claim Notice")
describing in reasonable detail the nature of the Third Party Claim, a copy of
all papers served with respect to such claim (if any), an estimate of the amount
of Damages attributable to the Third Party Claim and the basis of the
Indemnified Party's request for indemnification under this Agreement. The
failure to promptly deliver a Claim Notice shall not relieve any Indemnifying
Party of its obligations to any Indemnified Party with respect to the related
Third Party Claim except to the extent that the resulting delay is materially
prejudicial to the defense of such claim. Within thirty (30) days after receipt
of any Claim Notice (the "Election Period"), the Indemnifying Parties shall
notify the Indemnified Party (x) whether the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement with respect
to such Third Party Claim and (y) whether the Indemnifying Parties desire, at
the sole cost and expense of each Indemnifying Party, to defend the Indemnified
Party against such Third Party Claim.
(b) If the Indemnifying Parties notify the Indemnified Party
within the Election Period that the Indemnifying Parties elect to assume the
defense of the Third Party Claim, then the Indemnifying Parties shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party or Indemnified Parties, such Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted
diligently by the Indemnifying Parties to a final conclusion or settled at the
discretion of the Indemnifying Parties in accordance with this Section 12.3(b).
Except as set forth in Section 12.3(f) below, the Indemnifying Parties shall
have full control of such defense and proceedings, including any compromise or
settlement thereof. The Indemnified Party is hereby authorized, at the sole cost
and expense of the Indemnifying Parties (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period, any
motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Parties and not prejudicial to the Indemnifying Parties. If requested by the
Indemnifying Parties, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Parties, to cooperate with the Indemnifying Parties and
their counsel in contesting any Third Party Claim that the Indemnifying Parties
elect to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Parties pursuant to this Section 12.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Parties and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Parties, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Parties, and upon written
notification thereof, the Indemnifying Parties shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Parties shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Parties shall be prohibited from confessing or settling any
criminal allegations brought against the Indemnified Party without the express
written consent of the Indemnified Party.
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<PAGE> 1695
(c) If the Indemnifying Parties fail to notify the Indemnified
Party within the Election Period that the Indemnifying Parties elect to defend
the Indemnified Party pursuant to Section 12.3(b), or if the Indemnifying
Parties elect to defend the Indemnified Party pursuant to Section 12.3(b) but
fail diligently and promptly to prosecute or settle the Third Party Claim, then
the Indemnified Party shall have the right to defend, at the sole cost and
expense of the Indemnifying Parties (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Parties to a final conclusion or settled. The Indemnified
Parties shall have full control of such defense and proceedings, provided,
however, that the Indemnified Parties may not enter into, without the
Indemnifying Parties' consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Parties have delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement and if such
dispute is resolved in favor of the Indemnifying Parties, the Indemnifying
Parties shall not be required to bear the costs and expenses of the Indemnified
Parties' defense pursuant to this paragraph or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Parties in full for all costs and
expenses of such litigation. The Indemnifying Parties may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section 12.3(c), and the Indemnifying Parties shall bear their
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnifying Parties have been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnified Party, then the Indemnifying Parties may employ
separate counsel and upon written notification thereof, the Indemnified Party
shall not have the right to assume the defense of such action on behalf of the
Indemnifying Parties.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Parties hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Parties a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification under
this Agreement. If the Indemnifying Parties do not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Parties dispute such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Parties hereunder. If the Indemnifying Parties have timely disputed such claim,
as provided above, such dispute shall be resolved by the procedures set forth in
Section 12.7.
(e) Payments of all amounts owing by any Indemnifying Party
pursuant to this Agreement relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of such Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication of
such Third Party Claim, or (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Parties liability to the Indemnified
Party under this Agreement. Payments of all amounts owing by the Indemnifying
Parties pursuant to Section 12.3(d) shall be made within thirty (30) days after
the later of (i) the expiration of the 60-day Indemnity Notice period or (ii)
the expiration of the period for appeal of a final adjudication of the
Indemnifying Parties liability to the Indemnified Party under this Agreement.
During the two-year period following the Closing Date, each Seller shall be
entitled to satisfy payments owed to APP by transfer of APP Common Stock from
such Seller to APP. For all purposes of this Agreement, the value of each share
of APP Common Stock transferred to APP pursuant to this Agreement shall be
calculated by averaging the daily closing prices for a share of APP Common Stock
for the twenty (20) consecutive trading days on which such shares are actually
traded on the Nasdaq
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National Market preceding the date of the Claim Notice. The number of shares of
APP Common Stock permitted to be transferred under this Section 12.3(e) shall be
diminished proportionately in accordance with the percentage of APP Common Stock
released under the Lock-Up Provisions set forth herein. The rights of any Seller
to transfer shares of APP Common Stock in satisfaction of payments owed to APP
pursuant to this Agreement shall terminate upon the earlier of (x) the
termination of the Lock-Up Provisions set forth herein or (y) at the end of the
two-year period following the Closing Date.
(f) The Indemnifying Parties shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Parties notify the Indemnified Party in writing that the Indemnifying Parties
agree to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Parties to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Parties desired to accept such settlement.
(g) Notwithstanding anything contained in this Agreement to the
contrary, Indemnifying Parties in the aggregate (i) shall have no obligation
hereunder to provide indemnification for the first $__________ of Damages
(without counting Immaterial Claims as defined below), and (ii) in no event
shall the Indemnifying Parties have any liability hereunder with respect to any
singular incident or a fact involving a breach or inaccuracy of Target Entity if
the Damages from such claim are equal to or less than $__________ ("Immaterial
Claims"). Notwithstanding anything to the contrary contained herein, the
obligations of each Seller hereunder shall not exceed the value of the Exchange
Consideration paid to such Seller pursuant to the Related Acquisition, if any,
on the Closing Date.
Section 12.4 Remedies Exclusive. The remedies provided in this Agreement
are the exclusive rights available to one party against the other, either at law
or in equity, except in the case of fraud.
Section 12.5 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
Section 12.6 Tax Benefits; Insurance Proceeds. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
Section 12.7 Dispute Resolution.
(a) Arbitration. The parties hereto agree that any claim,
controversy, dispute or disagreement between or among any of the parties arising
out of or relating to this Agreement shall be governed exclusively by the terms
and provisions of this Section 12.7; provided, however, that within ten (10)
days from the date which any claim, controversy, dispute or disagreement cannot
be resolved and prior to commencing an arbitration procedure pursuant to this
Section 12.7, the parties shall meet to discuss and consider other alternative
dispute resolution procedures other than arbitration including,
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but not limited to, Judicial Arbitration & Mediation Services, Inc., if
applicable. If at any time prior to the rendering of the decision by the
arbitrator (or pursuant to such other alternative dispute resolution procedure)
as contemplated in this Section 12.7 to the extent a party makes a written offer
to the other party proposing a settlement of the matter(s) at issue and such
offer is rejected, then the party rejecting such offer shall be obligated to pay
the costs and expenses (excluding the amount of the award granted under the
decision) of the party that offered the settlement from the date such offer was
received by such other party if the decision is for a dollar amount that is less
than the amount of such offer to settle. Notwithstanding the foregoing, the
terms and provisions of this Section 12.7 shall not preclude any party hereto
from seeking, or a court of competent jurisdiction from granting, a temporary
restraining order, temporary injunction or other equitable relief for any breach
of (i) any noncompetition or confidentiality covenant or (ii) any duty,
obligation, covenant, representation or warranty, the breach of which may cause
irreparable harm or damage.
(b) Arbitrators. In the event there is a claim, controversy,
dispute or disagreement among the parties hereto arising out of or relating to
this Agreement (including any claim based on or arising from an alleged tort)
and the parties hereto have not reached agreement regarding an alternative to
arbitration, the parties agree to select within thirty (30) days of notice by a
party to the other of its desire to seek arbitration under this Section 12.7 one
(1) arbitrator mutually acceptable to APP and the Sellers to hear and decide all
such claims under this Section 12.7. Each of the arbitrators proposed shall be
impartial and independent of all parties. If the parties cannot agree on the
selection of an arbitrator within said 30-day period, then any party may in
writing request the judge of the United States District Court for the [ ]
District of [ ] senior in term of service to appoint the arbitrator and, subject
to this Section 12.7, such arbitrator shall hear all arbitration matters arising
under this Section 12.7.
(c) Applicable Rules.
(1) Each arbitration hearing shall be held at a place in [ ]
acceptable to the arbitrator. The arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association to
the extent such rules do not conflict with the terms hereof; provided, however,
that if the parties hereto agree to an alternative to arbitration they may agree
to an alternative set of rules, including as to rules of evidence and procedure.
The decision of the arbitrator shall be reduced to writing and shall be binding
on the parties and such decision shall contain a concise statement of the
reasons in support of such decision. Judgment upon the award(s) rendered by the
arbitrator may be entered and execution had in any court of competent
jurisdiction or application may be made to such court for a judicial acceptance
of the award and an order of enforcement. The charges and expenses of the
arbitrator shall be shared equally by the parties to the hearing.
(2) The arbitration shall commence within ten (10) days
after the arbitrator is selected in accordance with the provisions of this
Section 12.7. In fulfilling his duties with respect to determining the amount of
any loss, the arbitrator may consider such matters as, in the opinion of the
arbitrator, are necessary or helpful to make a proper valuation. The arbitrator
may consult with and engage disinterested third parties to advise the
arbitrator. The arbitrator shall not add any interest factor reflecting the time
value of money to the amount of any loss and shall not award any punitive
damages.
(3) If the arbitrator selected hereunder should die, resign
or be unable to perform his or her duties hereunder, the parties, or such senior
judge (or such judge's successor) in the event the parties cannot agree, shall
select a replacement arbitrator. The procedure set forth in this Section 12.7
for selecting the arbitrator shall be followed from time to time as necessary.
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(4) As to any determination of the amount of any loss, or as
to the resolution of any other claim, controversy, dispute or disagreement, that
under the terms hereof is made subject to arbitration, no lawsuit based on such
claimed loss or such resolution shall be instituted by the parties hereto, other
than to compel arbitration proceedings or enforce the award of the arbitrator,
except as otherwise provided in Section 12.7(b).
(5) All privileges under Texas and federal law, including
attorney-client and work-product privileges, shall be preserved and protected to
the same extent that such privileges would be protected in a federal court
proceeding applying Texas law.
ARTICLE XIII
Termination
Section 13.1 Termination. This Agreement may be terminated and the
Exchange may be abandoned:
(a) at any time prior to the Closing Date by mutual agreement of
all parties;
(b) at any time prior to the Closing Date by APP if any material
representation or warranty of any Seller or Target Entity contained in this
Agreement or in any certificate or other document executed and delivered by any
Seller or Target Entity pursuant to this Agreement is or becomes untrue or
breached in any material respect or if any Seller or Target Entity fails to
comply in any material respect with any material covenant or agreement contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within thirty (30) days after receipt of written notice
thereof;
(c) at any time prior to the Closing Date by Seller as to Seller
if any representation or warranty of APP contained in this Agreement or in any
certificate or other document executed and delivered by APP pursuant to this
Agreement is or becomes untrue in any material respect of if APP fails to comply
in any material respect with any covenant or agreement contained herein, and any
such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within thirty (30) days after receipt of written notice thereof;
(d) at any time prior to the Closing Date by APP if, as a result
of the conduct of due diligence and regulatory compliance procedures, APP deems
termination to be advisable; or
(e) by APP or Seller as to Seller if the Exchange shall not have
been consummated by September 30, 1997.
Section 13.2 Effect of Termination. Except as set forth in Section 14.3,
in the event this Agreement is terminated pursuant to this Article XIV, this
Agreement shall forthwith become void.
ARTICLE XIV
Nondisclosure of Confidential Information
Section 14.1 Non-Disclosure Covenant. Seller and Target Entity recognize
and acknowledge that each has in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of APP that is
valuable, special and a unique asset of such entity's business. APP
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acknowledges that it had in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of Target Entity that
is valuable, special and a unique asset of each such business. Seller, Target
Entity and APP, severally, agree that they will not disclose such Confidential
Information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
APP, Seller and Target Entity and (b) to counsel and other advisers to APP,
Sellers and Target Entity provided that such advisers (other than counsel) agree
to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes available to or known by the public generally through no
fault of Target Entity, Seller or APP, as the case may be, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause (ii)
Target Entity, Seller or APP, as the case may be, shall, if possible, give prior
written notice thereof to Target Entity, Seller or APP and provide Target
Entity, Seller or APP with the opportunity to contest such disclosure, (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, or (iv)
the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Exchange or otherwise. In the event of a breach
or threatened breach by Seller or Target Entity, on the one hand, and APP, on
the other hand, of the provisions of this Section, APP, Seller and Target Entity
shall be entitled to an injunction restraining the other party, as the case may
be, from disclosing, in whole or in part, such Confidential Information. Nothing
herein shall be construed as prohibiting any of such parties from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages.
Section 14.2 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, APP, Seller and Target Entity agree that, in the event
of a breach by either of them of the foregoing covenant, the covenant may be
enforced against them by injunctions and restraining orders.
Section 14.3 Survival. The obligations of the parties under this Article
XIV shall survive the termination of this Agreement.
ARTICLE XV
Miscellaneous
Section 15.1 Amendment; Waivers. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
Section 15.2 Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by APP to a
wholly owned subsidiary of APP; provided that any such assignment shall not
relieve APP of its obligations hereunder.
Section 15.3 Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Except as
otherwise provided herein, neither this Agreement nor any other agreement
contemplated hereby shall be deemed to confer upon any person not a party hereto
or thereto any rights or remedies hereunder or thereunder.
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Section 15.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 15.5 Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 15.6 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of Target Entity, Seller or APP pursuant to
this Agreement shall be deemed to have been representations and warranties made
by Target Entity, Seller and APP, respectively. Notwithstanding any provision in
this Agreement to the contrary, the representations and warranties contained
herein shall survive the Closing until the second anniversary of the Closing
Date except that (a) the representations and warranties set forth in Section
3.20 with respect to environmental matters shall survive for a period of ten
(10) years, (b) the representations and warranties set forth in Section 3.29
with respect to tax matters shall survive until such time as the limitations
period has run for all tax periods ended prior to the Closing Date, (c) the
representations and warranties contained in Section 3.26 and Section 3.32 with
respect to healthcare matters shall survive for a period of six (6) years and
(d) solely for purposes of Section 12.1(c) and Section 12.2(b), and solely to
the extent that any party to be indemnified pursuant to such provisions actually
incurs liability under the Securities Act, the Exchange Act or any other federal
or state securities law, the representations and warranties set forth therein
shall survive until the expiration of any applicable limitations period.
Section 15.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF TEXAS.
Section 15.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
Section 15.9 Gender and Number. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
Section 15.10 Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that APP has determined in
its good faith judgment and after advice of legal counsel to be required by
federal securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the
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conduct of its Initial Public Offering and conducting an examination of the
operations and assets of the Target Companies; provided that APP shall
reasonably promptly provide notice of any release. In the event that the
transactions contemplated hereby are not consummated for any reason whatsoever,
the parties hereto agree not to disclose or use any Confidential Information
they may have concerning the affairs of the other parties, except for
information that is required by law to be disclosed; provided that should the
transactions contemplated hereby not be consummated, nothing contained in this
Section shall be construed to prohibit the parties hereto from operating
businesses in competition with each other.
Section 15.11 Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram or
courier service, when delivered to the party to whom notice is sent, (ii) if
delivered by facsimile transmission, when so sent and receipt acknowledged by
receipt or (iii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.
If to Target Entity or Seller: _______________________________
_______________________________
_______________________________
_______________________________
with a copy to: _______________________________
_______________________________
_______________________________
_______________________________
Section 15.12 No Waiver; Remedies. No party hereto shall by any act
(except by written instrument pursuant to Section 16.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy
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available to any party, but the same shall be distinct, separate and cumulative
and may be exercised from time to time as often as occasion may arise or as may
be deemed expedient.
Section 15.13 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 15.14 Defined Terms. Terms used in Exhibit A, Exhibit B, Exhibit
C, Exhibit D Exhibit E, and the Schedules attached hereto with their initial
letter capitalized and not otherwise defined therein shall have the meanings as
assigned to such terms in this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By: ___________________________________
Gregory L. Solomon, President
TARGET ENTITY:
Target Entity
By: ___________________________________
Its: ___________________________________
SELLERS:
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EXHIBIT A
LIST OF SELLERS AND EXCHANGE CONSIDERATION
Name of Seller Partnership Unit %
-------%
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<PAGE> 1705
EXHIBIT B
TARGET COMPANIES
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APPENDIX E
_______________, 1997
American Physician Partners, Inc.
2301 NationsBank Plaza
901 Main Street
Dallas, TX 75202-3721
Attn: Paul M. Jolas, Senior Vice President
and General Counsel
Re: Investment in American Physician Partners, Inc.
Dear Mr. Jolas:
In connection with the receipt of shares of APP Common Stock (the
"Securities"), by the undersigned (the "Investor") pursuant to the Merger, the
Investor hereby represents, warrants, covenants and agrees as set forth below.
Except as otherwise expressly indicated herein, all capitalized terms shall have
the meanings set forth in that certain Agreement and Plan of Reorganization and
Merger dated as of __________, 1997, by and among American Physician Partners,
Inc. and ______________________________ (the "Agreement"):
1. Lock-Up Provisions. Investor irrevocably agrees that he/she
will not, directly or indirectly, sell, offer, contract for sale, make any short
sale, pledge or otherwise transfer or dispose of any of the Securities without
the prior written consent of APP (which consent may be unreasonably withheld in
APP's absolute and sole discretion) during the two-year period commencing on the
Effective Date. Notwithstanding the preceding, the restrictions contained in the
prior sentence shall no longer apply (i) as to twenty-five percent (25%) of the
Securities received by Investor pursuant to the Merger following expiration of a
one-year period following the Effective Date, (ii) as to an additional
twenty-five percent (25%) of the Securities received by Investor pursuant to the
Merger following expiration of an eighteen-month period following the Effective
Date, and (iii) as to the remaining fifty percent (50%) of the Securities
received by Investor pursuant to the Merger following expiration of a
twenty-four-month period following the Effective Date. Investor understands and
acknowledges that the restrictions contained in this Paragraph 1 (the "Lock-Up
Provisions") are irrevocable and shall be binding upon the Investor's heirs,
legal representatives, successors and assigns.
2. Restrictive Legends. Investor understands that the Securities
shall bear one or more of the following restrictive legends:
(a) Any legend required to put third-parties on
notice of the existence of the Lock-Up
Provisions.
(b) Any legend relating to affiliates of the Company
as required pursuant to the Securities and
Exchange Act of 1934.
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3. Investor's Authority. In connection with the delivery and
surrender of the shares of Company Common Stock by Investor pursuant to the
Merger (i) Investor has full authority to surrender the certificate(s)
representing the shares of Company Common Stock free and clear of any and all
Encumbrances and (ii) the shares of Company Common Stock surrendered by Investor
in connection with the Merger constitute all of the shares of Company Common
Stock owned by Investor (beneficially or otherwise) and Investor does not own
(beneficially or otherwise) any Company Right.
4. Filings; Other Action. Investor will cooperate with APP in
order that APP may promptly prepare and file with the SEC the Registration
Statements (including the prospectus constituting a part thereof). Investor
shall furnish all information concerning the Company and Investor as may be
reasonably requested in connection with any such action. None of the information
or documents supplied by Investor specifically for inclusion in the Registration
Statements, by exhibit or otherwise, will, at the time that any of the
Registration Statements and each amendment and supplement thereto, if any,
become effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Investor shall be entitled to review
the Registration Statements and each amendment thereto, if any, prior to the
time each becomes effective under the Securities Act. Investor shall, upon
request, furnish APP with all information concerning Investor and the directors,
officers, partners and interestholders of the Company and NewCo, and such other
matters as may be reasonably requested by APP in connection with the preparation
of the Registration Statements and each amendment or supplement thereto, or any
other statement, filing, notice or application made by or on behalf of each such
party or any of its subsidiaries to any governmental entity in connection with
the Merger and the other transactions contemplated by the Agreement. Investor's
review of the Registration Statements shall not diminish or otherwise affect the
representations, covenants and warranties of APP or APP Sub contained in the
Agreement.
5. Actions Contrary to Stated Intent. Investor has not and will
not take any action that would prevent the Merger or exchange transaction, as
the case may be, from qualifying as a tax-free transaction under Section 351
and/or Section 368 of the Code.
6. Participation and Cooperation. Investor agrees to cooperate
with APP and the Company and any committees established by the Company in
connection with the formation and organization of Newco. In addition, Investor
agrees to review, provide and determine the truth and accuracy of all necessary
information regarding Investor and the Company which information shall be
provided to APP in connection with the registration process for the Initial
Public Offering and registration of APP Common Stock pursuant to the Form S-4.
7. Involvement in Certain Legal Proceedings. Investor has not
been the subject of or a party to any of the following events during the past
five years and that are material to a voting or investment decision:
(a) A petition under the Federal bankruptcy laws or any
State insolvency law was filed by or against, or a
receiver, fiscal agent or similar officer was appointed
by a court for the business or property of such person,
or any partnership in which he or she was a general
partner at or within two years before the time of such
filing, or any corporation
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or business association of which he was an executive
officer at or within two years before the time of such
filing;
(b) Convicted in a criminal proceeding or is a named
subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses);
(c) Any order, judgement, or decree, not subsequently
reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily
enjoining him/her from, or otherwise limiting, the
following activities;
(i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant,
any other person regulated by the Commodity Futures
Trading Commission, or an associated person of any of
the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any
investment company, bank, savings and loan association
or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the
purchase or sale of any security or commodity or in
connection with any violation of Federal or State
securities laws or federal commodities laws.
(d) Any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60
days the right of such person to engage in any activity
described in paragraph (c)(i) above, or to be associated
with persons engaged in any such activity.
(e) Found by a court of competent jurisdiction in a civil action
or by the Commission to have violated any Federal or State
securities law, and the judgment in such civil action or
finding by the Commission has not been subsequently
reversed, suspended, or vacated; or
(f) Found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have
violated any Federal commodities law, and the judgment in
such civil action or finding by the Commodity Futures
Trading Commission has not been subsequently reversed,
suspended or vacated.
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8. Prohibited Activities.
a. In order to protect the APP Group against the
unauthorized use or the disclosure of any of Confidential Information of any
member of the APP Group presently known or hereinafter obtained by Investor,
Investor hereby agrees that, subject to adjustment pursuant to Paragraph 8(e)
herein, for a period of two (2) years following the Closing Date, neither
Investor nor any of his/her Affiliates, shall knowingly, directly or indirectly,
for herself or himself or on behalf of any other Person (whether as an
individual, agent, servant, employee, employer, officer, director, shareholder,
investor, principal, consultant or in any other capacity):
(i) except for or on behalf of NewCo, within the
geographical area designated on Exhibit A hereto, establish, operate or provide
professional radiology, radiation oncology or diagnostic imaging services at any
office, practice or other health care facility providing services similar to
those provided by NewCo; or
(ii) without the prior written consent of APP: (1)
directly or indirectly recruit or hire, or induce any party to recruit or hire
any person who is an employee of, or who has entered into an independent
contractor arrangement with, any member of the APP Group; (2) directly or
indirectly, whether for itself or for any other person or entity, call upon,
solicit, divert or take away, or attempt to solicit, call upon, divert or take
away any customers, business, or clients of any member of the APP Group; (3)
directly or indirectly solicit, or induce any party to solicit, any contractors
of any member of the APP Group, to enter into the same or a similar type of
contract with any other party; or (4) disrupt, damage, impair or interfere with
the business of any member of the APP Group.
The provisions of this Paragraph 8 shall be waived by APP in the
event of a purchase of assets by the Company pursuant to Article X of the
Service Agreement.
b. Because of the difficulty of measuring economic losses to
APP as a result of the breach of the covenants contained in this Paragraph 8,
and because of the immediate and irreparable damage that would be caused to APP
for which they would have no other adequate remedy, Investor agrees that, in the
event of a breach by him/her of the foregoing covenant, the covenant may be
enforced by APP by injunctions and restraining orders.
c. Investor acknowledges and agrees that the covenants
contained in this Paragraph 8 impose a reasonable restraint on Investor in light
of the activities and businesses of the APP Group on the date of execution of
this Agreement and the future plans of the APP Group.
d. The covenants in this Paragraph 8 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent that the court deems reasonable,
and this Paragraph 8 shall thereby be reformed.
e. It is specifically agreed that the period of two (2)
years stated above shall be computed by excluding from such computation any time
during which Investor is in violation of any provision of this Paragraph 8.
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9. Nondisclosure of Confidential Information.
a. Investor recognizes the proprietary interest of APP in
any Confidential and Proprietary Information (as hereinafter defined). Investor
acknowledges and agrees that any and all Confidential and Proprietary
Information of APP ("APP's Confidential and Proprietary Information")
communicated to, learned of, developed or otherwise acquired by Investor during
the term of the Employment Agreement shall be the property of APP. Investor
further acknowledges and understands that its disclosure of APP's Confidential
and Proprietary Information will result in irreparable injury and damage to APP.
As used in this Paragraph 9, "Confidential and Proprietary Information" means
all trade secrets and other confidential and/or proprietary information of APP,
including information derived from reports, investigations, research, work in
progress, codes, marketing and sales programs, financial projections, cost
summaries, pricing formula, contract analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information (other than patient records) prepared or performed for, by or on
behalf of the parties hereto by its employees, officers, directors, agents,
representatives, or consultants. Confidential and Proprietary Information shall
not include any information which: (i) was known to the parties hereto prior to
its disclosure by APP; (ii) is or becomes publicly known through no wrongful act
of Investor; (iii) is disclosed pursuant to a statute, regulation or the order
of a court of competent jurisdiction, provided that Investor provides prior
notice to APP.
b. Investor acknowledges and agrees that APP is entitled to
prevent the disclosure of Confidential and Proprietary Information. Investor
agrees at all times during the term of this Agreement and thereafter to hold in
strictest confidence and not to disclose to any person, firm or corporation,
except as may be necessary for the discharge of its obligations under the
Employment Agreement, and not to use, except in the pursuit of the business of
the practice, APP's Confidential and Proprietary Information, without the prior
written consent of APP; unless (i) such information becomes known or available
to the public generally through no wrongful act of Investor or (ii) disclosure
is required by law or the rule, regulation or order of any governmental
authority under color of law; provided, that prior to disclosing any of APP's
Confidential and Proprietary Information pursuant to this clause (iii), Investor
shall, if possible, give prior written notice thereof to APP and provide APP
with the opportunity to contest such disclosure. Investor shall take all
necessary and proper precautions against disclosure of any of APP's Confidential
and Proprietary Information to unauthorized persons by any of its officers,
directors, employees or agents. In the event Investor has access to all or any
part of APP's Confidential and Proprietary Information, Investor will be
required to execute an agreement upon request, valid under the law of the
jurisdiction in which such agreement is executed, and in a form acceptable to
APP and its counsel, committing themselves to maintain APP's Confidential and
Proprietary Information in strict confidence and not to disclose it to any
unauthorized person or entity. Upon termination of this Agreement for any
reason, Investor shall cease all use of any of APP's Confidential and
Proprietary Information and shall execute such documents as may be reasonably
necessary to evidence their abandonment of any claim thereto.
c. In the event of any termination of his/her Employment
Agreement for any reason whatsoever, or at any time upon the request of APP,
Investor will promptly deliver or cause to be delivered to APP all documents,
data and other information in their possession that contains any of APP's
Confidential and Proprietary Information regarding APP. Investor shall not take
or retain any documents or other information, or any reproduction or excerpt
thereof, containing any of APP's Confidential and Proprietary Information,
unless otherwise authorized in writing by the party possessing such Confidential
and Proprietary Information. In the event of termination of this
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Agreement, Investor will deliver to APP all documents and data pertaining to
APP's Confidential and Proprietary Information.
10. Address. The address set forth at the end of this letter is
his/her true and correct address.
"INVESTOR"
---------------------------------
(Signature)
---------------------------------
(Print Name)
Address: __________________________
__________________________
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EXHIBIT A
GEOGRAPHIC AREA
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APPENDIX F
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "Agreement") is entered into
this ___ day of ___________, 1997, by and between AMERICAN PHYSICIAN PARTNERS,
INC., a Delaware corporation ("APP"), and the individuals identified on Exhibit
A attached hereto (the "Stockholders"). Unless otherwise defined herein, all
capitalized terms shall have the meaning contained in that certain Agreement and
Plan of Reorganization and Merger dated ______________, 1997 (the "Merger
Agreement") by and among APP, APP Sub and _________________________, a
_____________ corporation (the "Company").
RECITALS
A. Concurrent with this Agreement, the Company shall enter into
the Merger Agreement and the Service Agreement whereby APP shall acquire the
assets, and manage the non-medical aspects of, the Company's radiology practice.
B. Pursuant to Section ____ of the Merger Agreement, the
Stockholders have, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, agreed to execute and deliver this
Agreement to APP and APP Sub.
NOW, THEREFORE, in consideration of the preceding recitals and
the covenants and agreements set forth herein, the parties agree as follows:
1. Indemnification by the Stockholders. Subject to the terms, limitations
and conditions of this Agreement, the Stockholders (each an "Indemnifying Party"
and collectively, the "Indemnifying Parties"), severally, and not jointly, agree
to indemnify, defend and hold APP and its directors, officers, stockholders,
employees, agents, attorneys, consultants and Affiliates (each an "Indemnified
Party" and collectively, the "Indemnified Parties"), harmless from and against
all losses, claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, reasonable attorneys' fees and expenses (including, without
limitation, all costs of experts and all costs incidental to or in connection
with any appellate process) (collectively, "Damages") asserted against or
incurred by an Indemnified Party arising out of or resulting from:
a. a breach of any representation, warranty or covenant of the
Company contained in the Merger Agreement (without giving effect to any Material
Adverse Effect qualifier contained as part of any such representation or
warranty or covenant of the Company contained in the Merger Agreement or in any
Disclosure Schedule or certificate delivered thereunder);
b. any violation (or alleged violation) by the Company and/or any
of its past or present directors, officers, partners, stockholders, employees
(including, without limitation, any Physician Employee), agents, attorneys,
consultants and Affiliates of any state or federal law governing health care
fraud and abuse or prohibition on referral of patients to Persons in which a
licensed professional has a financial or other form of interest (including, but
not limited to, fraud and abuse in the Medicare and Medicaid Programs) occurring
on or before the Closing Date, or any overpayment or obligation (or alleged
overpayment or obligation) arising out of or resulting from claims submitted to
any Payor on or before the Closing Date; and
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c. any liability under the Securities Act, the Exchange Act or
any other federal or state "blue sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any (i) untrue statement of a
material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto relating to the Company
(including any Company Subsidiary) or NewCo or (ii) failure to state information
necessary to make the statements required to be stated therein not misleading,
which untrue statement or failure to state information arises or results solely
from information provided in writing to APP or its counsel by the Company or
such Stockholder or their agents specifically for inclusion in any such
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto (including, without limitation,
schedules, exhibits and certifications delivered by the Company or any of its
agents in connection with the Merger Agreement).
The provisions contained in Paragraph 2(g) shall not apply to
indemnification of claims listed in Exhibit B attached hereto. In addition,
notwithstanding anything herein to the contrary, nothing contained in this
Agreement shall relieve any of the Stockholders of any liability or limit any
liability that he or she may have in the case of fraud in connection with the
transactions contemplated by the Merger Agreement.
2. Conditions of Indemnification. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
a. The Indemnified Party shall promptly (and, in any event, at
least ten (10) days prior to the due date for any responsive pleadings, filings
or other documents) (i) notify each Indemnifying Party of any third-party claim
or claims asserted against the Indemnified Party ("Third Party Claim") that
could give rise to a right of indemnification under this Agreement and (ii)
transmit to the Indemnifying Parties a written notice ("Claim Notice")
describing in reasonable detail the nature of the Third Party Claim, a copy of
all papers served with respect to such claim (if any), an estimate of the amount
of Damages attributable to the Third Party Claim and the basis of the
Indemnified Party's request for indemnification under this Agreement. The
failure to promptly deliver a Claim Notice shall not relieve any Indemnifying
Party of its obligations to any Indemnified Party with respect to the related
Third Party Claim except to the extent that the resulting delay is materially
prejudicial to the defense of such claim. Within thirty (30) days after receipt
of any Claim Notice (the "Election Period"), the Indemnifying Parties shall
notify the Indemnified Party (x) whether the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement with respect
to such Third Party Claim and (y) whether the Indemnifying Parties desire, at
the sole cost and expense of each Indemnifying Party, to defend the Indemnified
Party against such Third Party Claim.
b. If the Indemnifying Parties notify the Indemnified Party
within the Election Period that the Indemnifying Parties elect to assume the
defense of the Third Party Claim, then the Indemnifying Parties shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party or Indemnified Parties, such Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted
diligently by the Indemnifying Parties to a final conclusion or settled at the
discretion of the Indemnifying Parties in accordance with this Paragraph 2(b).
Except as set forth in Paragraph 2(f) below, the Indemnifying Parties shall have
full control of such defense and proceedings, including any compromise or
settlement thereof. The Indemnified Party is hereby authorized, at the sole cost
and expense of the Indemnifying Parties (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period, any
motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Parties and not prejudicial to the Indemnifying Parties. If requested by the
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Indemnifying Parties, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Parties, to cooperate with the Indemnifying Parties and
their counsel in contesting any Third Party Claim that the Indemnifying Parties
elect to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Parties pursuant to this Paragraph 2(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Parties and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Parties, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Parties, and upon written
notification thereof, the Indemnifying Parties shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Parties shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Parties shall be prohibited from confessing or settling any
criminal allegations brought against the Indemnified Party without the express
written consent of the Indemnified Party.
c. If the Indemnifying Parties fail to notify the Indemnified
Party within the Election Period that the Indemnifying Parties elect to defend
the Indemnified Party pursuant to Paragraph 2(b), or if the Indemnifying Parties
elect to defend the Indemnified Party pursuant to Paragraph 2(b) but fail
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Parties (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Parties to a final conclusion or settled. The Indemnified
Parties shall have full control of such defense and proceedings, provided,
however, that the Indemnified Parties may not enter into, without the
Indemnifying Parties' consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Parties have delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement and if such
dispute is resolved in favor of the Indemnifying Parties, the Indemnifying
Parties shall not be required to bear the costs and expenses of the Indemnified
Parties' defense pursuant to this Paragraph or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Parties in full for all costs and
expenses of such litigation. The Indemnifying Parties may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this Paragraph 2(c), and the Indemnifying Parties shall bear their
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnifying Parties have been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnified Party, then the Indemnifying Parties may employ
separate counsel and upon written notification thereof, the Indemnified Party
shall not have the right to assume the defense of such action on behalf of the
Indemnifying Parties.
d. In the event any Indemnified Party should have a claim against
any Indemnifying Parties hereunder that does not involve a Third Party Claim,
the Indemnified Party shall transmit to the
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Indemnifying Parties a written notice (the "Indemnity Notice") describing in
reasonable detail the nature of the claim, an estimate of the amount of damages
attributable to such claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Parties do not notify
the Indemnified Party within sixty (60) days from its receipt of the Indemnity
Notice that the Indemnifying Parties dispute such claim, the claim specified by
the Indemnified Party in the Indemnity Notice shall be deemed a liability of the
Indemnifying Parties hereunder. If the Indemnifying Parties have timely disputed
such claim, as provided above, such dispute shall be resolved by the procedures
set forth in Paragraph 7.
e. Payments of all amounts owing by any Indemnifying Party
pursuant to this Agreement relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of such Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication of
such Third Party Claim, or (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Parties liability to the Indemnified
Party under this Agreement. Payments of all amounts owing by the Indemnifying
Parties pursuant to Paragraph 2(d) shall be made within thirty (30) days after
the later of (i) the expiration of the 60-day Indemnity Notice period or (ii)
the expiration of the period for appeal of a final adjudication of the
Indemnifying Parties liability to the Indemnified Party under this Agreement.
(1) Within five (5) business days following distribution by
APP of a Claim Notice or Indemnity Notice, as the case may be, each Stockholder
shall elect the percentage of APP Common Stock he or she desires to allocate
(the "Stock Percentage Election") to satisfy any obligation to APP contained in
the Claim Notice or Indemnity Notice (the "Indemnification Obligation") and
shall submit such Stock Percentage Election in writing to APP at the address
listed in Paragraph 8 hereof or any other address requested by APP. Each
Stockholder shall be entitled to make a Stock Percentage Election equal to the
percentage of APP Common Stock currently subject to such Lock-Up Provisions (as
that term is defined below). By way of example, if the percentage of APP Common
Stock subject to the Lock-Up Provisions is seventy-five percent (75%) at the
time of a Claim Notice or Indemnity Notice, each Stockholder's Stock Percentage
Election may equal, but not exceed, seventy-five percent (75%) of the amount of
the Indemnification Obligation regardless of the Stock Percentage Elections
submitted by the other Stockholders. Failure to submit a complete Stock
Percentage Election within the time periods set forth in this Paragraph 2(e)
shall be deemed to be an election for such Stockholder to satisfy such
Indemnification Obligation with 100% cash.
Each Stockholder's Stock Percentage Election shall be an
irrevocable election as to such Stockholder of the method of payment of the
applicable Indemnification Obligation, and such percentage election between APP
Common Stock and cash shall remain constant with respect to the final payment of
the Indemnification Obligation. Following each Stockholder's Stock Percentage
Election, each Stockholder shall, in APP's sole discretion, either (i) transfer
the Reserved APP Stock (as that term is defined below) to an escrow account (the
"Escrow Account") established by APP or (ii) consent to a stop transfer of such
APP Common Stock by APP to be either (x) held in the Escrow Account or (y)
subject to such stop order, as the case may be, until final payment of the
Indemnification Obligation as set forth in Paragraph 2(e)(4).
The remaining portion of the Indemnification Obligation not
satisfied by the Stock Percentage Election shall be valued in cash, however, the
cash portion shall not be transferred to the Escrow Account. By way of example,
if the Stock Percentage Election is 75%, the remaining 25% of the
Indemnification Obligation shall be paid in cash.
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(2) For purposes of this Agreement only and in order to
calculate the actual number of shares of Reserved APP Stock to be held in the
Escrow Account or subject the a stop order, the value of each share of APP
Common Stock transferred to the Escrow Account or be subject to a stop transfer
pursuant to the Stock Percentage Election shall be calculated by averaging the
daily closing prices for a share of APP Common Stock for the twenty (20)
consecutive trading days on which such shares are actually traded on the Nasdaq
National Market (or other national securities exchange or inter-dealer quotation
system) preceding the date of the Claim Notice or Indemnity Notice, as the case
may be (the "APP Stock Price").
(3) The number of shares to be reserved by the transfer to
the Escrow Account or subject to a stop transfer to satisfy the Indemnification
Obligation (the "Reserved APP Stock") shall be calculated by APP according to
the following formula:
(i) Determine the dollar amount of each Stockholder's
proportionate amount of the Indemnification Obligation ("Proportionate
Obligation");
(ii) Multiply the Proportionate Obligation by the Stock
Percentage Election to determine the dollar value of the Stock Percentage
Election ("Stock Election Value"); and
(iii) Divide the Stock Election Value by the APP Stock
Price to determine the Reserved APP Stock.
Except as set forth herein, the Reserved APP Stock shall remain constant until
the final payment of any Indemnification Obligation. To determine the amount of
cash required to satisfy the Proportionate Obligation, subtract the Stock
Election Value from the Proportionate Obligation.
(4) On the final payment date pursuant to this Paragraph
2(e) (the "Actual Payment Date"), the parties hereto will be notified of the
actual dollar amount of the Indemnification Obligation. On the Actual Payment
Date, if the amount owing by each Stockholder (1) equals the Proportionate
Obligation, then all of the Reserved APP Stock and the cash portion of the
Proportionate Obligation shall be transferred to APP, (2) is less than the
Proportionate Obligation, then the percentage of the Reserved APP Stock and cash
that is required to satisfy the actual Indemnification Obligation shall be
determined by multiplying (a) the total amount of the actual Indemnification
Obligation applicable to each Stockholder divided by the Proportionate
Obligation by the (b) number of shares of Reserved APP Stock for such
Stockholder and (c) the amount of cash that would have been required to satisfy
his or her Proportionate Obligation, or (3) is greater than the amount of the
Proportionate Obligation, then (a) all of the Reserved APP Stock and cash that
would have been required to satisfy his or her Proportionate Obligation, plus
(b) the amount by which the actual Indemnification Obligation for such
Stockholder exceeds the Proportionate Obligation, which additional amount shall
be payable by such Stockholder in cash, shall be transferred to APP. By way of
example, assume that (i) the amount of the Proportionate Obligation as of the
date of the Claim Notice or Indemnity Notice was equal to $100,000, (ii) such
Stockholder's Stock Election Percentage was 75%, and (iii) the APP Stock Price
was $15.00. The number of shares required to be placed into the Escrow Account
or subject to a stop transfer by such Stockholder would be 5,000 shares of APP
Common Stock ($100,000 X 75%/$15.00). If the actual Indemnification Obligation
was (1) $100,000, then all of the Reserved APP Stock, regardless of the
then-current trading price of the APP Common Stock, plus $25,000 cash would be
required to be transferred to APP, (2) $50,000, which is 50% of the
Proportionate Obligation, then 50% of the Reserved APP Stock held in the Escrow
Account or subject to a stop transfer (5,000 shares X 50%), or 2,500 shares,
regardless of the then-current trading price of APP Common Stock, plus $12,500
cash would be required
F-5
<PAGE> 1718
to be transferred to APP, or (3) $150,000, then all of the Reserved APP Stock
held in the Escrow Account or subject to a stop transfer, regardless of the
then-current trading price of APP Common Stock, $25,000 cash, plus an additional
$50,000 cash (the difference between the actual Indemnification Obligation and
the Proportionate Obligation) would be required to be transferred to APP.
All payments of cash in satisfaction of the actual Indemnification Obligation
pursuant to this Indemnification Agreement shall be made to APP by cashier's
check.
(5) Notwithstanding any provision contained herein to the
contrary, (1) each Stockholder shall be entitled to transfer to APP shares of
APP Common Stock held by such Stockholder which are subject to the Lock-Up
Provisions contained in Paragraph 1 of the Stockholder Representation Letter
("Lock-Up Provisions") and (2) the provisions of Paragraphs 2(e)(1) through (5)
shall have no further force or effect, and shall not apply in any manner
whatsoever, with respect to any Claim Notice or Indemnity Notice which is given
subsequent to the earlier of (x) the termination of the Lock-Up Provisions or
(y) the end of the two (2) year period following the Effective Date.
f. The Indemnifying Parties shall provide the Indemnified Party
with written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Parties notify the Indemnified Party in writing that the Indemnifying Parties
agree to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Parties to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Parties desired to accept such settlement.
g. Notwithstanding anything contained in this Agreement or the
Merger Agreement to the contrary, the Indemnifying Parties in the aggregate (i)
shall have no obligation hereunder to provide indemnification for the first
$100,000 of Damages (without counting Immaterial Claims as defined below), and
(ii) in no event shall the Indemnifying Parties have any liability hereunder
with respect to any singular incident or a fact involving a breach or inaccuracy
of the Company if the Damages from such claim are equal to or less than $7,500
("Immaterial Claims"). Notwithstanding anything to the contrary contained herein
or in the Merger Agreement, the obligations of each Stockholder hereunder shall
not exceed fifty percent (50%) of the aggregate value of the Merger
Consideration or Exchange Consideration, as the case may be, paid to such
Stockholder pursuant to any Related Acquisition on the Closing Date.
3. Intentionally Omitted.
4. Remedies Exclusive. The remedies provided in this Agreement are the
exclusive rights or remedies available to one party against the other arising
out of or with respect to the Merger Agreement, either at law or in equity,
except in the case of fraud.
5. Costs, Expenses and Legal Fees. Whether or not the transactions
contemplated hereby are consummated, each party hereto shall bear its own costs
and expenses (including attorneys' fees), except that each party hereto agrees
to pay the costs and expenses (including reasonable attorneys' fees and
expenses) incurred by the other parties in successfully (a) enforcing any of the
terms of this Agreement or (b) proving that another party breached any of the
terms of this Agreement.
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<PAGE> 1719
6. Tax Benefits; Insurance Proceeds. The total amount of any indemnity
payments owed by one party to another party to this Agreement shall be reduced
by any correlative tax benefit received by the party to be indemnified or the
net proceeds received by the party to be indemnified with respect to recovery
from third parties or insurance proceeds, and such correlative insurance benefit
shall be net of the insurance premium, if any, that becomes due as a result of
such claim.
7. Dispute Resolution.
a. Arbitration. The parties hereto agree that any claim,
controversy, dispute or disagreement between or among any of the parties arising
out of or relating to this Agreement shall be governed exclusively by the terms
and provisions of this Paragraph 7; provided, however, that within ten (10) days
from the date any party gives notice to the others of its desire to seek
arbitration as provided in Paragraph 7(b) and prior to commencing an arbitration
procedure pursuant to this Paragraph 7, the parties shall meet to discuss and
consider alternative dispute resolution procedures other than arbitration
including, but not limited to Judicial Arbitration & Mediation Services, Inc.,
if applicable. If at any time prior to the rendering of the decision by the
arbitrator (or pursuant to such other alternative dispute resolution procedure)
as contemplated in this Paragraph 7 to the extent a party makes a written offer
to an opposing party proposing a settlement of the matter(s) at issue and such
offer is rejected, then the party rejecting such offer shall be obligated to pay
the costs and expenses (excluding the amount of the award granted under the
decision) of the party that offered the settlement from the date such offer was
received by such other party if the decision is for a dollar amount that is less
than the amount of such offer to settle. Notwithstanding the foregoing, the
terms and provisions of this Paragraph 7 shall not preclude any party hereto
from seeking, or a court of competent jurisdiction from granting, a temporary
restraining order, temporary injunction or other equitable relief for any breach
of (i) any noncompetition or confidentiality covenant or (ii) any duty,
obligation, covenant, representation or warranty, the breach of which may cause
irreparable harm or damage.
b. Arbitrators. In the event there is a claim, controversy,
dispute or disagreement among the parties hereto arising out of or relating to
this Agreement (including any claim based on or arising from an alleged tort)
and the parties hereto have not reached agreement regarding an alternative to
arbitration, the parties agree to select, within 30 days of notice by a party to
the other of its desire to seek arbitration under this Paragraph 7 one (1)
arbitrator mutually acceptable to the Company and the Stockholders to hear and
decide all such claims under this Paragraph 7. Each of the arbitrators proposed
shall be impartial and independent of all parties. If the parties cannot agree
on the selection of an arbitrator within said 30-day period, then any party may
in writing request the judge of the United States District Court for the
_____________ District of __________ senior in term of service to appoint the
arbitrator and, subject to this Paragraph 7, such arbitrator shall hear all
arbitration matters arising under this Paragraph 7.
c. Applicable Rules.
(1) Each arbitration hearing shall be held at a place in
_____________ acceptable to the arbitrator. The arbitration shall be conducted
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association to the extent such rules do not conflict with the terms hereof;
provided, however, that if the parties hereto agree to an alternative to
arbitration they may agree to an alternative set of rules, including as to rules
of evidence and procedure. The decision of the arbitrator shall be reduced to
writing and shall be binding on the parties and such decision shall contain a
concise statement of the reasons in support of such decision. Judgment upon the
award(s) rendered by the arbitrator may be entered and execution had in any
court of competent jurisdiction or
F-7
<PAGE> 1720
application may be made to such court for a judicial acceptance of the award and
an order of enforcement. The charges and expenses of the arbitrator shall be
shared equally by the parties to the hearing.
(2) The arbitration shall commence within ten (10) days
after the arbitrator is selected in accordance with the provisions of this
Paragraph 7. In fulfilling his duties with respect to determining the amount of
any loss, the arbitrator may consider such matters as, in the opinion of the
arbitrator, are necessary or helpful to make a proper valuation. The arbitrator
may consult with and engage disinterested third parties to advise the
arbitrator. The arbitrator shall not add any interest factor reflecting the time
value of money to the amount of any loss and shall not award any punitive
damages.
(3) If the arbitrator selected hereunder should die, resign
or be unable to perform his or her duties hereunder, the parties, or such senior
judge (or such judge's successor) in the event the parties cannot agree, shall
select a replacement arbitrator. The procedure set forth in this Paragraph 7 for
selecting the arbitrator shall be followed from time to time as necessary.
(4) As to any determination of the amount of any loss, or as
to the resolution of any other claim, controversy, dispute or disagreement, that
under the terms hereof is made subject to arbitration, no lawsuit based on such
claimed loss or such resolution shall be instituted by the parties hereto, other
than to compel arbitration proceedings or enforce the award of the arbitrator,
except as otherwise provided in Paragraph 7.
(5) All privileges under state and federal law, including
attorney-client and work-product privileges, shall be preserved and protected to
the same extent that such privileges would be protected in a federal court
proceeding applying state law.
8. Miscellaneous.
a. Amendment; Waivers. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the party or parties making any such waiver. The waiver of any of the
terms and conditions of this Agreement shall not be construed as a waiver of any
other terms and conditions hereof.
b. Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto.
c. Parties in Interest. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective heirs, legal representatives, successors and assigns
of the parties hereto.
d. Entire Agreement. This Agreement, the Merger Agreement and any
agreements contemplated hereby constitute the entire agreement of the parties
regarding the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
e. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully
F-8
<PAGE> 1721
severable and this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision never comprised a part hereof; and the
remaining provisions hereof shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance therefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
f. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF
LAWS) OF THE STATE OF ______________.
g. Captions. The captions contained in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
h. Gender and Number. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
i. Reference to Agreement. Use of the words "herein," "hereof,"
"hereto" and the like in this Agreement shall be construed as references to this
Agreement as a whole and not to any particular Article, Paragraph or provision
of this Agreement, unless otherwise noted.
j. Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink
If to the Stockholders: See Exhibit A
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<PAGE> 1722
k. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
l. Survival. Any and all claims for indemnification asserted in
writing before the expiration of the applicable survival periods specified in
Section __ of the Merger Agreement shall survive until resolved.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:_______________________________________
Gregory L. Solomon, President
STOCKHOLDERS:
[Separate pages to be attached]
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<PAGE> 1723
Exhibit A
List of Stockholders
F-11
<PAGE> 1724
Exhibit B
List of Exceptions
APP and the Company shall mutually agree upon certain exceptions to
Paragraph 2(g) including, without limitation, pending litigation and claims and
existing violations of law.
F-12
<PAGE> 1725
APPENDIX G
CALIFORNIA CORPORATIONS CODE
SECTIONS 1300 THROUGH 1304
Section 1300. Reorganization or short-form merger; dissenting shares; corporate
purchase at fair market value; definitions
(a) If the approval of the outstanding shares (Section 152) of a corporation is
required for a reorganization under subdivisions (a) and (b) or subdivision (e)
or (f) of Section 1201, each shareholder of the corporation entitled to vote on
the transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the
shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or share
dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come within
all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form merger
either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (0) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of shareholders
entitled to vote on the reorganization and (A) were not voted in favor of the
reorganization or, (B) if described in subparagraph (A) or (B) of paragraph (1)
(without regard to the provisos in that paragraph), were voted against the
reorganization, or which were held of record on the effective date of a
short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation purchase
at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder of
dissenting shares and includes a transferee of record.
G-1
<PAGE> 1726
Section 1301. Notice to holders of dissenting shares in reorganizations; demand
for purchase; time; contents
(a) If, in the case of a reorganization, any shareholders of a corporation have
a right under Section 1300, subject to compliance with paragraphs (3) and (4) of
subdivision (b) thereof, to require the corporation to purchase their shares for
cash, such corporation shall mail to each such shareholder a notice of the
approval of the reorganization by its outstanding shares (Section 152) within 10
days after the date of such approval, accompanied by a copy of Sections 1300,
1302, 1303, 1304 and this section, a statement of the price determined by the
corporation to represent the fair market value of the dissenting shares, and a
brief description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase the
shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record by
the shareholder which the shareholder demands that the corporation purchase and
shall contain a statement of what such shareholder claims to be the fair market
value of those shares as of the day before the announcement of the proposed
reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
G-2
<PAGE> 1727
Section 1302. Submission of share certificates for endorsement; uncertificated
securities
Within 30 days after the date on which notice of the approval by the outstanding
shares or the notice pursuant to subdivision (i) of Section 1110 was mailed to
the shareholder, the shareholder shall submit to the corporation at its
principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
G-3
<PAGE> 1728
Section 1303. Payment of agreed price with interest; agreement fixing fair
market value; filing; time of payment
(a) If the corporation and the shareholder agree that the shares are dissenting
shares and agree upon the price of the shares, the dissenting shareholder is
entitled to the agreed price with interest thereon at the legal rate on
judgments from the date of the agreement. Any agreements fixing the fair market
value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market value
of dissenting shares shall be made within 30 days after the amount thereof has
been agreed or within 30 days after any statutory or contractual conditions to
the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
G-4
<PAGE> 1729
Section 1304. Action to determine whether shares are dissenting shares or fair
market value; limitation; joinder; consolidation; determination of issues;
appointment of appraisers
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined as
defendants in any such action and two or more such actions may be consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
G-5
<PAGE> 1730
APPENDIX H
KANSAS GENERAL CORPORATION CODE SECTION 17-6712
17-6712. Payment for stock of stockholder objecting to merger or consolidation;
definitions; notice to objecting stockholders; demand for payment; appraisal and
determination of value by district court, when [sic]; taxation of costs; rights
of objecting stockholders; status of stock; section inapplicable to certain
shares of stock.
(a) When used in this section, the word "stockholder" means a holder
of record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a nonstock corporation.
(b) The corporation surviving or resulting from any merger or
consolidation, within 10 days after the effective date of the merger or
consolidation, shall notify each stockholder of any corporation of this state so
merging or consolidating who objected thereto in writing and whose shares either
were not entitled to vote or were not voted in favor of the merger or
consolidation, and who filed such written objection with the corporation before
the taking of the vote on the merger or consolidation, that the merger or
consolidation has become effective. If any such stockholder, within 20 days
after the date of mailing of the notice, shall demand in writing, from the
corporation surviving or resulting from the merger or consolidation, payment of
the value of the stockholder's stock, the surviving or resulting corporation
shall pay to the stockholder, within 30 days after the expiration of the period
of 20 days the value of the stockholder's stock on the effective date of the
merger or consolidation, exclusive of any element of value arising from the
expectation or accomplishment of the merger or consolidation.
(c) If during a period of 30 days following the period of 20 days
provided for in subsection (b), the corporation and any such stockholder fail to
agree upon the value of such stock, any such stockholder, or the corporation
surviving or resulting from the merger or consolidation, may demand a
determination of the value of the stock of all such stockholders by an appraiser
or appraisers to be appointed by the district court, by filing a petition with
the court within four months after the expiration of the thirty-day period.
(d) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the corporation, which shall file with the
clerk of such court, within 10 days after such service, a duly verified list
containing the names and addresses of all stockholders who have demanded payment
for their shares and with whom agreements as to the value of their shares have
not been reached by the corporation. If the petition shall be filed by the
corporation, the petition shall be accompanied by such duly verified list. The
clerk of the court shall give notice of the time and place fixed for the hearing
of such petition by registered or certified mail to the corporation and to the
stockholders shown upon the list at the addresses therein stated and notice
shall also be given by publishing a notice at least once, at least one week
before the day of the hearing, in a newspaper of general circulation in the
county in which the court is located. The court may direct such additional
publication of notice as it deems advisable. The forms of the notices by mail
and by publication shall be approved by the court.
(e) After the hearing on such petition the court shall determine the
stockholders who have complied with the provisions of this section and become
entitled to the valuation of and payment for their shares, and shall appoint an
appraiser or appraisers to determine such value. Any such appraiser may examine
any of the books and records of the corporation or corporations the stock of
which such appraiser is charged with the duty of valuing, and such appraiser
shall make a determination of the value of the shares upon such investigation as
seems proper to the appraiser. The appraiser or appraisers shall also afford a
reasonable opportunity to the parties interested to submit to the appraiser or
appraisers pertinent evidence on the value of the shares. The appraiser or
appraisers, also, shall have the powers and authority conferred upon masters by
K.S.A. 60-253 and amendments thereto.
(f) The appraiser or appraisers shall determine the value of the
stock of the stockholders adjudged by the court to be entitled to payment
therefor and shall file a report respecting such value in the office of the
clerk
H-1
<PAGE> 1731
of the court, and notice of the filing of such report shall be given by the
clerk of the court to the parties in interest. Such report shall be subject to
exceptions to be heard before the court both upon the law and facts. The court
by its decree shall determine the value of the stock of the stockholders
entitled to payment therefor and shall direct the payment of such value,
together with interest, if any, as hereinafter provided, to the stockholders
entitled thereto by the surviving or resulting corporation. Upon payment of the
judgment by the surviving or resulting corporation, the clerk of the district
court shall surrender to the corporation the certificates of shares of stock
held by the clerk pursuant to subsection (g). The decree may be enforced as
other judgments of the district court may be enforced, whether such surviving or
resulting corporation be a corporation of this state or of any other state.
(g) At the time of appointing the appraiser or appraisers, the court
shall require the stockholders who hold certificated shares and who demanded
payment for their shares to submit their certificates of stock to the clerk of
the court, to be held by the clerk pending the appraisal proceedings. If any
stockholder fails to comply with such direction, the court shall dismiss the
proceedings as to such stockholder.
(h) The cost of any such appraisal, including a reasonable fee to
and the reasonable expenses of the appraiser, but exclusive of fees of counsel
or of experts retained by any party, shall be determined by the court and taxed
upon the parties to such appraisal or any of them as appears to be equitable,
except that the cost of giving the notice by publication and by registered or
certified mail hereinabove provided for shall be paid by the corporation. The
court, on application of any party in interest, shall determine the amount of
interest, if any, to be paid upon the value of the stock of the stockholders
entitled thereto.
(i) Any stockholder who has demanded payment of the stockholder's
stock as herein provided shall not thereafter be entitled to vote such stock for
any purpose or be entitled to the payment of dividends or other distribution on
the stock, except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation, unless the appointment of an appraiser or appraisers shall not be
applied for within the time herein provided, or the proceeding be dismissed as
to such stockholder, or unless such stockholder with the written approval of the
corporation shall deliver to the corporation a written withdrawal of the
stockholder's objections to and an acceptance of the merger or consolidation, in
any of which cases the right of such stockholder to payment for the
stockholder's stock shall cease.
(j) The shares of the surviving or resulting corporation into which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
(k) This section shall not apply to the shares of any class or
series of a class of stock, which, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the meeting of
stockholders at which the agreement of merger or consolidation is to be acted
on, were either (1) registered on a national securities exchange or designated
as a national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc., or (2) held of record by not
less than 2,000 stockholders, unless the articles of incorporation of the
corporation issuing such stock shall otherwise provide; nor shall this section
apply to any of the shares of stock of the constituent corporation surviving a
merger, if the merger did not require for its approval the vote of the
stockholders of the surviving corporation, as provided in subsection (f) of
K.S.A. 17-6701 and amendments thereto. This subsection shall not be applicable
to the holders of a class or series of a class of stock of a constituent
corporation if under the terms of a merger of consolidation pursuant to K.S.A.
17-6701 or 17-6702, and amendments thereto, such holders are required to accept
for such stock anything except (i) stock or stock and cash in lieu of fractional
shares of the corporation surviving or resulting from such merger or
consolidation, or (ii) stock or stock and cash in lieu of fractional shares of
any other corporation, which at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the meeting of
stockholders at which the agreement of merger or consolidation is to be acted
on, were either registered on a national securities exchange or held of record
by not less than 2,000 stockholders, or (iii) a combination of stock or stock
and cash in lieu of fractional shares as set forth in (i) and (ii) of this
subsection.
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APPENDIX I
MARYLAND GENERAL CORPORATION LAW
SECTIONS 3-202 AND 3-203
Section 3-202. Right to fair value of stock
(a) General rule. -- Except as provided in subsection (c) of this
section, a stockholder of a Maryland corporation has the right to demand and
receive payment of the fair value of the stockholder's stock from the successor
if:
(1) The corporation consolidates or merges with another
corporation;
(2) The stockholder's stock is to be acquired in a share
exchange;
(3) The corporation transfers its assets in a manner requiring
action under Section 3-105(d) of this title;
(4) The corporation amends its charter in a way which alters
the contract rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholder's rights, unless the
right to do so is reserved by the charter of the corporation; or
(5) The transaction is governed by Section 3-602 of this title
or exempted by Section 3-603 (b) of this title.
(b) Basis of fair value. --
(1) Fair value is determined as of the close of business:
(i) With respect to a merger under Section 3-106 of this
title of a 90 percent or more owned subsidiary into its parent, on the day
notice is given or waived under Section 3-106; or
(ii) With respect to any other transaction, on the day
the stockholders voted on the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection,
fair value may not include any appreciation or depreciation which directly or
indirectly results from the transaction objected to or from its proposal.
(3) In any transaction governed by Section 3-602 of this title
or exempted by Section 3-603 (b) of this title, fair value shall be value
determined in accordance with the requirements of Section 3-603 (b) of this
title.
(c) When right to fair value does not apply. -- Unless the
transaction is governed by Section 3-602 of this title or is exempted by Section
3-603 (b) of this title, a stockholder may not demand the fair value of his
stock and is bound by the terms of the transaction if:
(1) The stock is listed on a national securities exchange or
is designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.:
(i) With respect to a merger under Section 3-106 of this
title of a 90 percent or more owned subsidiary into its parent, on the date
notice is given or waived under Section 3-106; or
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(ii) With respect to any other transaction, on the
record date for determining stockholders entitled to vote on the transaction
objected to;
(2) The stock is that of the successor in a merger, unless:
(i) The merger alters the contract rights of the stock
as expressly set forth in the charter, and the charter does not reserve the
right to do so; or
(ii) The stock is to be changed or converted in whole or
in part in the merger into something other than either stock in the successor or
cash, scrip, or other rights or interests arising out of provisions for the
treatment of fractional shares of stock in the successor; or
(3) The stock is that of an open-end investment company
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the value placed on the stock in the transaction is its
net asset value.
Section 3-203. Procedure by stockholder
(a) Specific duties. -- A stockholder of a corporation who desires
to receive payment of the fair value of his stock under this subtitle:
(1) Shall file with the corporation a written objection to the
proposed transaction:
(i) With respect to a merger under Section 3-106 of this
title of a 90 percent or more owned subsidiary into its parent, within 30 days
after notice is given or waived under Section 3-106; or
(ii) With respect to any other transaction, at or before
the stockholders' meeting at which the transaction will be considered;
(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the articles
for record, shall make a written demand on the successor for payment for his
stock, stating the number and class of shares for which he demands payment.
(b) Failure to comply with section. -- A stockholder who fails to
comply with this section is bound by the terms of the consolidation, merger,
share exchange, transfer of assets, or charter amendment.
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APPENDIX J
NEW YORK BUSINESS CORPORATION LAW
SECTIONS 623 AND 910
Section 623. Procedure to enforce shareholder's right to receive payment for
shares.
(a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents a demand for payment of the
fair value of his shares if the action is taken. Such objection is not required
from any shareholder to whom the corporation did not give notice of such meeting
in accordance with this chapter or where the proposed action is authorized by
written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date,
which term as used in this section means the date on which the shareholders'
vote authorizing such action was taken, or the date on which such consent
without a meeting was obtained from the requisite shareholders, the corporation
shall give written notice of such authorization or consent by registered mail to
each shareholder who filed written objection or from whom written objection was
not required, excepting any shareholder who voted for or consented in writing to
the proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election,
stating his name and residence address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or consolidation
of domestic and foreign corporations) or from a share exchange under paragraph
(g) of section 913 (Share exchanges) shall file a written notice of such
election to dissent within twenty days after the giving to him of a copy of the
plan of merger or exchange or an outline of the material features thereof under
section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares,
as to which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall
cease to have any of the rights of a shareholder except the right to be paid the
fair value of his shares and any other rights under this section. A notice of
selection may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer is
made. Upon expiration of such time, withdrawal of a notice of election shall
require the written consent of the corporation. In order to be effective,
withdrawal of a notice of election must be accompanied by the return to the
corporation of any advance payment made to the shareholder as provided in
paragraph (g). If a notice of election is withdrawn, or the corporate action is
rescinded, or a court shall determine that the shareholder is not entitled to
receive payment for his shares, or the shareholder shall otherwise lose his
dissenters' rights, he shall not have the right to receive payment for his
shares and he shall be reinstated to all his rights as a shareholder as of the
consummation of the corporate action, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in
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cash as determined by the board as of the time of such expiration or completion,
but without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
(f) At the time of filing the notice of election to dissent or
within one month thereafter the shareholder of shares represented by
certificates shall submit the certificates representing his shares to the
corporation, or to its transfer agent, which shall forthwith note conspicuously
thereon that a notice of election has been filed and shall return the
certificates to the shareholder or other person who submitted them on his
behalf. Any shareholder of shares represented by certificates who fails to
submit his certificates for such notation as herein specified shall, at the
option of the corporation exercised by written notice to him within forty-five
days from the date of filing of such notice of election to dissent, lose his
dissenter's rights unless a court, for good cause shown, shall otherwise direct.
Upon transfer of a certificate bearing such notation, each new certificate
issued therefor shall bear a similar notation together with the name of the
original dissenting holder of the shares and a transferee shall acquire no
rights in the corporation except those which the original dissenting shareholder
had at the time of transfer.
(g) Within fifteen days after the expiration of the period within
which shareholders may file their notices of election to dissent, or within
fifteen days after the proposed corporate action is consummated, whichever is
later (but in no case later than ninety days from the shareholders'
authorization date), the corporation or, in the case of a merger or
consolidation, the surviving or new corporation, shall make a written offer by
registered mail to each shareholder who has filed such notice of election to pay
for his shares at a specified price which the corporation considers to be their
fair value. Such offer shall be accompanied by a statement setting forth the
aggregate number of shares with respect to which notices of election to dissent
have been received and the aggregate number of holders of such shares. If the
corporate action has been consummated, such offer shall also be accompanied by
(1) advance payment to each such shareholder who has submitted the certificates
representing his shares to the corporation, as provided in paragraph (f), of an
amount equal to eighty percent of the amount of such offer, or (2) as to each
shareholder who has not yet submitted his certificates a statement that advance
payment to him of an amount equal to eighty percent of the amount of such offer
will be made by the corporation promptly upon submission of his certificates. If
the corporate action has not been consummated at the time of the making of the
offer, such advance payment or statement as to advance payment shall be sent to
each shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the corporation fails to
make such offer within such period of fifteen days, or if it makes the offer and
any dissenting shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares:
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(1) The corporation shall, within twenty days after the
expiration of whichever is applicable of the two periods last mentioned,
institute a special proceeding in the supreme court in the judicial district in
which the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in the
case of merger or consolidation, the surviving or new corporation is a foreign
corporation without an office in this state, such proceeding shall be brought in
the county where the office of the domestic corporation, whose shares are to be
valued, was located.
(2) If the corporation fails to institute such proceeding
within such period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the expiration
of such twenty day period. If such proceeding is not instituted within such
thirty day period, all dissenters' rights shall be lost unless the supreme
court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as
provided in paragraph (g), have agreed with the corporation upon the price to be
paid for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law for
the service of a summons, and upon each nonresident dissenting shareholder
either by registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court to make such
determination, is entitled to receive payment for his shares. If the corporation
does not request any such determination or if the court finds that any
dissenting shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value as of
the close of business on the day prior to the shareholders' authorization date.
In fixing the fair value of the shares, the court shall consider the nature of
the transaction giving rise to the shareholder's right to receive payment for
shares and its effects on the corporation and its shareholders, the concepts and
methods then customary in the relevant securities and financial markets for
determining fair value of shares of a corporation engaging in a similar
transaction under comparable circumstances and all other relevant factors. The
court shall determine the fair value of the shares without a jury and without
referral to an appraiser or referee. Upon application by the corporation or by
any shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law and
rules.
(5) The final order in the proceeding shall be entered against
the corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at
such rate as the court finds to be equitable, from the date the corporate action
was consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees incurred by
the corporation against any or all of the dissenting shareholders who are
parties to the proceeding, including any who have withdrawn their notices of
election as provided in paragraph (e), if the court finds that their refusal to
accept the corporate offer was arbitrary, vexatious or otherwise not in good
faith. The court may, in its discretion, apportion and assess all or any part of
the costs, expenses and fees incurred by any or all of the dissenting
shareholders who are parties to the
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proceeding against the corporation if the court finds any of the following: (A)
that the fair value of the shares as determined materially exceeds the amount
which the corporation offered to pay; (B) that no offer or required advance
payment was made by the corporation; (C) that the corporation failed to
institute the special proceeding within the period specified therefor; or (D)
that the action of the corporation in complying with its obligations as provided
in this section was arbitrary, vexatious or otherwise not in good faith. In
making any determination as provided in clause (A), the court may consider the
dollar amount or the percentage, or both, by which the fair value of the shares
as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the
proceeding, the corporation shall pay to each dissenting shareholder the amount
found to be due him, upon surrender of the certificates for any such shares
represented by certificates.
(i) Shares acquired by the corporation upon the payment of the
agreed value therefor or of the amount due under the final order, as provided in
this section, shall become treasury shares or be cancelled as provided in
section 515 (Reacquired shares), except that, in the case of a merger or
consolidation, they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment would
make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such event
be deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation
and, if it is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders, and if
it is not liquidated, retain his right to be paid for his shares, which right
the corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
(3) The dissenting shareholder shall exercise such option
under subparagraph (1) or (2) by written notice filed with the corporation
within thirty days after the corporation has given him written notice that
payment for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given to
him within twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment
for his shares in the manner provided herein shall exclude the enforcement by
such shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except that
this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any
notice to be given by a corporation to a shareholder under this section shall be
given in the manner provided in section 605 (Notice of meetings of
shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or consolidation of
domestic and foreign corporations).
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Section 910. Right of shareholder to receive payment for shares upon merger or
consolidation, or sale, lease, exchange or other disposition of assets, or share
exchange
(a) A shareholder of a domestic corporation shall, subject to and by
complying with section 623 (Procedure to enforce shareholder's right to receive
payment for shares), have the right to receive payment of the fair value of his
shares and the other rights and benefits provided by such section, in the
following cases:
(1) Any shareholder entitled to vote who does not assent to
the taking of an action specified in clauses (A), (B) and (C).
(A) Any plan of merger or consolidation to which the
corporation is a party; except that the right to receive payment of the fair
value of his shares shall not be available:
(i) To a shareholder of the parent corporation in
a merger authorized by section 905 (Merger of parent and subsidiary
corporations), or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations); and
(ii) To a shareholder of the surviving corporation
in a merger authorized by this article, other than a merger specified in
subclause (i), unless such merger effects one or more of the changes
specified in subparagraph (b) (6) of section 806 (Provisions as to certain
proceedings) in the rights of the shares held by such shareholder; and
(iii) To a shareholder for the shares of any class
or series of stock, which shares or depository receipts in respect thereof, at
the record date fixed to determine the shareholders entitled to receive notice
of the meeting of shareholders to vote upon the plan of merger or consolidation,
were listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc.
(B) Any sale, lease, exchange or other disposition of
all or substantially all of the assets of a corporation which requires
shareholder approval under section 909 (Sale, lease, exchange or other
disposition of assets) other than a transaction wholly for cash where the
shareholders' approval thereof is conditioned upon the dissolution of the
corporation and the distribution of substantially all of its net assets to the
shareholders in accordance with their respective interests within one year after
the date of such transaction.
(C) Any share exchange authorized by section 913 in
which the corporation is participating as a subject corporation; except that the
right to receive payment of the fair value of his shares shall not be available
to a shareholder whose shares have not been acquired in the exchange.
(2) Any shareholder of the subsidiary corporation in a merger
authorized by section 905 or paragraph (c) of section 907, or in a share
exchange authorized by paragraph (g) of section 913, who files with the
corporation a written notice of election to dissent as provided in paragraph (c)
of section 623.
(3) Any shareholder, not entitled to vote with respect to a
plan of merger or consolidation to which the corporation is a party, whose
shares will be cancelled or exchanged in the merger or consolidation for cash or
other consideration other than shares of the surviving or consolidated
corporation or another corporation.
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APPENDIX K
TEXAS BUSINESS CORPORATION ACT
ARTICLES 5.11, 5.12 AND 5.13
Art. 5.11. Rights of Dissenting Shareholders in the Event of Certain Corporate
Actions
A. Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and the
shareholder holds shares of a class or series that was entitled to vote thereon
as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not
including any pledge, mortgage, deed of trust or trust indenture unless
otherwise provided in the articles of incorporation) of all, or substantially
all, the property and assets, with or without good will, of a corporation
if special authorization of the shareholders is required by this act and the
shareholders hold shares of a class or series that was entitled to vote thereon
as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act
in which the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in
which there is a single surviving or new domestic or foreign corporation, or
from any plan of exchange, if:
(1) The shares held by the shareholder are part of a class or
series, shares [sic] of which are on the record date fixed to determine the
shareholders entitled to vote on the plan of merger or plan of exchange:
(A) Listed on a national securities exchange:
(B) Listed on the NASDAQ Stock Market (or successor
quotation system) or designated as a national market security on an interdealer
quotation system by the National Association of Securities Dealers, Inc., or
successor entity; or
(C) Held of record by not less than 2,000 holders;
(2) The shareholder is not required by the terms of the plan
of merger or plan of exchange to accept for the shareholder's shares any
consideration that is different than the consideration (other than cash in lieu
of fractional shares that the shareholder would otherwise be entitled to
receive) to be provided to any other holder of shares of the same class or
series of shares held by such shareholder; and
(3) The shareholder is not required by the terms of the plan
of merger or the plan of exchange to accept for the shareholder's shares any
consideration other than:
(a) shares of a domestic or foreign corporation that,
immediately after the effective time of the merger or exchange, will be part of
a class or series, shares of which are:
(i) listed, or authorized for listing upon official
notice of issuance, on a national securities exchange;
(ii) approved for quotation as a national market
security on an interdealer quotation system by the National Association of
Securities Dealers, or successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled
to be received; or
(c) any combination of the securities and cash described
in subdivisions (A) and (B) of this subsection.
Art. 5.12. Procedure for Dissent by Shareholders as to Said Corporate Actions
A. Any shareholder of any domestic corporation who has the right to
dissent from any of the corporate actions referred to in Article 5.11 of this
Act may exercise that right to dissent only by complying with the following
procedures:
(1)(a) With respect to proposed corporate action that is
submitted to a vote of shareholders at a meeting, the shareholder shall file
with the corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if the
action is effective and giving the shareholder's address, to which notice
thereof shall be delivered or mailed in that event. If the action is effected
and the shareholder shall not have voted in favor of the action, the
corporation, in the case of action other than a merger, or the surviving or new
corporation (foreign or domestic) or other entity that is liable to discharge
the shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the action is effected, deliver or mail to the shareholder
written notice that the action has been effected, and the shareholder may,
within ten (10) days from the delivery or mailing of the notice, make written
demand on the existing, surviving, or new corporation (foreign or domestic) or
other entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value thereof as
of the day immediately preceding the meeting, excluding any appreciation or
depreciation in anticipation of the proposed action. The
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended Bylaws provide that the Company shall, to the fullest
extent permitted by Section 145 of the DGCL, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.
Article VI of the Company's Restated Certificate of Incorporation, as
amended, provides that the Company's directors will not be personally liable to
the Company or its stockholders for monetary damages resulting from breaches of
their fiduciary duty as directors except for liability (a) for any breach of the
duty of loyalty to the Company or its stockholders, (b) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (c) under Section 174 of the DGCL or (d) for any transaction from which
the director derived an improper personal benefit.
Reference is made to Article VIII of the Company's Amended and Restated
Bylaws filed as an Exhibit to this Registration Statement, which provides for
indemnification of directors and officers.
In October, 1997 the Company entered into an indemnification agreement with
certain of its directors and director nominees, pursuant to which the Company
has agreed to indemnify such persons for losses arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement of which this Prospectus forms a part.
ITEM 21. EXHIBITS.
The exhibits filed as a part of this Registration Statement are as follows:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and among American Physician Partners, Inc., Carroll Imaging Associates,
P.A., Diagnostic Imaging Associates, P.A., Drs. Copeland, Hyman and
Shackman, P.A., Drs. DeCarlo, Lyon, Hearn & Pazourek, P.A., Drs. Thomas,
Wallop, Kim & Lewis, P.A., Harbor Radiologists, P.A., and Perilla, Sindler
& Associates, P.A.**
2.2 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc., and Radiology and Nuclear
Medicine, A Professional Association.**
</TABLE>
II-1
<PAGE> 1741
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
2.3 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc., and Mid Rockland Imaging
Associates, P.C.**
2.4 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc., and Rockland Radiological
Group, P.C.**
2.5 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc., and Advanced Imaging of
Orange County, P.C.**
2.6 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc. and Central Imaging
Associates, P.C.**
2.7 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc. and Nyack Magnetic Resonance
Imaging, P.C.**
2.8 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc. and Pelham Imaging
Associates, P.C.**
2.9 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc. and Women's Imaging
Consultants, P.C.**
2.10 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc. and Pacific Imaging
Consultants, A Medical Group, Inc.**
2.11 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc. and Total Medical Imaging,
Inc.**
2.12 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc. and Valley Radiologists
Medical Group, Inc.**
2.13 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc. and The Ide Group, P.C.**
2.14 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc. and M & S X-Ray Associates,
P.A.**
2.15 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc. and South Texas MR, Inc.**
2.16 Agreement and Plan of Reorganization and Merger, dated June 27, 1997 by
and between American Physician Partners, Inc. and San Antonio MR, Inc.**
2.17 Agreement and Plan of Exchange, dated June 27, 1997 by and among American
Physician Partners, Inc., Lexington MR, Ltd., and the Sellers.**
2.18 Agreement and Plan of Exchange, dated June 27, 1997 by and among American
Physician Partners, Inc., Madison Square Joint Venture, and the Sellers.**
2.19 Agreement and Plan of Exchange, dated June 27, 1997 by and among American
Physician Partners, Inc., South Texas No. 1 MRI Limited Partnership, a
Texas limited partnership, and the Sellers.**
2.20 Agreement and Plan of Exchange, dated June 27, 1997 by and among American
Physician Partners, Inc., San Antonio MRI Partnership No. 2 Ltd., a Texas
limited partnership, and the Sellers.**
2.22 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and among American Physician Partners,
Inc., Carroll Imaging Associates, P.A., Diagnostic Imaging Associates,
P.A., Drs. Thomas, Wallop, Kim & Lewis, P.A., Drs. Copeland, Hyman &
Shackman, P.A., Drs. DeCarlo, Lyon, Hearn & Pazourek, P.A., Harbor
Radiologists, P.A., and Perilla, Sindler & Associates, P.A.**
</TABLE>
II-2
<PAGE> 1742
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
2.23 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and Radiology and Nuclear Medicine, A Professional
Association.**
2.24 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and Mid Rockland Imaging Associates, P.C.**
2.25 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and Rockland Radiological Group, P.C.**
2.26 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and Advanced Imaging of Orange County, P.C.**
2.27 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and Central Imaging Associates, P.C.**
2.28 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and Nyack Magnetic Resonance Imaging, P.C.**
2.29 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and Pelham Imaging Associates, P.C.**
2.30 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and Women's Imaging Consultants, P.C.**
2.31 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and Pacific Imaging Consultants, A Medical Group, Inc.**
2.32 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and Total Medical Imaging, Inc.**
2.33 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and Valley Radiologists Medical Group, Inc.**
2.34 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and The Ide Group, P.C.**
2.35 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and M & S X-Ray Associates, P.A.**
2.36 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and South Texas MR, Inc.**
2.37 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger,
dated as of September 30, 1997, by and between American Physician
Partners, Inc., and San Antonio MR, Inc.**
2.38 Amendment No. 1 to the Agreement and Plan of Exchange, dated September 30,
1997, by and among American Physician Partners, Inc., and Lexington MR,
Ltd.**
</TABLE>
II-3
<PAGE> 1743
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
2.39 Amendment No. 1 to the Agreement and Plan of Exchange, dated September 30,
1997, by and among American Physician Partners, Inc., and Madison Square
Joint Venture.**
2.40 Amendment No. 1 to the Agreement and Plan of Exchange, dated September 30,
1997, by and among American Physician Partners, Inc., and South Texas No.
1 MRI Limited Partnership.**
2.41 Amendment No. 1 to the Agreement and Plan of Exchange, dated September 30,
1997, by and among American Physician Partners, Inc., and San Antonio MRI
Partnership No. 2, Ltd.**
2.42 Form of Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger.**
3.1 Restated Certificate of Incorporation of American Physician Partners, Inc.
3.2 Amended and Restated Bylaws of American Physician Partners, Inc.****
4.1 Form of certificate evidencing ownership of Common Stock of American
Physician Partners, Inc.*
4.2 Form of Convertible Promissory Note of American Physician Partners, Inc.**
5.1 Opinion of Brobeck, Phleger & Harrison LLP (superseded by Exhibit 5.2).**
5.2 Opinion of Brobeck, Phleger & Harrison LLP (revised).
8.1 Opinion of Haynes and Boone, L.L.P. as to certain tax matters (superseded
by Exhibit 8.2).**
8.2 Opinion of Haynes and Boone, L.L.P. as to certain tax matters (revised).
10.1 American Physician Partners, Inc. 1996 Stock Option Plan.**
10.2 Employment Agreement between American Physician Partners, Inc. and Gregory
L. Solomon.**
10.3 Employment Agreement between American Physician Partners, Inc. and Mark S.
Martin.**
10.4 Employment Agreement between American Physician Partners, Inc. and Sami S.
Abbasi.**
10.5 Employment Agreement between American Physician Partners, Inc. and Paul M.
Jolas.**
10.6 Form of Indemnification Agreement for Stockholders of Ide.**
10.7 Form of Registration Rights Agreement.**
10.8 Service Agreement, dated , 1997, by and among American
Physician Partners, Inc., APPI-Advanced Radiology, Inc. and Carroll
Imaging Associates, P.A., Diagnostic Imaging Associates, P.A., Drs.
Thomas, Wallop, Kim & Lewis, P.A., Drs. Copeland, Hyman & Shackman, P.A.,
Drs. DeCarlo, Lyon, Hearn & Pazourek, Harbor Radiologists, P.A., Perilla,
Sindler & Associates, P.A.**
10.9 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Ide Admin Corp. and Ide Imaging Group, P.C.**
10.10 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., M & S X-Ray Associates, P.A. and M & S Imaging
Associates, P.A.**
10.11 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Rockland Radiological Group, P.C. and The
Greater Rockland Radiological Group, P.C.**
10.12 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Advanced Imaging of Orange County, P.C. and The
Greater Rockland Radiological Group, P.C.**
</TABLE>
II-4
<PAGE> 1744
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
10.13 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Central Imaging Associates, P.C. and The Greater
Rockland Radiological Group, P.C.**
10.14 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Nyack Magnetic Resonance Imaging, P.C. and The
Greater Rockland Radiological Group, P.C.**
10.15 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Pelham Imaging Associates, P.C. and The Greater
Rockland Radiological Group, P.C.**
10.16 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Women's Imaging Consultants, P.C. and The
Greater Rockland Radiological Group, P.C.**
10.17 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., APPI-Pacific Imaging, Inc. and PIC Medical
Group, Inc.**
10.18 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Radiology and Nuclear Medicine, a Professional
Association and RNM L.L.C.**
10.19 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., APPI-Valley Radiology, Inc. and Valley Radiology
Medical Associates, Inc.**
10.20 Form of Indemnification Agreement for Stockholders.
10.21 Form of Indemnification Agreement for certain Directors and Officers.***
10.22 Form of Investment Letter addressed to American Physician Partners, Inc.
21.1 Subsidiaries.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of DeJoy, Knauf & Blood, LLP.
23.3 Consent of Haynes and Boone, L.L.P.
23.4 Consent of Brobeck, Phleger & Harrison LLP (contained in its opinion filed
as Exhibit 5.1).**
23.5 Consent of Shattuck Hammond Partners Inc.
24.1 Power of Attorney (contained on the signature page of this Registration
Statement).**
99.1 Form of Shattuck Hammond Commercial Reasonableness Opinion.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
*** Incorporated herein by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (Registration No. 333-30205).
**** Incorporated herein by reference to Exhibit 6.2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-20205).
ITEM 22. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event
II-5
<PAGE> 1745
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(2) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(3) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(5) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(6) "The undersigned Registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(A) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(B) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(C) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;"
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
II-6
<PAGE> 1746
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(iii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-7
<PAGE> 1747
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended,
American Physician Partners, Inc. has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on October 30, 1997.
AMERICAN PHYSICIAN PARTNERS, INC.
By: /s/ GREGORY L. SOLOMON
------------------------------------
Gregory L. Solomon
President and Chief Executive
Officer
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Gregory L. Solomon and Paul M. Jolas, and each of them, such person's true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for such person and in such person's name, place, and stead, in
any an all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and requests to accelerate the
effectiveness of this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------- --------------------------- ------------------
<C> <S> <C>
/s/ GREGORY L. SOLOMON President, Chief Executive October 30, 1997
- ------------------------------------------- Officer, and Director
Gregory L. Solomon (Principal Executive
Officer)
* LAWRENCE R. MUROFF, M.D. Chairman of the Board of October 30, 1997
- ------------------------------------------- Directors and Senior Vice
Lawrence R. Muroff, M.D. President of Medical
Affairs
* SAMI S. ABBASI Senior Vice President and October 30, 1997
- ------------------------------------------- Chief Financial Officer
Sami S. Abbasi (Principal Financial
Officer)
* STEVE W. RATTON, JR. Controller and Treasurer October 30, 1997
- ------------------------------------------- (Principal Accounting
Steve W. Ratton, Jr. Officer)
* JOHN W. COLLOTON Director October 30, 1997
- -------------------------------------------
John W. Colloton
* JOHN PAPPAJOHN Director October 30, 1997
- -------------------------------------------
John Pappajohn
* DERACE L. SCHAFFER, M.D. Director October 30, 1997
- -------------------------------------------
Derace L. Schaffer, M.D.
*By: /s/ GREGORY L. SOLOMON October 30, 1997
--------------------------------------
Gregory L. Solomon,
As Attorney In Fact
</TABLE>
II-8
<PAGE> 1748
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and among American Physician Partners, Inc., Carroll Imaging
Associates, P.A., Diagnostic Imaging Associates, P.A., Drs. Copeland,
Hyman and Shackman, P.A., Drs. DeCarlo, Lyon, Hearn & Pazourek, P.A.,
Drs. Thomas, Wallop, Kim & Lewis, P.A., Harbor Radiologists, P.A., and
Perilla, Sindler & Associates, P.A.**.................................
2.2 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc., and Radiology and
Nuclear Medicine, A Professional Association.**.......................
2.3 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc., and Mid Rockland
Imaging Associates, P.C.**............................................
2.4 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc., and Rockland
Radiological Group, P.C.**............................................
2.5 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc., and Advanced Imaging
of Orange County, P.C.**..............................................
2.6 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc. and Central Imaging
Associates, P.C.**....................................................
2.7 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc. and Nyack Magnetic
Resonance Imaging, P.C.**.............................................
2.8 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc. and Pelham Imaging
Associates, P.C.**....................................................
2.9 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc. and Women's Imaging
Consultants, P.C.**...................................................
2.10 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc. and Pacific Imaging
Consultants, A Medical Group, Inc.**..................................
2.11 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc. and Total Medical
Imaging, Inc.**.......................................................
2.12 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc. and Valley
Radiologists Medical Group, Inc.**....................................
2.13 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc. and The Ide Group,
P.C.**................................................................
2.14 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc. and M & S X-Ray
Associates, P.A.**....................................................
2.15 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc. and South Texas MR,
Inc.**................................................................
</TABLE>
<PAGE> 1749
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
2.16 Agreement and Plan of Reorganization and Merger, dated June 27, 1997
by and between American Physician Partners, Inc. and San Antonio MR,
Inc.**................................................................
2.17 Agreement and Plan of Exchange, dated June 27, 1997 by and among
American Physician Partners, Inc., Lexington MR, Ltd., and the
Sellers.**............................................................
2.18 Agreement and Plan of Exchange, dated June 27, 1997 by and among
American Physician Partners, Inc., Madison Square Joint Venture, and
the Sellers.**........................................................
2.19 Agreement and Plan of Exchange, dated June 27, 1997 by and among
American Physician Partners, Inc., South Texas No. 1 MRI Limited
Partnership, a Texas limited partnership, and the Sellers.**..........
2.20 Agreement and Plan of Exchange, dated June 27, 1997 by and among
American Physician Partners, Inc., San Antonio MRI Partnership No. 2
Ltd., a Texas limited partnership, and the Sellers.**.................
2.22 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and among American
Physician Partners, Inc., Carroll Imaging Associates, P.A., Diagnostic
Imaging Associates, P.A., Drs. Thomas, Wallop, Kim & Lewis, P.A., Drs.
Copeland, Hyman & Shackman, P.A., Drs. DeCarlo, Lyon, Hearn &
Pazourek, P.A., Harbor Radiologists, P.A., and Perilla, Sindler &
Associates, P.A.**....................................................
2.23 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and Radiology and Nuclear Medicine, A
Professional Association.**...........................................
2.24 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and Mid Rockland Imaging Associates,
P.C.**................................................................
2.25 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and Rockland Radiological Group, P.C.**.....
2.26 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and Advanced Imaging of Orange County,
P.C.**................................................................
2.27 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and Central Imaging Associates, P.C.**......
2.28 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and Nyack Magnetic Resonance Imaging,
P.C.**................................................................
2.29 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and Pelham Imaging Associates, P.C.**.......
2.30 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and Women's Imaging Consultants, P.C.**.....
2.31 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and Pacific Imaging Consultants, A Medical
Group, Inc.**.........................................................
</TABLE>
<PAGE> 1750
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
2.32 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and Total Medical Imaging, Inc.**...........
2.33 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and Valley Radiologists Medical Group,
Inc.**................................................................
2.34 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and The Ide Group, P.C.**...................
2.35 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and M & S X-Ray Associates, P.A.**..........
2.36 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and South Texas MR, Inc.**..................
2.37 Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger, dated as of September 30, 1997, by and between American
Physician Partners, Inc., and San Antonio MR, Inc.**..................
2.38 Amendment No. 1 to the Agreement and Plan of Exchange, dated September
30, 1997, by and among American Physician Partners, Inc., and
Lexington MR, Ltd.**..................................................
2.39 Amendment No. 1 to the Agreement and Plan of Exchange, dated September
30, 1997, by and among American Physician Partners, Inc., and Madison
Square Joint Venture.**...............................................
2.40 Amendment No. 1 to the Agreement and Plan of Exchange, dated September
30, 1997, by and among American Physician Partners, Inc., and South
Texas No. 1 MRI Limited Partnership.**................................
2.41 Amendment No. 1 to the Agreement and Plan of Exchange, dated September
30, 1997, by and among American Physician Partners, Inc., and San
Antonio MRI Partnership No. 2, Ltd.**.................................
2.42 Form of Amendment No. 1 to Agreement and Plan of Reorganization and
Merger.**.............................................................
3.1 Restated Certificate of Incorporation of American Physician Partners,
Inc...................................................................
3.2 Amended and Restated Bylaws of American Physician Partners,
Inc.****..............................................................
4.1 Form of certificate evidencing ownership of Common Stock of American
Physician Partners, Inc.*.............................................
4.2 Form of Convertible Promissory Note of American Physician Partners,
Inc.**................................................................
5.1 Opinion of Brobeck, Phleger & Harrison LLP (superseded by Exhibit
5.2).**...............................................................
5.2 Opinion of Brobeck, Phleger & Harrison LLP (revised)..................
8.1 Opinion of Haynes and Boone, L.L.P. as to certain tax matters
(superseded by Exhibit 8.2).**........................................
8.2 Opinion of Haynes and Boone, L.L.P. as to certain tax matters
(revised).............................................................
10.1 American Physician Partners, Inc. 1996 Stock Option Plan.**...........
10.2 Employment Agreement between American Physician Partners, Inc. and
Gregory L. Solomon.**.................................................
</TABLE>
<PAGE> 1751
<TABLE>
<CAPTION>
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EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
10.3 Employment Agreement between American Physician Partners, Inc. and
Mark S. Martin.**.....................................................
10.4 Employment Agreement between American Physician Partners, Inc. and
Sami S. Abbasi.**.....................................................
10.5 Employment Agreement between American Physician Partners, Inc. and
Paul M. Jolas.**......................................................
10.6 Form of Indemnification Agreement for Stockholders of Ide.**..........
10.7 Form of Registration Rights Agreement.**..............................
10.8 Service Agreement, dated , 1997, by and among American
Physician Partners, Inc., APPI-Advanced Radiology, Inc. and Carroll
Imaging Associates, P.A., Diagnostic Imaging Associates, P.A., Drs.
Thomas, Wallop, Kim & Lewis, P.A., Drs. Copeland, Hyman & Shackman,
P.A., Drs. DeCarlo, Lyon, Hearn & Pazourek, Harbor Radiologists, P.A.,
Perilla, Sindler & Associates, P.A.**.................................
10.9 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Ide Admin Corp. and Ide Imaging Group,
P.C.**................................................................
10.10 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., M & S X-Ray Associates, P.A. and M & S
Imaging Associates, P.A.**............................................
10.11 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Rockland Radiological Group, P.C. and The
Greater Rockland Radiological Group, P.C.**...........................
10.12 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Advanced Imaging of Orange County, P.C. and
The Greater Rockland Radiological Group, P.C.**.......................
10.13 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Central Imaging Associates, P.C. and The
Greater Rockland Radiological Group, P.C.**...........................
10.14 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Nyack Magnetic Resonance Imaging, P.C. and
The Greater Rockland Radiological Group, P.C.**.......................
10.15 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Pelham Imaging Associates, P.C. and The
Greater Rockland Radiological Group, P.C.**...........................
10.16 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Women's Imaging Consultants, P.C. and The
Greater Rockland Radiological Group, P.C.**...........................
10.17 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., APPI-Pacific Imaging, Inc. and PIC Medical
Group, Inc.**.........................................................
10.18 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., Radiology and Nuclear Medicine, a
Professional Association and RNM L.L.C.**.............................
10.19 Service Agreement dated , 1997, by and among American
Physician Partners, Inc., APPI-Valley Radiology, Inc. and Valley
Radiology Medical Associates, Inc.**..................................
10.20 Form of Indemnification Agreement for Stockholders....................
10.21 Form of Indemnification Agreement for certain Directors and
Officers.***..........................................................
</TABLE>
<PAGE> 1752
<TABLE>
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10.22 Form of Investment Letter addressed to American Physician Partners,
Inc. .................................................................
21.1 Subsidiaries.*........................................................
23.1 Consent of Arthur Andersen LLP........................................
23.2 Consent of DeJoy, Knauf & Blood, LLP..................................
23.3 Consent of Haynes and Boone, L.L.P....................................
23.4 Consent of Brobeck, Phleger & Harrison LLP (contained in its opinion
filed as Exhibit 5.1).**..............................................
23.5 Consent of Shattuck Hammond Partners Inc..............................
24.1 Power of Attorney (contained on the signature page of this
Registration Statement).**............................................
99.1 Form of Shattuck Hammond Commercial Reasonableness Opinion............
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
*** Incorporated herein by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (Registration No. 333-30205).
**** Incorporated herein by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-30205).
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION OF
AMERICAN PHYSICIAN PARTNERS, INC.
American Physician Partners, Inc. (the "Corporation") was incorporated
under and by virtue of the General Corporation Law of the State of Delaware on
April 30, 1996.
The Corporation DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is American Physician Partners, Inc.
This Restated Certificate of Incorporation (this "Certificate") integrates and
amends the Certificate of Incorporation filed on April 30, 1996, and was duly
adopted by written consent of the stockholders in accordance with the applicable
provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law.
SECOND: The Certificate of Incorporation of the Corporation shall be
amended and restated to read in full as follows:
ARTICLE I.
The name of the Corporation shall be: American Physician Partners, Inc.
ARTICLE II.
The address of the registered office of the Corporation in the State of
Delaware is 9 East Loockerman Street, in the City of Dover, County of Kent and
the name of the registered agent at that address is National Registered Agents,
Inc.
ARTICLE III.
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV.
A. The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Sixty Million
(60,000,000) shares. Fifty Million (50,000,000) shares shall be Common Stock,
par value $.0001 per share and Ten Million (10,000,000) shares shall be
Preferred Stock, par value $.0001 per share.
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Restated Certificate of Incorporation, to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of
<PAGE> 2
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them, and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE V.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize the Corporation action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Corporation shall be eliminated or limited to the
broadest and maximum extent permitted by the Delaware General Corporation Law as
so amended.
ARTICLE VI.
A. The Corporation shall, to the broadest and maximum extent permitted
by Delaware law, as the same exists from time to time indemnify each person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative by reason of the fact that he or she is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding.
B. In addition, the Corporation shall, to the broadest and maximum
extent permitted by Delaware law, as the same may exist from time to time pay to
such person any and all expenses (including attorneys' fees) incurred in
defending or settling any such action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer, to repay such amount if
it shall ultimately be determined by a final judgment or other final
adjudication that he or she is not entitled to be indemnified by the Corporation
as authorized in this Article VI.
C. Subsections (A) and (B) of this Article VI to the contrary
notwithstanding, the Corporation shall not indemnify any such person with
respect to any of the following matters: (i) remuneration paid to such person if
it shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law; or (ii) any accounting of profits made
from the purchase or sale by such person of the Corporation's securities within
the meaning of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law; or (iii) actions brought about or contributed
2
<PAGE> 3
to by the dishonesty of such person, if a final judgment or other final
adjudication adverse to such person establishes that acts of active and
deliberate dishonesty were committed or attempted by such person with actual
dishonest purpose and intent and were material to the adjudication; or (iv)
actions based on or attributable to such person having gained any personal
profit or advantage to which he or she was not entitled, in the event that a
final judgment or other final adjudication adverse to such person establishes
that such person in fact gained such personal profit or other advantage to which
he or she was not entitled; or (v) any matter in respect of which a final
decision by a court with competent jurisdiction shall determine that
indemnification is unlawful.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article VI shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, this Restated
Certificate of Incorporation, the Bylaws of the Corporation, by agreement, vote
of stockholders, or disinterested directors or otherwise.
ARTICLE VII.
The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws of the Corporation.
ARTICLE VIII.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the Delaware
General Corporation law) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the corporation.
ARTICLE IX.
Election of directors at an annual or special meeting of stockholders
need not be by written ballot unless the Bylaws of the Corporation shall so
provide.
ARTICLE X.
Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the Board of Directors or by a
committee of the Board of Directors which has been duly designated by the Board
of Directors and whose powers and authority, as provided in a resolution of the
Board of Directors or in the Bylaws of the Corporation, include the power to
call such meetings, but such special meetings may not be called by any other
person or persons; provided, however, that if and to the extent that any special
meeting of stockholders may be called by any other person or persons specified
in any provisions of this Restated Certificate of Incorporation or any amendment
thereto or any certificate filed under Section 151(g) of the General Corporation
Law of Delaware (or its successor statute as in
3
<PAGE> 4
effect from time to time hereunder), then such special meeting may also be
called by the person or persons in the manner, at the times and for the purposes
so specified.
ARTICLE XI.
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the Board of Directors of American Physician
Partners, Inc. has caused this Certificate to be signed by Paul M. Jolas, its
Senior Vice President, General Counsel and Secretary, this 27th day of October
1997.
/s/ PAUL M. JOLAS
--------------------------------------
Paul M. Jolas
Senior Vice President,
General Counsel
and Secretary
Paul M. Jolas declares under penalty of perjury that he has read the
foregoing instrument and knows the contents thereof, and that the same is true
of his own knowledge and constitutes an authorized act of the Company.
Executed at Dallas, Texas on October 27, 1997.
/s/ PAUL M. JOLAS
--------------------------------------
Paul M. Jolas
4
<PAGE> 1
EXHIBIT 5.2
(714) 955-8706
October 30, 1997
American Physician Partners, Inc.
2301 NationsBank Plaza
901 Main Street
Suite 2301
Dallas, TX 75202
Re: Registration Statement on Form S-4
File No. 333-31611
----------------------------------
Gentlemen:
We have examined the Registration Statement referred to above filed by
you with the Securities and Exchange Commission (the "Commission") on July 18,
1997 (the "Registration Statement"), in connection with the registration under
the Securities Act of 1933, as amended, of 12,809,907 shares of your Common
Stock (the "Shares"). The Shares are to be offered and sold by you to the
holders of Common Stock of Ad Rad, Inc., a Maryland corporation; Fideco, Inc., a
New York corporation; M&S X-Ray Associates, P.A., a Texas professional
association; South Texas MR, Inc., a Texas corporation; San Antonio MR, Inc., a
Texas corporation; Pacific Imaging Consultants, A Medical Group, Inc., a
California professional medical corporation; Total Medical Imaging, Inc., a
California corporation; Radiology and Nuclear Medicine, a Professional
Association, a Kansas professional association; AIOC of Rockland, Inc., a New
York corporation; CIA of Rockland, Inc., a New York corporation; MRI of
Rockland, Inc., a New York corporation; NMR of Rockland, Inc., a New York
corporation; PIA of Rockland, Inc., a New York corporation; RRG of Rockland,
Inc., a New York corporation; WIC of Rockland, Inc., a New York corporation; and
Valley Radiologists Medical Group, Inc., a California professional medical
corporation, and holders of partnership interests of Lexington MR Ltd., a Texas
limited partnership; Madison Square Joint Venture, a Texas general partnership;
South Texas No. 1 MRI Limited Partnership, a Texas limited partnership; and San
Antonio MRI Partnership No. 2, Ltd., a Texas limited partnership, as described
in the Registration Statement. As your counsel in connection with this
transaction, we have examined the proceedings taken and are familiar with the
proceedings to be taken by you in connection with the sale and issuance of the
Shares.
It is our opinion that the Shares, when sold in the manner described
in the Registration Statement, will be legally issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in such
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
/s/ BROBECK, PHLEGER & HARRISON LLP
-----------------------------------
Brobeck, Phleger & Harrison LLP
<PAGE> 1
EXHIBIT 8.2
October 28, 1997
To the Security Holders and Partners
Referenced Herein:
Re: Certain Federal Income Tax Consequences of the Acquisitions by American
Physician Partners, Inc. ("APPI") of the Entities set forth on
Schedule A
Ladies and Gentlemen:
We have been asked, as special counsel to APPI, to render this opinion regarding
certain federal income tax consequences of the exchange of shares by the owners
of equity interests in the organizations listed in Schedule A hereto (the
"Entities") for shares of common stock of APPI and cash pursuant to the
transactions set forth on Schedule A (the "Acquisitions"). The term
"Certificates" refers to the certificates that we have requested from each of
the Entities, APPI and the security holders and partners of the Entities (the
"Security Holders" and "Partners," respectively). This opinion is directed to
and may be relied upon by the Security Holders and Partners of the Entities.
In addition to the Acquisitions, APPI will complete an initial public offering
(the "IPO") of shares of its common stock in a closing that will occur
simultaneously with the Acquisitions. The obligations of the parties to
consummate the Acquisitions and the ability of APPI to complete the IPO are each
subject to the completion and consummation of the other transaction. Each of the
agreements relating to the Acquisitions described on Schedule A are hereinafter
referred to collectively as the "Acquisition Agreements." References to the
Registration Statements are to the Registration Statement on Form S-4 of APPI
(Registration No. 333-31611) filed with the Securities and Exchange
Commission with respect to the Acquisitions and the Registration Statement on
Form S-1 of APPI (Registration No. 333-30205) filed with the Securities and
Exchange Commission with respect to the IPO. All terms not defined herein shall
have the respective meanings assigned to them in the Registration Statement on
Form S-4 of APPI.
<PAGE> 2
American Physician Partners, Inc.
October 27, 1997
Page 2
In connection with our opinion, we have examined and are familiar with originals
or copies, certified or otherwise identified to our satisfaction, of the
Acquisition Agreements, the Certificates, the Registration Statements, and such
other documents as we have deemed necessary or appropriate as a basis for the
opinions set forth below. We have relied, as to matters of fact, solely upon the
matters set forth in the Acquisition Agreements; the Certificates; the
Registration Statements; and the assumptions contained herein. We have not
undertaken any independent investigation or verification as to any such factual
matters.
In rendering our opinion, we have considered the applicable provisions of the
Internal Revenue Code of 1986, as amended to the date hereof (the "Code"),
Treasury Regulations promulgated thereunder, pertinent judicial and
administrative authorities and interpretative rulings of the Internal Revenue
Service (the "IRS").
ASSUMPTIONS
In rendering the opinions set forth below, we have assumed that (1) the
Acquisitions will be consummated in the manner described in the Acquisition
Agreements, (2) the representations and assumptions contained in the
Certificates and on which we are relying as set forth above constitute actual
facts as of the date of this opinion and continuing through the time at which
the Acquisitions are effective (the "Effective Time"), (3) each representation
made to the best of the knowledge of any person constitutes an actual fact, (4)
no Target Shareholder has or, on or before the Effective Time, will have a plan
or intent to dispose of shares of APPI common stock to be received in the
Acquisitions or to dispose of any interest in the Entities in anticipation of
the Acquisitions, (5) all signatures on all documents we examined and on all
Certificates delivered to us are genuine, (6) all documents submitted to us as
originals are authentic and all documents submitted to us as certified or
photostatic copies are in conformity with the original documents, and (7) the
Acquisitions to be effected by means of a merger qualify as a merger under the
corporation law of the States in which the corporations that are parties to the
merger are incorporated.
<PAGE> 3
American Physician Partners, Inc.
October 27, 1997
Page 3
OPINION
Based on the facts and assumptions set forth above and upon our examination of
the Acquisition Agreements, the Certificates, the Registration Statements and
the relevant legal authorities, it is our opinion that:
(A) Each of the mergers (the "Merger") of the Entities described
on Schedule B (the "Merger Entities") with and into APPI will
qualify as a reorganization described in Section 368(a) of the
Code. The Merger Entities and APPI will each be "a party to
such reorganization" described in Section 368(b) of the Code.
(B) The exchange (the "Exchange") of Old Shares or Old Partnership
Interests by security holders or partners of the Entities (the
"Security Holders" and "Partners," respectively) for shares of
APPI Common Stock in the Acquisitions will be exchanges
described in Section 351 of the Code.
(C) Except as set forth below, for federal income tax purposes, no
gain or loss will be recognized by the Security Holders or
Partners who exchange their Old Shares or Old Partnership
Interests for APPI Common Stock in the Merger or Exchange, as
the case may be.
(D) The aggregate tax basis of APPI Common Stock received in the
Merger or Exchange, as the case may be, will equal the
aggregate tax basis of the Old Shares or Old Partnership
Interests, as the case may be, exchanged therefor, and in the
case of the Old Partnership Interests, reduced by the
Partners' share of partnership liabilities assumed by APPI.
(E) No gain or loss will be recognized by each of the Entities in
the Merger or Exchange, as the case may be.
(F) Provided that the Old Shares or Old Partnership Interests are
held as a capital asset at the Effective Time of a given
Merger or the Closing Date of a given Exchange, the holding
period of APPI Common Stock will include the holding period of
such Old Shares or Old Partnership Interests except, in the
case of the Old Partnership Interests, to the extent that the
APPI Common Stock is deemed to be received in exchange for
assets described in Section 751 of the Code, the holding
period of such APPI Common Stock will commence on the day
following the date of the Exchange.
<PAGE> 4
American Physician Partners, Inc.
October 27, 1997
Page 4
(G) For federal income tax purposes, Security Holders and Partners
will recognize income and/or gain from such Acquisitions only
to the extent that they receive (or are deemed to receive)
cash or property other than APPI Common Stock.
Our opinion is limited to the specific matters described above. We give no
opinion with respect to other tax matters, whether federal, state or local, that
may relate to the Acquisitions. The opinion does not address all of the tax
consequences that may result from the Acquisitions or other transactions
(including any transaction undertaken in connection with or in contemplation of
the Acquisitions) which may be material to an individual Security Holder or
Partner based on his or her particular tax situation. In particular, we express
no opinion regarding (i) other corporate and/or partnership level tax
consequences of the Acquisitions to the Entities or APPI, including without
limitation the recognition of gain or the survival and/or availability, after
the Acquisitions, of any of the federal income tax attributes or elections of
the Entities; (ii) the tax consequences of any transaction in which an interest
in one or more of the Entities or a right to acquire an interest in one or more
of the Entities was received; (iii) the tax consequences of the Acquisitions to
holders of options, warrants or other rights to acquire an interest in one or
more of the Entities; (iv) the tax consequences to any person on the release or
return of shares pursuant to any indemnity agreements; (v) the tax consequences
of the payment to the Security Holders and Partners by APPI of any indemnity
payment; or (vi) the tax consequences of any transaction (including the
Acquisitions) if all the transactions described in the Acquisition Agreements
are not consummated in accordance with the terms of such Acquisition Agreements,
without waiver or breach of any material provision thereof, or if any of the
representations, warranties, statements and assumptions upon which we have
relied are not true and accurate at all relevant times.
No ruling will be requested from the IRS regarding the Acquisitions. Our opinion
is not binding on the IRS and does not constitute a guarantee that the IRS will
not successfully challenge the taxpayers' tax treatment of the Acquisitions. We
caution that our opinion is based on the federal income tax laws as they exist
on the date hereof. It is possible that subsequent changes in the tax law could
be enacted and applied retroactively to the Acquisitions and that such changes
could result in a materially different result than the result described in this
opinion.
<PAGE> 5
American Physician Partners, Inc.
October 27, 1997
Page 5
The opinions set forth above represent our conclusions based upon the documents
reviewed by us, the facts and assumptions presented to us and stated herein. Any
material amendments to such documents or changes in any fact or assumption
stated herein or in the Certificates could affect the opinions expressed herein.
This opinion is delivered and is effective as of the date of this opinion.
Accordingly, this opinion is based on matters existing as of such date. The
opinions set forth herein may not be used and may not be provided to or relied
upon by others without our express written consent.
Very truly yours,
/s/ HAYNES AND BOONE, L.L.P.
-----------------------------
Haynes and Boone, L.L.P.
<PAGE> 6
SCHEDULE A
----------
(to Haynes and Boone, L.L.P.'s tax opinion to American Physician Partners, Inc.)
<TABLE>
<CAPTION>
Entity Name Description of Transaction
- ----------- --------------------------
<S> <C>
Ad Rad, Inc. Direct Merger
AIOC of Rockland, Inc. Direct Merger
CIA of Rockland, Inc. Direct Merger
Fideco, Inc. Direct Merger
Lexington MR, Ltd. Exchange
M&S X-Ray Associates, P.A. Direct Merger
Madison Square Joint Venture Exchange
MRI of Rockland, Inc. Direct Merger
NMR of Rockland, Inc. Direct Merger
Pacific Imaging Consultants, A Medical Group, Inc. Reverse Triangular Merger
PIA, Inc. Direct Merger
Radiology and Nuclear Medicine, A Professional Association Direct Merger
RRG of Rockland, Inc. Direct Merger
San Antonio MR, Inc. Direct Merger
San Antonio MRI Partnership No. 2, Ltd. Exchange
South Texas MR, Inc. Direct Merger
South Texas No. 1 MRI Limited Partnership Exchange
Total Medical Imaging, Inc. Reverse Triangular Merger
Valley Radiologists Medical Group, Inc. Reverse Triangular Merger
WIC of Rockland, Inc. Direct Merger
</TABLE>
<PAGE> 7
SCHEDULE B
----------
(to Haynes and Boone, L.L.P.'s tax opinion to American Physician Partners, Inc.)
Entities Merging with APPI
- --------------------------
Ad Rad, Inc.
AIOC of Rockland, Inc.
CIA of Rockland, Inc.
Fideco, Inc.
M&S X-Ray Associates, P.A.
MRI of Rockland, Inc.
NMR of Rockland, Inc.
PIA, Inc.
Radiology and Nuclear Medicine, A Professional Association
RRG of Rockland, Inc.
San Antonio MR, Inc.
South Texas MR, Inc.
WIC of Rockland, Inc.
<PAGE> 1
EXHIBIT 10.20
INDEMNIFICATION AGREEMENT
-------------------------
This INDEMNIFICATION AGREEMENT (the "Agreement") is entered
into this ___ day of ___________, 1997, by and between AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP"), and the individuals identified
on Exhibit A attached hereto (the "Stockholders"). Unless otherwise defined
herein, all capitalized terms shall have the meaning contained in that certain
Agreement and Plan of Reorganization and Merger dated ______________, 1997 (the
"Merger Agreement") by and among APP, APP Sub and _________________________, a
_____________ corporation (the "Company").
RECITALS
--------
A. Concurrent with this Agreement, the Company shall enter
into the Merger Agreement and the Service Agreement whereby APP shall acquire
the assets, and manage the non-medical aspects of, the Company's radiology
practice.
B. Pursuant to Section ____ of the Merger Agreement, the
Stockholders have, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, agreed to execute and deliver this
Agreement to APP and APP Sub.
NOW, THEREFORE, in consideration of the preceding recitals and
the covenants and agreements set forth herein, the parties agree as follows:
1. Indemnification by the Stockholders. Subject to the terms,
limitations and conditions of this Agreement, the Stockholders (each an
"Indemnifying Party" and collectively, the "Indemnifying Parties"), severally,
and not jointly, agree to indemnify, defend and hold APP and its directors,
officers, stockholders, employees, agents, attorneys, consultants and Affiliates
(each an "Indemnified Party" and collectively, the "Indemnified Parties"),
harmless from and against all losses, claims, obligations, demands, assessments,
penalties, liabilities, costs, damages, reasonable attorneys' fees and expenses
(including, without limitation, all costs of experts and all costs incidental to
or in connection with any appellate process) (collectively, "Damages") asserted
against or incurred by an Indemnified Party arising out of or resulting from:
a. a breach of any representation, warranty or covenant of the
Company contained in the Merger Agreement (without giving effect to any Material
Adverse Effect qualifier contained as part of any such representation or
warranty or covenant of the Company contained in the Merger Agreement or in any
Disclosure Schedule or certificate delivered thereunder);
b. any violation (or alleged violation) by the Company and/or
any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons in
which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged
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<PAGE> 2
overpayment or obligation) arising out of or resulting from claims submitted to
any Payor on or before the Closing Date; and
c. any liability under the Securities Act, the Exchange Act or
any other federal or state "blue sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any (i) untrue statement of a
material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto relating to the Company
(including any Company Subsidiary) or NewCo, or (ii) failure to state
information necessary to make the statements required to be stated therein not
misleading, which untrue statement or failure to state information arises or
results solely from information provided in writing to APP or its counsel by the
Company or such Stockholder or their agents specifically for inclusion in any
such Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto (including, without limitation,
schedules, exhibits and certifications delivered by the Company or any of its
agents in connection with the Merger Agreement).
The provisions contained in Paragraph 2(g) shall not apply to
indemnification of claims listed in Exhibit B attached hereto. In addition,
notwithstanding anything herein to the contrary, nothing contained in this
Agreement shall relieve any of the Stockholders of any liability or limit any
liability that he or she may have in the case of fraud in connection with the
transactions contemplated by the Merger Agreement.
2. Conditions of Indemnification. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
a. The Indemnified Party shall promptly (and, in any event, at
least ten (10) days prior to the due date for any responsive pleadings, filings
or other documents) (i) notify each Indemnifying Party of any third-party claim
or claims asserted against the Indemnified Party ("Third Party Claim") that
could give rise to a right of indemnification under this Agreement and (ii)
transmit to the Indemnifying Parties a written notice ("Claim Notice")
describing in reasonable detail the nature of the Third Party Claim, a copy of
all papers served with respect to such claim (if any), an estimate of the amount
of Damages attributable to the Third Party Claim and the basis of the
Indemnified Party's request for indemnification under this Agreement. The
failure to promptly deliver a Claim Notice shall not relieve any Indemnifying
Party of its obligations to any Indemnified Party with respect to the related
Third Party Claim except to the extent that the resulting delay is materially
prejudicial to the defense of such claim. Within thirty (30) days after receipt
of any Claim Notice (the "Election Period"), the Indemnifying Parties shall
notify the Indemnified Party (x) whether the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement with respect
to such Third Party Claim and (y) whether the Indemnifying Parties desire, at
the sole cost and expense of each Indemnifying Party, to defend the Indemnified
Party against such Third Party Claim.
b. If the Indemnifying Parties notify the Indemnified Party
within the Election Period that the Indemnifying Parties elect to assume the
defense of the Third Party Claim, then the Indemnifying Parties shall have the
right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party or Indemnified Parties, such Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted
diligently by the Indemnifying Parties to a final conclusion or settled at the
discretion of the Indemnifying Parties in accordance with this Paragraph 2(b).
Except as set forth in Paragraph 2(f) below, the Indemnifying Parties shall have
full control of such defense and proceedings, including any compromise or
settlement thereof. The Indemnified Party is hereby authorized, at the sole
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<PAGE> 3
cost and expense of the Indemnifying Parties (but only if the Indemnified Party
is entitled to indemnification hereunder), to file, during the Election Period,
any motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Parties and not prejudicial to the Indemnifying Parties. If requested by the
Indemnifying Parties, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Parties, to cooperate with the Indemnifying Parties and
their counsel in contesting any Third Party Claim that the Indemnifying Parties
elect to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Parties pursuant to this Paragraph 2(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Parties and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Parties, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Parties, and upon written
notification thereof, the Indemnifying Parties shall not have the right to
assume the defense of such action on behalf of the Indemnified Party; provided
further that the Indemnifying Parties shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Parties shall be prohibited from confessing or settling any
criminal allegations brought against the Indemnified Party without the express
written consent of the Indemnified Party.
c. If the Indemnifying Parties fail to notify the Indemnified
Party within the Election Period that the Indemnifying Parties elect to defend
the Indemnified Party pursuant to Paragraph 2(b), or if the Indemnifying Parties
elect to defend the Indemnified Party pursuant to Paragraph 2(b) but fail
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Parties (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Parties to a final conclusion or settled. The Indemnified
Parties shall have full control of such defense and proceedings, provided,
however, that the Indemnified Parties may not enter into, without the
Indemnifying Parties' consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Parties have delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Parties dispute their
potential liability to the Indemnified Party under this Agreement and if such
dispute is resolved in favor of the Indemnifying Parties, the Indemnifying
Parties shall not be required to bear the costs and expenses of the Indemnified
Parties' defense pursuant to this Paragraph or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Parties in full for all costs and
expenses of such litigation. The Indemnifying Parties may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this Paragraph 2(c), and the Indemnifying Parties shall bear their
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnifying Parties have been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnified Party, then the Indemnifying Parties may employ
separate counsel and upon
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<PAGE> 4
written notification thereof, the Indemnified Party shall not have the right to
assume the defense of such action on behalf of the Indemnifying Parties.
d. In the event any Indemnified Party should have a claim
against any Indemnifying Parties hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Parties a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification under
this Agreement. If the Indemnifying Parties do not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Parties dispute such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Parties hereunder. If the Indemnifying Parties have timely disputed such claim,
as provided above, such dispute shall be resolved by the procedures set forth in
Paragraph 7.
e. Payments of all amounts owing by any Indemnifying Party
pursuant to this Agreement relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of such Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication of
such Third Party Claim, or (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Parties liability to the Indemnified
Party under this Agreement. Payments of all amounts owing by the Indemnifying
Parties pursuant to Paragraph 2(d) shall be made within thirty (30) days after
the later of (i) the expiration of the 60-day Indemnity Notice period or (ii)
the expiration of the period for appeal of a final adjudication of the
Indemnifying Parties liability to the Indemnified Party under this Agreement.
During the two-year period following the Effective Date, each Stockholder shall
be entitled to satisfy payments owed to APP by transfer of APP Common Stock from
such Stockholder to APP. For all purposes of this Agreement, the value of each
share of APP Common Stock transferred to APP pursuant to this Agreement shall be
calculated by averaging the daily closing prices for a share of APP Common Stock
for the twenty (20) consecutive trading days on which such shares are actually
traded on the Nasdaq National Market preceding the date of the Claim Notice or
Indemnity Notice, as the case may be. The number of shares of APP Common Stock
permitted to be transferred under this Paragraph 2(e) shall be diminished
proportionately in accordance with the percentage of APP Common Stock released
under the Lock-Up Provisions set forth in Paragraph 1 of the Stockholder
Representation Letter. The rights of any Stockholder to transfer shares of APP
Common Stock in satisfaction of payments owed to APP pursuant to this Agreement
shall terminate upon the earlier of (x) the termination of the Lock-Up
Provisions set forth in the Stockholder Representation Letter or (y) at the end
of the two-year period following the Effective Date.
f. The Indemnifying Parties shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or compromise
a Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the Indemnifying
Parties notify the Indemnified Party in writing that the Indemnifying Parties
agree to such settlement, but the Indemnified Party elects not to accept and
agree to it, the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the total maximum liability of the Indemnifying
Parties to indemnify or otherwise reimburse the Indemnified Party hereunder with
respect to such a claim shall be limited to and shall not exceed the amount of
such settlement offer, plus reasonable out-of-pocket costs and reasonable
expenses (including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Parties desired to accept such settlement.
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<PAGE> 5
g. Notwithstanding anything contained in this Agreement or the
Merger Agreement to the contrary, the Indemnifying Parties in the aggregate (i)
shall have no obligation hereunder to provide indemnification for the first
$100,000 of Damages (without counting Immaterial Claims as defined below), and
(ii) in no event shall the Indemnifying Parties have any liability hereunder
with respect to any singular incident or a fact involving a breach or inaccuracy
of the Company if the Damages from such claim are equal to or less than $7,500
("Immaterial Claims"). Notwithstanding anything to the contrary contained herein
or in the Merger Agreement, the obligations of each Stockholder hereunder shall
not exceed fifty percent (50%) of the aggregate value of the Merger
Consideration or Exchange Consideration, as the case may be, paid to such
Stockholder pursuant to any Related Acquisition on the Closing Date.
3. Intentionally Omitted.
4. Remedies Exclusive. The remedies provided in this Agreement are the
exclusive rights or remedies available to one party against the other arising
out of or with respect to the Merger Agreement, either at law or in equity,
except in the case of fraud.
5. Costs, Expenses and Legal Fees. Whether or not the transactions
contemplated hereby are consummated, each party hereto shall bear its own costs
and expenses (including attorneys' fees), except that each party hereto agrees
to pay the costs and expenses (including reasonable attorneys' fees and
expenses) incurred by the other parties in successfully (a) enforcing any of the
terms of this Agreement or (b) proving that another party breached any of the
terms of this Agreement.
6. Tax Benefits; Insurance Proceeds. The total amount of any indemnity
payments owed by one party to another party to this Agreement shall be reduced
by any correlative tax benefit received by the party to be indemnified or the
net proceeds received by the party to be indemnified with respect to recovery
from third parties or insurance proceeds, and such correlative insurance benefit
shall be net of the insurance premium, if any, that becomes due as a result of
such claim.
7. Dispute Resolution.
a. Arbitration. The parties hereto agree that any claim,
controversy, dispute or disagreement between or among any of the parties arising
out of or relating to this Agreement shall be governed exclusively by the terms
and provisions of this Paragraph 7; provided, however, that within ten (10) days
from the date any party gives notice to the others of its desire to seek
arbitration as provided in Paragraph 7(b) and prior to commencing an arbitration
procedure pursuant to this Paragraph 7, the parties shall meet to discuss and
consider alternative dispute resolution procedures other than arbitration
including, but not limited to Judicial Arbitration & Mediation Services, Inc.,
if applicable. If at any time prior to the rendering of the decision by the
arbitrator (or pursuant to such other alternative dispute resolution procedure)
as contemplated in this Paragraph 7 to the extent a party makes a written offer
to an opposing party proposing a settlement of the matter(s) at issue and such
offer is rejected, then the party rejecting such offer shall be obligated to pay
the costs and expenses (excluding the amount of the award granted under the
decision) of the party that offered the settlement from the date such offer was
received by such other party if the decision is for a dollar amount that is less
than the amount of such offer to settle. Notwithstanding the foregoing, the
terms and provisions of this Paragraph 7 shall not preclude any party hereto
from seeking, or a court of competent jurisdiction from granting, a temporary
restraining order, temporary injunction or other equitable relief for any breach
of (i) any noncompetition or confidentiality covenant or (ii) any duty,
obligation, covenant, representation or warranty, the breach of which may cause
irreparable harm or damage.
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<PAGE> 6
b. Arbitrators. In the event there is a claim, controversy,
dispute or disagreement among the parties hereto arising out of or relating to
this Agreement (including any claim based on or arising from an alleged tort)
and the parties hereto have not reached agreement regarding an alternative to
arbitration, the parties agree to select, within 30 days of notice by a party to
the other of its desire to seek arbitration under this Paragraph 7 one (1)
arbitrator mutually acceptable to the Company and the Stockholders to hear and
decide all such claims under this Paragraph 7. Each of the arbitrators proposed
shall be impartial and independent of all parties. If the parties cannot agree
on the selection of an arbitrator within said 30-day period, then any party may
in writing request the judge of the United States District Court for the
_____________ District of __________ senior in term of service to appoint the
arbitrator and, subject to this Paragraph 7, such arbitrator shall hear all
arbitration matters arising under this Paragraph 7.
c. Applicable Rules.
(1) Each arbitration hearing shall be held at a place
in _____________ acceptable to the arbitrator. The arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association to the extent such rules do not conflict with the terms
hereof; provided, however, that if the parties hereto agree to an alternative to
arbitration they may agree to an alternative set of rules, including as to rules
of evidence and procedure. The decision of the arbitrator shall be reduced to
writing and shall be binding on the parties and such decision shall contain a
concise statement of the reasons in support of such decision. Judgment upon the
award(s) rendered by the arbitrator may be entered and execution had in any
court of competent jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement. The charges and
expenses of the arbitrator shall be shared equally by the parties to the
hearing.
(2) The arbitration shall commence within ten (10)
days after the arbitrator is selected in accordance with the provisions of this
Paragraph 7. In fulfilling his duties with respect to determining the amount of
any loss, the arbitrator may consider such matters as, in the opinion of the
arbitrator, are necessary or helpful to make a proper valuation. The arbitrator
may consult with and engage disinterested third parties to advise the
arbitrator. The arbitrator shall not add any interest factor reflecting the time
value of money to the amount of any loss and shall not award any punitive
damages.
(3) If the arbitrator selected hereunder should die,
resign or be unable to perform his or her duties hereunder, the parties, or such
senior judge (or such judge's successor) in the event the parties cannot agree,
shall select a replacement arbitrator. The procedure set forth in this Paragraph
7 for selecting the arbitrator shall be followed from time to time as necessary.
(4) As to any determination of the amount of any
loss, or as to the resolution of any other claim, controversy, dispute or
disagreement, that under the terms hereof is made subject to arbitration, no
lawsuit based on such claimed loss or such resolution shall be instituted by the
parties hereto, other than to compel arbitration proceedings or enforce the
award of the arbitrator, except as otherwise provided in Paragraph 7.
(5) All privileges under [state] and federal law,
including attorney-client and work-product privileges, shall be preserved and
protected to the same extent that such privileges would be protected in a
federal court proceeding applying [state] law.
8. Miscellaneous.
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<PAGE> 7
a. Amendment; Waivers. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the party or parties making any such waiver. The waiver of any of the
terms and conditions of this Agreement shall not be construed as a waiver of any
other terms and conditions hereof.
b. Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto.
c. Parties in Interest. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective heirs, legal representatives, successors and assigns
of the parties hereto.
d. Entire Agreement. This Agreement, the Merger Agreement and
any agreements contemplated hereby constitute the entire agreement of the
parties regarding the subject matter hereof, and supersede all prior agreements
and understandings, both written and oral, among the parties, or any of them,
with respect to the subject matter hereof.
e. Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
f. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF ______________.
g. Captions. The captions contained in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
h. Gender and Number. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
i. Reference to Agreement. Use of the words "herein,"
"hereof," "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Paragraph or provision of this Agreement, unless otherwise noted.
j. Notice. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered
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by mail (whether actually received or not), at the close of business on the
third business day next following the day when placed in the mail, postage
prepaid, certified or registered, addressed to the appropriate party or parties,
at the address of such party set forth below (or at such other address as such
party may designate by written notice to all other parties in accordance
herewith):
If to APP: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President
with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink
If to the Stockholders: See Exhibit A
k. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
l. Survival. Any and all claims for indemnification asserted
in writing before the expiration of the applicable survival periods specified in
Section __ of the Merger Agreement shall survive until resolved.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
APP:
AMERICAN PHYSICIAN PARTNERS, INC.
By:
----------------------------------
Gregory L. Solomon, President
STOCKHOLDERS:
[Separate pages to be attached]
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Exhibit A
---------
List of Stockholders
A-1
<PAGE> 10
Exhibit B
---------
List of Exceptions
B-1
<PAGE> 1
EXHIBIT 10.22
_______________, 1997
American Physician Partners, Inc.
2301 NationsBank Plaza
901 Main Street
Dallas, TX 75202-3721
Attn: Paul M. Jolas, Senior Vice President
and General Counsel
Re: Investment in American Physician Partners, Inc.
-----------------------------------------------
Dear Mr. Jolas:
In connection with the receipt of shares of APP Common Stock (the
"Securities"), by the undersigned (the "Investor") pursuant to the Merger, the
Investor hereby represents, warrants, covenants and agrees as set forth below.
Except as otherwise expressly indicated herein, all capitalized terms shall have
the meanings set forth in that certain Agreement and Plan of Reorganization and
Merger dated as of __________, 1997, by and among American Physician Partners,
Inc. and ______________________________ (the "Agreement"):
1. Lock-Up Provisions. Investor irrevocably agrees that he/she will
not, directly or indirectly, sell, offer, contract for sale, make any short
sale, pledge or otherwise transfer or dispose of any of the Securities without
the prior written consent of APP (which consent may be unreasonably withheld in
APP's absolute and sole discretion) during the two-year period commencing on the
Effective Date. Notwithstanding the preceding, the restrictions contained in the
prior sentence shall no longer apply (i) as to twenty-five percent (25%) of the
Securities received by Investor pursuant to the Merger following expiration of a
one-year period following the Effective Date, (ii) as to an additional
twenty-five percent (25%) of the Securities received by Investor pursuant to the
Merger following expiration of an eighteen-month period following the Effective
Date, and (iii) as to the remaining fifty percent (50%) of the Securities
received by Investor pursuant to the Merger following expiration of a
twenty-four-month period following the Effective Date. Investor understands and
acknowledges that the restrictions contained in this Paragraph 1 (the "Lock-Up
Provisions") are irrevocable and shall be binding upon the Investor's heirs,
legal representatives, successors and assigns.
2. Restrictive Legends. Investor understands that the Securities shall
bear one or more of the following restrictive legends:
(a) Any legend required to put third-parties on notice of the
existence of the Lock-Up Provisions.
(b) Any legend relating to affiliates of the Company as
required pursuant to the Securities and Exchange Act of
1934.
<PAGE> 2
3. Investor's Authority. In connection with the delivery and surrender
of the shares of Company Common Stock by Investor pursuant to the Merger (i)
Investor has full authority to surrender the certificate(s) representing the
shares of Company Common Stock free and clear of any and all Encumbrances and
(ii) the shares of Company Common Stock surrendered by Investor in connection
with the Merger constitute all of the shares of Company Common Stock owned by
Investor (beneficially or otherwise) and Investor does not own (beneficially or
otherwise) any Company Right.
4. Filings; Other Action. Investor will cooperate with APP in order
that APP may promptly prepare and file with the SEC the Registration Statements
(including the prospectus constituting a part thereof). Investor shall furnish
all information concerning the Company and Investor as may be reasonably
requested in connection with any such action. None of the information or
documents supplied by Investor specifically for inclusion in the Registration
Statements, by exhibit or otherwise, will, at the time that any of the
Registration Statements and each amendment and supplement thereto, if any,
become effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Investor shall be entitled to review
the Registration Statements and each amendment thereto, if any, prior to the
time each becomes effective under the Securities Act. Investor shall, upon
request, furnish APP with all information concerning Investor and the directors,
officers, partners and interestholders of the Company and NewCo, and such other
matters as may be reasonably requested by APP in connection with the preparation
of the Registration Statements and each amendment or supplement thereto, or any
other statement, filing, notice or application made by or on behalf of each such
party or any of its subsidiaries to any governmental entity in connection with
the Merger and the other transactions contemplated by the Agreement. Investor's
review of the Registration Statements shall not diminish or otherwise affect the
representations, covenants and warranties of APP or APP Sub contained in the
Agreement.
5. Actions Contrary to Stated Intent. Investor has not and will not
take any action that would prevent the Merger or exchange transaction, as the
case may be, from qualifying as a tax-free transaction under Section 351 and/or
Section 368 of the Code.
6. Participation and Cooperation. Investor agrees to cooperate with APP
and the Company and any committees established by the Company in connection with
the formation and organization of Newco. In addition, Investor agrees to review,
provide and determine the truth and accuracy of all necessary information
regarding Investor and the Company which information shall be provided to APP in
connection with the registration process for the Initial Public Offering and
registration of APP Common Stock pursuant to the Form S-4.
7. Involvement in Certain Legal Proceedings. Investor has not been the
subject of or a party to any of the following events during the past five years
and that are material to a voting or investment decision:
(a) A petition under the Federal bankruptcy laws or any State
insolvency law was filed by or against, or a receiver,
fiscal agent or similar officer was appointed by a court
for the business or property of such person, or any
partnership in which he or she was a general partner at or
within two years before the time of such filing, or any
corporation or business
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<PAGE> 3
association of which he was an executive officer at or
within two years before the time of such filing;
(b) Convicted in a criminal proceeding or is a named subject
of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(c) Any order, judgement, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him/her
from, or otherwise limiting, the following activities;
(i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction
merchant, any other person regulated by the
Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings
and loan association or insurance company, or
engaging in or continuing any conduct or practice in
connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the
purchase or sale of any security or commodity or in
connection with any violation of Federal or State
securities laws or federal commodities laws.
(d) Any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60
days the right of such person to engage in any activity
described in paragraph (c)(i) above, or to be associated
with persons engaged in any such activity.
(e) Found by a court of competent jurisdiction in a civil
action or by the Commission to have violated any Federal
or State securities law, and the judgment in such civil
action or finding by the Commission has not been
subsequently reversed, suspended, or vacated; or
(f) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to
have violated any Federal commodities law, and the
judgment in such civil action or finding by the Commodity
Futures Trading Commission has not been subsequently
reversed, suspended or vacated.
3
<PAGE> 4
8. Prohibited Activities.
a. In order to protect the APP Group against the unauthorized
use or the disclosure of any of Confidential Information of any member of the
APP Group presently known or hereinafter obtained by Investor, Investor hereby
agrees that, subject to adjustment pursuant to Paragraph 8(e) herein, for a
period of two (2) years following the Closing Date, neither Investor nor any of
his/her Affiliates, shall knowingly, directly or indirectly, for herself or
himself or on behalf of any other Person (whether as an individual, agent,
servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity):
(i) except for or on behalf of NewCo, within the
geographical area designated on Exhibit A hereto, establish, operate or provide
professional radiology, radiation oncology or diagnostic imaging services at any
office, practice or other health care facility providing services similar to
those provided by NewCo; or
(ii) without the prior written consent of APP: (1)
directly or indirectly recruit or hire, or induce any party to recruit or hire
any person who is an employee of, or who has entered into an independent
contractor arrangement with, any member of the APP Group; (2) directly or
indirectly, whether for itself or for any other person or entity, call upon,
solicit, divert or take away, or attempt to solicit, call upon, divert or take
away any customers, business, or clients of any member of the APP Group; (3)
directly or indirectly solicit, or induce any party to solicit, any contractors
of any member of the APP Group, to enter into the same or a similar type of
contract with any other party; or (4) disrupt, damage, impair or interfere with
the business of any member of the APP Group.
The provisions of this Paragraph 8 shall be waived by APP in the event
of a purchase of assets by the Company pursuant to Article X of the Service
Agreement.
b. Because of the difficulty of measuring economic losses to
APP as a result of the breach of the covenants contained in this Paragraph 8,
and because of the immediate and irreparable damage that would be caused to APP
for which they would have no other adequate remedy, Investor agrees that, in the
event of a breach by him/her of the foregoing covenant, the covenant may be
enforced by APP by injunctions and restraining orders.
c. Investor acknowledges and agrees that the covenants
contained in this Paragraph 8 impose a reasonable restraint on Investor in light
of the activities and businesses of the APP Group on the date of execution of
this Agreement and the future plans of the APP Group.
d. The covenants in this Paragraph 8 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent that the court deems reasonable,
and this Paragraph 8 shall thereby be reformed.
e. It is specifically agreed that the period of two (2) years
stated above shall be computed by excluding from such computation any time
during which Investor is in violation of any provision of this Paragraph 8.
4
<PAGE> 5
9. Nondisclosure of Confidential Information.
a. Investor recognizes the proprietary interest of APP in any
Confidential and Proprietary Information (as hereinafter defined). Investor
acknowledges and agrees that any and all Confidential and Proprietary
Information of APP ("APP's Confidential and Proprietary Information")
communicated to, learned of, developed or otherwise acquired by Investor during
the term of the Employment Agreement shall be the property of APP. Investor
further acknowledges and understands that its disclosure of APP's Confidential
and Proprietary Information will result in irreparable injury and damage to APP.
As used in this Paragraph 9, "Confidential and Proprietary Information" means
all trade secrets and other confidential and/or proprietary information of APP,
including information derived from reports, investigations, research, work in
progress, codes, marketing and sales programs, financial projections, cost
summaries, pricing formula, contract analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information (other than patient records) prepared or performed for, by or on
behalf of the parties hereto by its employees, officers, directors, agents,
representatives, or consultants. Confidential and Proprietary Information shall
not include any information which: (i) was known to the parties hereto prior to
its disclosure by APP; (ii) is or becomes publicly known through no wrongful act
of Investor; (iii) is disclosed pursuant to a statute, regulation or the order
of a court of competent jurisdiction, provided that Investor provides prior
notice to APP.
b. Investor acknowledges and agrees that APP is entitled to
prevent the disclosure of Confidential and Proprietary Information. Investor
agrees at all times during the term of this Agreement and thereafter to hold in
strictest confidence and not to disclose to any person, firm or corporation,
except as may be necessary for the discharge of its obligations under the
Employment Agreement, and not to use, except in the pursuit of the business of
the practice, APP's Confidential and Proprietary Information, without the prior
written consent of APP; unless (i) such information becomes known or available
to the public generally through no wrongful act of Investor or (ii) disclosure
is required by law or the rule, regulation or order of any governmental
authority under color of law; provided, that prior to disclosing any of APP's
Confidential and Proprietary Information pursuant to this clause (iii), Investor
shall, if possible, give prior written notice thereof to APP and provide APP
with the opportunity to contest such disclosure. Investor shall take all
necessary and proper precautions against disclosure of any of APP's Confidential
and Proprietary Information to unauthorized persons by any of its officers,
directors, employees or agents. In the event Investor has access to all or any
part of APP's Confidential and Proprietary Information, Investor will be
required to execute an agreement upon request, valid under the law of the
jurisdiction in which such agreement is executed, and in a form acceptable to
APP and its counsel, committing themselves to maintain APP's Confidential and
Proprietary Information in strict confidence and not to disclose it to any
unauthorized person or entity. Upon termination of this Agreement for any
reason, Investor shall cease all use of any of APP's Confidential and
Proprietary Information and shall execute such documents as may be reasonably
necessary to evidence their abandonment of any claim thereto.
c. In the event of any termination of his/her Employment
Agreement for any reason whatsoever, or at any time upon the request of APP,
Investor will promptly deliver or cause to be delivered to APP all documents,
data and other information in their possession that contains any of APP's
Confidential and Proprietary Information regarding APP. Investor shall not take
or retain any documents or other information, or any reproduction or excerpt
thereof, containing any of APP's Confidential and Proprietary Information,
unless otherwise authorized in writing by the party
5
<PAGE> 6
possessing such Confidential and Proprietary Information. In the event of
termination of this Agreement, Investor will deliver to APP all documents and
data pertaining to APP's Confidential and Proprietary Information.
10. Address. The address set forth at the end of this letter is his/her
true and correct address.
"INVESTOR"
-------------------------------------
(Signature)
-------------------------------------
(Print Name)
Address:
---------------------------
---------------------------
6
<PAGE> 7
EXHIBIT A
GEOGRAPHIC AREA
7
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Dallas, Texas
October 30, 1997
<PAGE> 1
EXHIBIT 23.2
[LETTERHEAD OF DEJOY, KNAUF & BLOOD, LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report,
dated August 5, 1997, on our audit of the combined financial statements of The
Ide Group, P.C. and Ide Diagnostic Imaging Associates (and to all references to
our Firm) included in or made a part of this registration statement.
DeJoy, Knauf & Blood, LLP
Rochester, New York
October 30, 1997.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF HAYNES AND BOONE, L.L.P.
-----------------------------------
We hereby consent to the filing of the executed opinion as Exhibit 8.2
and to the reference made to the firm under the captions "Summary -- Conditions
to the Mergers and Exchanges," "The Mergers, Exchanges and Related Transactions
- -- Conditions of the Merger Agreements and the Exchange Agreements," "The
Mergers, Exchanges and Related Acquisitions -- Certain Income Tax
Considerations" and "Legal Matters" in the Prospectus/Joint Proxy Statement
constituting part of the Registration Statement on Form S-4 of the Registrant.
HAYNES AND BOONE, L.L.P.
/s/ HAYNES AND BOONE, L.L.P.
Dallas, Texas
October 30, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF SHATTUCK HAMMOND PARTNERS INC.
We hereby consent to the filing of the form of opinion as Exhibit 99.1 and
to the reference made to the firm under the captions "Summary -- Conditions to
the Mergers and Exchanges," "Approval of the Mergers, Exchanges and Related
Transactions -- The Ide Group's Material Contacts and Board Deliberations,"
"-- Conditions of the Merger Agreements and Exchange Agreements" and
"-- Opinions of Shattuck Hammond Partners Inc." in the Prospectus/Joint Proxy
Statement constituting part of the Registration Statement on Form S-4 of the
Registrant.
SHATTUCK HAMMOND PARTNERS INC.
By:
--------------------------------------
Mark G. Hammond
Its:
--------------------------------------
San Francisco, California
October 29, 1997
<PAGE> 1
[Draft of Shattuck Hammond Commercial Reasonableness Opinion]
__________, 1997
Board of Directors
[Medical Group]
Dear Sirs:
You have requested Shattuck Hammond Partners Inc. ("Shattuck Hammond") to
provide this opinion with respect to the proposed Service Agreement (as defined
below) to be entered into in connection with the anticipated transaction (the
"Transaction") between [Medical Group] (the "Company") and American Physician
Partners, Inc. ("APPI"). It is our understanding that the following events,
among others, will occur pursuant to the Transaction:
1. Company Reorganization. The Company intends to transfer certain of
its assets, most of which relate solely to the practice of medicine, to
a newly formed professional corporation ("Newco") in exchange for all of
the capital stock of Newco and to thereafter distribute such stock to
its stockholders.
2. Merger with APPI. Pursuant to an Agreement and Plan of Reorganization
and Merger, dated __________, between the Company, APPI and a subsidiary
of APPI ("APPI Sub"), APPI Sub will merge with and into the Company (the
"Merger"); the Company will be the surviving corporation and will become
a wholly-owned subsidiary of APPI. As consideration for entering into
the Merger, the stockholders of the Company will receive aggregate
consideration of [description of consideration].
3. Service Agreement with APPI. Pursuant to a Service Agreement, dated
__________ (the "Service Agreement"), between APPI, a management
subsidiary of APPI (together, referred to herein as "APPI") and Newco,
Newco will retain APPI to perform non-medical business services for
Newco. As set forth in the Service Agreement, the services to be
provided by APPI include billing and collection, accounting, cash
management, accounts receivable management, preparation of tax returns,
maintenance of records and files, furnishing of facilities including
capital assets required or appropriate for the practice, recruitment of
new physicians, financial planning and budgeting, non-physician
professional personnel, negotiation of payor relationships, inventory
and supplies management, advertising and public relations support,
quality assurance management, and other services. In consideration for
providing such services, APPI will be entitled to receive a service fee
as provided in Exhibit 7.1 of the Service Agreement (the "Service Fee").
The Service Fee includes the following components: (i) reimbursement for
all Professional Expenses and Excluded Practice Expenses (as defined in
the Service Agreement), if any, paid by APPI; (ii) a fee equal to __% of
Adjusted Professional Revenues (as defined in the
<PAGE> 2
Board of Directors
[Medical Group]
__________, 1997
Page 2
Service Agreement); and (iii) a payment in respect of the Technical
Revenues (as defined in the Service Agreement) of Newco. Under the
Service Agreement, Newco will receive a payment from APPI representing a
portion of the increase in Technical Revenues above an agreed base. The
Service Agreement has a term of 40 years, but may be terminated by Newco
in the event of a material default by APPI in the performance of its
obligations or a bankruptcy or similar event affecting APPI.
4. Initial Public Offering of APPI. Simultaneously with the Merger,
APPI intends (i) to enter into similar transactions with [six]
other medical groups and (ii) to offer shares of its common stock
in an initial public offering. It is contemplated that the shares
of common stock of APPI received as partial consideration for the
Merger will be registered at the time of the APPI initial public
offering; however, the Company's stockholders have agreed to
certain restrictions on their ability to sell their shares.
You have asked Shattuck Hammond for our opinion, as investment bankers, as to
the commercial reasonableness of the financial terms of the Service Agreement.
As part of its investment banking business, Shattuck Hammond is continuously
engaged in valuing businesses, negotiating management services agreements,
negotiated underwritings, distributions of securities, private placements and
other financing activities. In arriving at the opinion set forth below, we have
reviewed and considered, among other things:
1. A draft of the Agreement and Plan of Reorganization and Merger;
2. A draft of the Service Agreement;
3. A draft of the Prospectus of APPI relating to the proposed public
offering;
4. Financial analysis, prepared by APPI, of the pro forma cash flow
of the Medical Group, Newco and APPI after giving effect to the
Transaction;
5. The services fees provided for under other management service
agreements entered into by other medical groups in transactions
in which we have participated as investment bankers or otherwise
known to us; and
6. Such other financial studies and analyses as we considered
appropriate, including our assessment of general economic,
industry, market, and other conditions as they exist as of the
date hereof.
In addition, we have discussed and reviewed the terms of the Transaction,
including the Service Fee, with representatives of the Company and their counsel
and with representatives of APPI. We were not, however, involved in the
negotiation of the terms of the Service Agreement or the Transaction, and
express no opinion with respect thereto, other than as set forth herein.
<PAGE> 3
Board of Directors
[Medical Group]
__________, 1997
Page 3
In preparing our opinion, we have relied upon and assumed the accuracy and
completeness of all information that was available to us from public sources and
that was supplied or otherwise made available to us by the Company, Newco or
APPI or their representatives. We have also assumed that (i) the definitive
agreements, when executed, will be substantially identical to the draft
agreements that we have reviewed and (ii) the Transaction will take place as
described in the draft agreements.
Our opinion is based solely on the information available to us and upon market,
economic and other conditions that exist on or before the date hereof and can be
evaluated as of the date of this letter. We disclaim any undertaking or
obligation to advise any person of any change in any fact or matter affecting
the opinion expressed herein which may come or may be brought to our attention
after the date hereof, or for changes in financial or market conditions
subsequent to the date hereof. The opinion expressed herein does not constitute
a recommendation as to any action the Company or Newco, or any stockholder of
the Company or Newco, should take in connection with the Transaction (including
the Service Agreement) nor does this opinion reflect any assessment as to the
value of the consideration to be received in the Merger or the future price at
which the shares of APPI will trade in the public market. Further, we express no
opinion as to, and assume no responsibility for, the structure, terms or effect
of any aspect of the Transaction or the Service Agreement, including without
limitation, the credit or tax consequences thereof for the Company, Newco or
their respective stockholders. This opinion shall not be reproduced,
disseminated or quoted at any time, in any manner or for any purpose, nor shall
disclosure of this opinion and its contents be made or permitted by the Company,
without our prior written consent, except as required by law with respect to any
investigation or proceeding involving the Company and/or its equity holders and
any governmental investigation.
This opinion is intended solely for the information of the Board of Directors of
the Company in connection with its consideration of the Transaction (including
the Service Agreement) and shall not be relied upon or used by any other party
for any other purpose. In rendering this opinion, we have not been engaged to
act as agent or fiduciary for, and, accordingly, shall have no liability or duty
to, the stockholders of the Company. This opinion may not be relied upon by APPI
and its affiliates.
On the basis of, and subject to, the foregoing, as of the date hereof, we are of
the opinion that the financial terms of the Service Agreement are commercially
reasonable, including the Service Fee to be paid by Newco, and that the Service
Fee is comparable to payments due
<PAGE> 4
Board of Directors
[Medical Group]
__________, 1997
Page 4
under other arms-length management services agreements providing for similar
services in independent transactions.
Very truly yours,
Shattuck Hammond Partners Inc.
By: ________________________________
