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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No._____)*
GREENBRIAR CORPORATION
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(Name of Issuer)
COMMON STOCK, PAR VALUE $.01 PER SHARE
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(Title of Class of Securities)
393648 10 0
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(CUSIP Number)
FLOYD B. RHOADES
4265 KELLWAY CIRCLE
ADDISON, TEXAS 75244
TELEPHONE: (214) 407-8400
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
DECEMBER 31, 1996
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box
_____.
Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a).
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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CUSIP No. 393648 10 0 SCHEDULE 13D Page 2 of 7 Pages
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1 NAME OF REPORTING PERSON Floyd B. Rhoades
S.S. OR I.R.S. IDENTIFICATION ###-##-####
NO. OF ABOVE PERSON
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_]
(b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS* OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION United States
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NUMBER OF 7 SOLE VOTING POWER 870,520
SHARES
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BENEFICIALLY 8 SHARED VOTING POWER -0-
OWNED BY
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EACH 9 SOLE DISPOSITIVE POWER 825,020
REPORTING
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PERSON 10 SHARED DISPOSITIVE POWER -0-
WITH
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED 870,520
BY EACH REPORTING PERSON
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN
ROW (11) EXCLUDES CERTAIN SHARES* [_]
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13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 13.3%
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14 TYPE OF REPORTING PERSON* IN
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* SEE INSTRUCTIONS BEFORE FILLING OUT!
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CUSIP No. 393648 10 0 SCHEDULE 13D Page 3 of 7 Pages
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INTRODUCTION
This Statement on Schedule 13D (the "Statement") constitutes the initial
filing of Floyd B. Rhoades (the "Reporting Person") reporting the beneficial
ownership of shares of Common Stock, $.01 par value per share (the "Common
Stock") of Greenbriar Corporation, a Nevada corporation (the "Issuer"), by
virtue of the Reporting Person's acquisition of Common Stock of the Issuer
pursuant to the closing on December 31, 1996 of the merger (the "Merger") of
American Care Communities, Inc., a North Carolina corporation ("Old ACC"), with
and into American Care Communities, Inc. a Nevada corporation wholly owned by
the Issuer ("New ACC"), pursuant to an Agreement and Plan of Merger dated
November 21, 1996 by and among such parties in the form attached hereto as
Exhibit A and incorporated herein by reference (the "Merger Agreement"). The
Common Stock is traded on the American Stock Exchange.
Item 1. Security and Issuer.
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This Statement relates to the Common Stock, as described above. The
principal executive offices of the Issuer are located at 4265 Kellway Circle,
Addison, Texas 75244.
Item 2. Identity and Background.
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(a), (b) and (c) The name, business address and present principal
employment of the Reporting Person are listed below.
Name: Floyd B. Rhoades
Business Address: 4265 Kellway Circle
Addison, Texas 75244
Present Principal President and Chief Executive Officer
Employment: of the Issuer
(d) and (e) During the last five (5) years, the Reporting Person has not
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors), and has not been a party to any civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which he was or is
subject to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
(f) The Reporting Person is a citizen of the United States.
Item 3. Source and Amount of Funds or Other Consideration.
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The Reporting Person acquired all of his 870,520 shares of the Issuer's
Common Stock in exchange for all of the Reporting Person's shares of Common
Stock of Old ACC in connection with and upon the closing of the Merger on
December 31, 1996. The Reporting Person was the largest shareholder, Chief
Executive Officer and President of Old ACC prior to the Merger.
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CUSIP No. 393648 10 0 SCHEDULE 13D Page 4 of 7 Pages
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Item 4. Purpose of Transaction.
----------------------
The Reporting Person acquired all 870,520 shares of the Issuer's Common
Stock for investment purposes and for general business reasons relating to the
Merger which include the Reporting Person's desire to act in the best interests
of Old ACC and its shareholders and to merge with a company that could utilize
his management experience in the health care industry. Upon the closing of the
Merger, the Reporting Person became the President, Chief Executive Officer, a
director and a member of the Executive Committee of the Issuer.
Except as indicated above, the Reporting Person has no plans or proposals
which relate to or would result in:
(a) the acquisition by any person of additional securities of the Issuer,
or the disposition of securities of the Issuer;
(b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Issuer or any of its subsidiaries;
(c) a sale or transfer of a material amount of assets of the Issuer or any
of its subsidiaries;
(d) any change to the present Board of Directors or management of the
Issuer, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the Board;
(e) any material change in the present capitalization or dividend policy of
the Issuer;
(f) any other material change in the Issuer's business or corporate
structure;
(g) changes in the Issuer's charter, bylaws or instruments corresponding
thereto or other actions which may impede the acquisition of control of the
Issuer by any person;
(h) causing a class of securities of the Issuer to be delisted from a
national securities exchange or to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered national securities association;
(i) a class of equity securities of the Issuer becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934, as amended; or
(j) any action similar to any of those enumerated above in Items 4(a) -
(i).
Item 5. Interest in Securities of the Issuer.
------------------------------------
(a) To the knowledge of the Reporting Person, the Issuer has outstanding a
total of 5,242,051 shares of Common Stock as of November 30, 1996, plus an
additional 1,300,000 shares of Common Stock issued in connection with the Merger
on December 31, 1996. By virtue of the Merger, the Reporting Person
beneficially owns an aggregate of 870,520 shares of Common Stock, representing
approximately 13.3% of the outstanding shares of the Issuer's Common Stock.
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CUSIP No. 393648 10 0 SCHEDULE 13D Page 5 of 7 Pages
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(b) The Reporting Person has the sole power to vote or to direct the vote
of 870,520 shares of Common Stock and the sole power to dispose or to direct the
disposition of 825,020 shares of the Common Stock. The 45,500 shares of Common
Stock over which the Reporting Person has sole voting power but not sole
dispositive power are currently held by the Issuer as collateral to secure
payment by the shareholders of Old ACC of possible brokerage commissions arising
out of the Merger.
(c) There have been no transactions in the Common Stock that were effected
in the past sixty days or since the most recent filing on Schedule 13D
((S)240.13d-191), whichever is less, by the Reporting Person.
(d) No other persons are known to have the right to receive or the power to
direct the receipt of dividends from, or the proceeds from the sale of such
securities.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect
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to Securities of the Issuer.
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The Common Stock is held by the Reporting Person subject to the provisions
of that certain Registration Rights Agreement dated December 30, 1996 between
the Issuer and the Reporting Person, pursuant to which agreement the Reporting
Person has certain rights with respect to the Issuer's obligation to register
the shares of Common Stock held by the Reporting Person (the "Rights
Agreement"). The Rights Agreement is attached hereto as Exhibit B and
incorporated herein by reference.
In connection with the Merger, the Reporting Person was required to execute
and deliver an Affiliate Status Letter (the "Status Letter") dated December 30,
1996 to the Issuer prohibiting the Reporting Person from selling, transferring
or otherwise disposing of the Common Stock other than in accordance with the
rules and regulations promulgated under the Securities Act of 1933, as amended,
and until 30 days of combined operations of Old ACC and New ACC have been
publicly announced by the Issuer. The Status Letter is attached hereto as
Exhibit C and incorporated herein by reference.
Pursuant to the Merger Agreement, the Issuer withheld 45,500 shares of
Common Stock issuable to the Reporting Person as collateral to secure the
payment by the shareholders of Old ACC of certain brokerage commissions arising
in connection with the Merger. Upon such payment by the shareholders, the
Reporting Person will be entitled to take possession of and have sole
dispositive power with respect to such shares.
Except as described above, the Reporting Person has no contract,
arrangement, understanding or relationship (legal or otherwise) with any other
person with respect to any securities of the Issuer, including but not limited
to transfer or voting of any of the securities, finder's fees, joint ventures,
loan or option arrangements, puts, calls, guarantees of profits, division of
profits or loss, or the giving or withholding of proxies.
Item 7. Material to be Filed as Exhibits.
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Exhibit A Agreement and Plan of Merger dated November 21, 1996
Exhibit B Registration Rights Agreement dated December 30, 1996
Exhibit C Affiliate Status Letter dated December 30, 1996
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CUSIP No. 393648 10 0 SCHEDULE 13D Page 6 of 7 Pages
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After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: January 7, 1997
/S/FLOYD B. RHOADES (SEAL)
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Floyd B. Rhoades
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CUSIP No. 393648 10 0 SCHEDULE 13D Page 7 of 7 Pages
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EXHIBIT INDEX
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Schedule 13D
Floyd B. Rhoades
Exhibit Description
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Exhibit A Agreement and Plan of Merger dated November 21, 1996
Exhibit B Registration Rights Agreement dated December 30, 1996
Exhibit C Affiliate Status Letter dated December 30, 1996
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of November 21, 1996,
among American Care Communities, Inc., a North Carolina corporation (the
"Company"); Floyd B. Rhoades ("Rhoades") and Gary S. Smith ("Smith"), who
collectively are the owners of 81% of the issued and outstanding common stock of
the Company (the "Shareholders"); Greenbriar Corporation, a Nevada corporation
(the "Parent"); and American Care Communities, Inc., a Nevada corporation, and a
wholly-owned Subsidiary of Parent ("Purchaser"); and
WHEREAS, the respective Boards of Directors of Parent, the Purchaser and
the Company have duly approved the acquisition of the Company by means of a
Merger of the Company with and into the Purchaser pursuant to the terms of this
Agreement, it is therefore agreed as follows:
ARTICLE I.
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of Nevada corporation law
(Chapter 78, Nevada Revised Statutes) and the North Carolina Business
Corporation Act (the "Acts" or each an "Act"), the Company shall be merged with
and into the Purchaser (the "Merger") as soon as practicable following the
satisfaction or waiver, if permissible, of the conditions set forth in Article
VI hereof. Following the Merger the Purchaser shall continue as the surviving
corporation (the "Surviving Corporation") and continue its existence under the
laws of the State of Nevada, and the separate corporate existence of the Company
shall cease.
SECTION 1.2 Effective Time. The Merger shall be consummated by filing
with the North Carolina and Nevada Secretaries of State the Articles or
Certificates of Merger in the form attached hereto as Exhibit "A" (the "Articles
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of Merger") (the time of such filing being the "Effective Time").
SECTION 1.3 Effects of the Merger. The Merger shall have the effects set
forth in Sections 450 through 470 of the Nevada Act and Section 55-11-06 of the
North Carolina Act. As of the Effective Time, the Company shall merge with and
into the Purchaser, and the Purchaser shall continue to be a direct wholly-owned
Subsidiary of Parent.
SECTION 1.4 Articles of Incorporation and By-Laws. The Articles of
Incorporation of the Purchaser, and the Bylaws of the Purchaser, both as in
effect at the Effective Time, shall be the Articles of Incorporation and By-Laws
of the Surviving Corporation.
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SECTION 1.5 Directors. As of the Effective Time, Floyd B. Rhoades shall
become an additional director of the Parent, and the directors of the Purchaser
will remain the directors of the Surviving Corporation.
SECTION 1.6 Officers. Upon execution of this Agreement and satisfaction
of all conditions to the Closing of the Merger other than the approval of the
Stockholder of the Parent, Floyd B. Rhoades shall become the President and Chief
Executive Officer and a member of the Executive Committee of the Parent. The
officers of the Purchaser will remain as the officers of the Surviving
Corporation as of the Effective Time.
SECTION 1.7 Conversion of Shares.
(a) All 1,000 shares of common stock, no par value ("Shares"), of the
Company issued and outstanding immediately prior to the Effective Time, all 39
Shares of the Company reserved for issuance or issued under outstanding employee
stock options, and, as of the Effective Time, all principal and accrued interest
outstanding and owed to CRM Assisted Living Company, LLC shall, by virtue of the
Merger and without any action on the part of any holder thereof, be converted
into the right to receive a total of 1,300,000 newly issued, fully paid, and
non-assessable shares of the common stock, par value $0.01 per share, of the
Parent. The relative number of shares of the Parent's Common Stock issuable to
each of the three groups stated above shall be set forth in the Disclosure
Schedule; however, in no event will any fractional shares of the Parent's Common
Stock be issued. Cash will be paid in lieu of fractional shares at the rate of
$16.00 per share of Parent's Common Stock. The shares of the Parent's Common
Stock issuable pursuant to this Section together with cash in lieu of fractional
shares are referred to herein as the "Merger Consideration." All shares
representing the Merger Consideration shall be unregistered shares of the Parent
and shall bear the Parent's customary legend restricting further transfer of the
shares unless in compliance with all federal and state securities laws and any
applicable contractual restrictions.
(b) The Parent Common Stock comprising the Merger Consideration will be
issued at the Closing (as hereinafter defined). A total of 45,500 shares issued
pursuant to this Section 1.7 shall be held by the Parent as security for the
obligation described in Section 9.2.
(c) Each shareholder of the Company shall receive at Closing a
Registration Rights Agreement in the form attached hereto as Exhibit B.
SECTION 1.8 Company Options. The Company's stock options outstanding at
the Effective Time, if any, shall be converted into comparable options to
purchase the Parent Common Stock. Any Incentive Stock Option (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended) of the Company
shall be exchanged for Parent Incentive Stock Options. The number of shares
issuable upon exercise are included in the Merger Consideration described in
Section 1.7.
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SECTION 1.9 Closing. Upon the terms and subject to the conditions
hereof, as soon as practicable after the mutual agreement of the Company, the
Parent and the Purchaser that all conditions described in Article VI have been
satisfied or waived by the applicable party, the Company and Purchaser shall
execute in the manner required by the Acts and deliver to the Nevada and North
Carolina Secretaries of State duly executed and verified Articles of Merger, and
the parties shall take such other and further actions as may be required by law
to make the Merger effective. Contemporaneous with the filings referred to in
this Section, a closing (the "Closing") will be held at such place as the
parties may agree for the purpose of implementing all transactions described in
this Agreement.
ARTICLE II.
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 2.1 Dissenting Shares. By virtue of Nevada Revised Statutes Sec.
78.482, the shareholders of Parent are not entitled to exercise any dissenter's
rights in connection with the Merger. It is a condition to Parent's obligation
to complete the Merger that no shareholder of the Company, including the
Shareholders, shall exercise any dissenter's rights.
SECTION 2.2 Exchange of Shares. (a) At the Closing, the Parent shall pay
the cash in lieu of fractional shares and cause its transfer agent (the "Agent")
to issue to the shareholders of the Company in exchange for their Shares a
certificate or certificates representing the Merger Consideration, and such
surrendered certificates representing the Shares shall then be canceled. If
payment of the Merger Consideration is to be made to a person other than the
person in whose name the certificate surrendered is registered, it shall be a
condition of issuance that the certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such issuance shall pay transfer or other taxes required by reason of the
payment to a person other than the registered holder of the certificate or
certificates surrendered or established to the satisfaction of the Parent that
such tax has been paid or is not applicable. Until surrendered in accordance
with the provisions of this Section 2.2, and, at the Effective Time, each
certificate representing the Shares shall represent for all purposes the right
to receive the Merger Consideration.
(b) At and after the Effective Time there shall be no transfers of
Shares which were outstanding immediately prior to the Effective Time on the
stock transfer books of the Company. If, after the Effective Time, certificates
are presented to the Company, they shall be canceled and exchanged for the
Merger Consideration provided in this Article II. At the close of business on
the day prior to the Effective Time the stock ledger of the Company shall be
closed.
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(c) From and after the Effective Time, holders of certificates formerly
evidencing Shares shall cease to have any rights as shareholders of the Company,
except as provided herein or by law.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SHAREHOLDERS
The Company and the Shareholders jointly and severally represent and
warrant to the Parent and Purchaser as follows:
SECTION 3.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of North Carolina. All Subsidiaries (as defined herein) of the Company
are legal entities that are duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation or
formation. Each of the Company and its Subsidiaries has all requisite power and
authority to own or operate its properties and conduct its business as it is now
being conducted. The Company and each of its Subsidiaries is duly qualified and
in good standing as a foreign corporation or entity authorized to do business in
each of the jurisdictions in which the character of the properties owned or held
under lease by it or the nature of the business transacted by it makes such
qualification necessary, except where the failure to qualify would not have a
Material Adverse Effect. The Company has delivered to Purchaser true and
correct copies of the Articles of Incorporation and Bylaws of the Company and
each Subsidiary.
SECTION 3.2 Capitalization; Subsidiaries. (a) The authorized capital
stock of the Company consists of 100,000 Shares. As of October 1, 1996, 1,000
Shares were issued and outstanding. Except as described in the Disclosure
Schedule, since October 1, 1996, the Company has not issued any shares or other
capital stock, and has not repurchased or redeemed any Shares. Neither the
Company nor any Subsidiary has any shares of its capital stock reserved for
issuance, except for the 39 Shares issuable pursuant to warrants and outstanding
employee stock options that are described on the Disclosure Schedule ("Employee
Options"). All issued and outstanding Shares are validly issued, fully paid,
non-assessable and free of preemptive rights.
(b) The Disclosure Schedule sets forth the name, the number of shares of
authorized capital stock and the number of issued and outstanding shares of
capital stock or other indicia of ownership of each direct or indirect
subsidiary of the Company (a "Subsidiary or together the "Subsidiaries").
Except as set forth in the Disclosure Schedule, all of the outstanding shares of
capital stock or other indicia of ownership of each Subsidiary are owned by the
Company, beneficially and of record. Except as set forth in the Disclosure
Schedule, all of such shares of capital stock or other indicia of ownership of
the Subsidiaries are owned free and clear of all liens,
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charges, encumbrances, rights of others, mortgages, pledges or security
interests, and are not subject to any agreements or understandings among any
persons with respect to the voting or transfer of such shares or other indicia
of ownership. Except as described in the Disclosure Schedule, there are no
outstanding subscriptions, options, convertible securities, warrants or claims
of any kind issued or granted by or binding on the Company or any Subsidiary to
purchase or otherwise acquire any security of or equity interest in the Company
or any of such Subsidiaries. All of the outstanding shares of capital stock of
each such Subsidiary which is a corporation have been duly authorized and
validly issued and are fully paid and non-assessable, and none has been issued
in violation of the pre-emptive rights of any shareholder.
SECTION 3.3 Authority Relative to this Agreement. The Company has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby shall, as of the Closing, have been duly and validly authorized by the
Board of Directors and shareholders of the Company, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been duly
and validly executed and delivered by the Company and, assuming this Agreement
constitutes a valid and binding obligation of each of Parent and Purchaser, this
Agreement constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with and subject to its terms and conditions.
SECTION 3.4 Financial Statements. The Company has delivered to Purchaser
copies of its consolidated financial statements as of and for the years ended
December 31, 1993, 1994 and 1995, certified by Coopers & Lybrand, L.L.P., and
for the six months ended June 30, 1995 and 1996 (the "Company Financial
Statements." Each of the Company Financial Statements fairly presents the
financial position of the entity or entities to which it relates as of its date,
and each of the related consolidated statements of operations and retained
earnings and cash flows or equivalent statements in the Company Financial
Statements (including any related notes and schedules) fairly presents the
results of operations, retained earnings and cash flows, as the case may be, of
the entity or entities to which it relates for the period set forth therein
(subject in the case of unaudited interim statements, to normal year-end audit
adjustments) in each case in accordance with generally accepted accounting
principles applicable to the particular entity consistently applied throughout
the periods involved, except as may be noted therein. The accounts receivable,
notes receivable and any other contingent asset reflected on the latest balance
sheet of the Company arose from bona fide transactions in the ordinary course of
business, and, to the best of the Company's knowledge, are not subject to any
offset or counterclaim.
SECTION 3.5 Consents and Approvals; No Violation. Except as described
in the Disclosure Schedule, neither the execution and delivery of this Agreement
by the Company nor the
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consummation of the transactions contemplated hereby nor compliance by the
Company with any of the provisions hereof will (a) conflict with or result in
any breach of any provision of the Articles of Incorporation, By-laws or other
organization documents of the Company or any Subsidiary, (b) require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority (as defined herein), except (i) pursuant to the
Securities Act and the Exchange Act, (ii) the filing of the Articles of Merger
pursuant to the Acts, (iii) such filings and approvals as may be required under
the "blue sky", takeover or securities laws of various states, or (iv) where the
failure to obtain such consent, approval, authorization or permit, or to make
such filing or notification, would not in the aggregate have a Material Adverse
Effect (as defined herein), (c) result in a material default (with or without
due notice or lapse of time or both) (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, Contract (as hereinafter defined),
license, agreement or other instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company, any of its Subsidiaries
or any of their respective assets may be bound, except for such defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been requested, (d) result in the creation or
imposition of any lien, charge or other encumbrance on the assets of the Company
or any of its Subsidiaries, or (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company, any of its Subsidiaries
or any of their respective assets.
SECTION 3.6 Litigation, etc. Except as described in the Disclosure
Schedule, (a) there is no action, claim, or proceeding pending or, to the
knowledge of the Company, threatened, to which the Company or any of its
Subsidiaries is or would be a party before any court or Governmental Authority
acting in an adjudicative capacity, or any arbitrator or arbitration tribunal;
(b) neither the Company nor any of its Subsidiaries is subject to any
outstanding order, writ, injunction or decree; and (c) since December 31, 1995,
there have been no claims made or actions or proceedings brought against any
officer or director of the Company arising out of or pertaining to any action or
omission within the scope of his employment or position with the Company. All
litigation and other administrative, judicial or quasi-judicial proceedings to
which the Company is a party or to which it has been threatened to the Company's
knowledge to be made a party, are described in the Disclosure Schedule.
SECTION 3.7 Changes. Except as expressly contemplated by this Agreement
or as reflected in the Disclosure Schedule or in the Company Financial
Statements, since December 31, 1995, the Company and the Subsidiaries have
conducted their business only in the ordinary and usual course, and, except as
set forth in the Disclosure Schedule or in the Company Financial Statements,
none of the following has occurred, except as shall have occurred in the
ordinary course of its business:
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(a) any material adverse change in the condition (financial or other),
results of operations, business, assets, customer, supplier and employee
relations of the Company and its Subsidiaries, taken as a whole;
(b) any change in accounting methods, principles or practices by the
Company materially affecting its assets, liabilities or business, except insofar
as may have been required by a change in generally accepted accounting
principles;
(c) any damage, destruction or loss, whether or not covered by
insurance, resulting in a Material Adverse Change of the Company and its
Subsidiaries;
(d) any declaration, setting aside or payment of dividends or
distributions in respect of the Shares, or any redemption, purchase or other
acquisition of any of the securities of the Company or its Subsidiaries;
(e) any issuance by the Company of, or commitment of the Company to
issue, any Shares or other capital stock or securities convertible into or
exchangeable or exercisable for Shares or other capital stock;
(f) any entry by the Company or any of its Subsidiaries into any
commitment or transaction material to the condition (financial or other),
business or operations of the Company and its Subsidiaries, taken as a whole,
which is not in the ordinary course of business and consistent with past
practice;
(g) any revaluation by the Company or any of its Subsidiaries of any of
their respective assets, including without limitation, writing down the value of
assets or writing off notes or accounts receivable other than in the ordinary
course of business and consistent with past practice;
(h) any agreement by the Company to do any of the things described in
the preceding clauses (a) through (g) other than as expressly contemplated or
provided for herein; or
(i) any waiver by the Company or any of its Subsidiaries of any rights
that, singularly or in the aggregate, are material to the business, assets,
financial condition, or results of operation of the Company and its
Subsidiaries, taken as a whole.
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SECTION 3.8 Definitions, Representations, and Warranties Concerning
Environmental Matters.
(a) Definitions:
(i) "Environmental Claim" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any person alleging potential liability
(including, without limitation, potential liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, removal
costs, remedial costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on or resulting from:
(A) the presence or release into the environment of any Environmental
Hazardous Materials at any location, whether or not owned by the Company or
a Subsidiary; or (B) circumstances forming the basis of any violation or
alleged violation of any Environmental Law; or (C) any and all claims by
any person seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence or
Environmental Release of any Environmental Hazardous Materials.
(ii) "Environmental Laws" shall mean all federal, state, local
statute, law, rule, ordinance, code, policy, rule of common law and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without
limitation, laws and regulations relating to Environmental Releases or
threatened Environmental Releases of Environmental Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Environmental
Hazardous Materials.
(iii) "Environmental Hazardous Materials" shall mean: (A) any
petroleum or petroleum products, radioactive materials, asbestos in any
form that is or could become friable, urea formaldehyde foam insulation,
transformers or other equipment that contain dissolved fluid containing
polychlorinated biphenyls (PCBs), and radon gas; and (B) any chemicals,
materials or substances which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," or words of similar import, under
any Environmental Law; and (C) any other chemical, material, substance or
waste, exposure to which is prohibited, limited or regulated by any
Governmental Authority.
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(iv) "Environmental Release" shall mean any release, spill,
emission, leaking, injection, deposit, disposal, discharge, dispersed,
leaching or migration into the atmosphere, soil, surface water, groundwater
or property.
(b) Except as set forth in the Disclosure Schedule, the Company and all
of its Subsidiaries: (i) are currently and at all times in the past has been in
compliance in all material respects with all applicable Environmental Laws; and
(ii) have not received any communication (written or oral) from a governmental
authority that alleges that the Company or a Subsidiary is or was not in
compliance with applicable Environmental Laws.
(c) Except as set forth in the Disclosure Schedule, the Company and the
Subsidiaries have to their knowledge obtained all environmental health and
safety permits, registrations, approvals, licenses and governmental
authorizations (collectively, the "Environmental Permits") necessary for its
operations, and to their knowledge all such permits are in good standing and to
their knowledge the Company and the Subsidiaries are in material compliance with
all terms and conditions of the Environmental Permits. A list of all
Environmental Permits is included in the Disclosure Schedule.
(d) Except as set forth in the Disclosure Schedule, there is no
Environmental Claim pending or, to the knowledge of the Company or any
Subsidiary, threatened against the Company or any Subsidiary; or pending against
any person whose liability for any Environmental Claim the Company or a
Subsidiary has or may have retained or assumed either contractually or by
operation of law; or against any real or personal property or operations which
the Company or a Subsidiary owns, leases, operates, uses or manages.
(e) Except as set forth in the Disclosure Schedule, to the knowledge of
the Company and the Subsidiaries there have been no Environmental Releases of
any Environmental Hazardous Material on real property owned, used, leased,
managed or operated by the Company or any Subsidiary that require reporting or
other response under Environmental Laws.
(f) Except as set forth in the Disclosure Schedule, to the knowledge of
the Company, Environmental Hazardous Materials have not at any time been
generated, used, treated, recycled or stored on, or transported to or from, or
disposed of on the Property.
(g) Except as set forth in the Disclosure Schedule, to the knowledge of
the Company: there are not now and never have been any underground storage tanks
or pipelines located at, on or under the Property; there is no asbestos
contained in, forming part of, or contaminating any part of the Property; no
polychlorinated biphenyls (PCBs) are used, stored,
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located at or contaminate any part of the Property; and, no wetland areas as
defined by federal, state or local law are located on the Property.
(h) Except as set forth in the Disclosure Schedule, to the knowledge of
the Company, no real property at any time owned, operated, leased, used or
controlled by the Company or a Subsidiary is currently listed on the National
Priorities List or the Comprehensive Environmental Response, Compensation and
Liability Information System, both promulgated under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or, to the knowledge of the Company, on any comparable state or
local list and neither the Company or any Subsidiary has received any written
notice from any person under or relating to a violation of CERCLA or any
comparable state or local law.
(i) To the knowledge of the Company, no off-site location at which the
Company or any Subsidiary has disposed or arranged for the disposal of any waste
is listed on the National Priorities List or on any comparable state or local
list and neither the Company nor any Subsidiary has received any written notice
from any person with respect to any off-site location, of potential or actual
liability or a written request for information from any government or person
under or relating to CERCLA or any comparable state or local law.
(j) The Disclosure Schedule includes a list of all environmental
studies, audits, or investigations that have been conducted by the Company
regarding the Property. All books, records, environmental studies or audits
listed in the Disclosure Schedule to the knowledge of the Company are accurate
and true. The Company has given Parent access to all records and files in its
possession at both its corporate headquarters and its facilities currently
owned, operated, leased, managed, used or controlled by the Company and the
Subsidiaries, including, without limitation, all reports, studies, analyses,
tests or monitoring results pertaining to the existence of Environmental
Hazardous Materials or any other environmental concerns relating to facilities
or properties owned, operated, leased, managed, used or controlled by the
Company or a Subsidiary or concerning compliance with or liability under any
Environmental Laws and the Occupational Safety and Health Act or the equivalent
such Act under state law.
(k) Except as set forth in the Disclosure Schedule, to the knowledge of
the Company the Property is not subject to any United States or state
environmental liens.
(l) Except as set forth in the Disclosure Schedule and except for
construction contracts, financing transactions, purchase agreements and related
documents entered into in the ordinary course of business, the Company and the
Subsidiaries are not a party, whether as a direct signatory or as successor,
assign or third-party beneficiary, or otherwise bound, to any contract
(excluding insurance policies disclosed on the Disclosure Schedule) under which
the Company or any Subsidiary is obligated by, or entitled to the benefits of,
directly or indirectly, any representation,
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warranty, indemnification, covenant, restriction or other undertaking concerning
Environmental Laws or the environmental conditions of the Property.
(m) Except as set forth in the Disclosure Schedule and except for
construction contracts, financing transactions, purchase agreements and related
documents entered into in the ordinary course of business, neither the Company
nor any Subsidiary has released any other person from any claim under any
Environmental Law or waived any rights concerning the environmental condition
of the Property, which release or waiver would have a Material Adverse Effect on
the Company.
(n) The Disclosure Schedule contains a list of all current and past
insurance policies covering the Property or operation of the Company and the
Subsidiaries.
(o) The properties of the Company are, to the best of its knowledge, in
good repair and working order, reasonable wear and tear excepted, and are not in
immediate need of any major repair or material capital expenditure except as
noted on the Disclosure Schedule.
SECTION 3.9 ERISA Matters. The Company, each of its Subsidiaries and all
"Employee Benefit Plans" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), that cover any of its or
their employees (which Employee Benefit Plans are listed on the Disclosure
Schedule), comply in all material respects with all applicable laws,
requirements and orders under ERISA and the Internal Revenue Code of 1986, as
amended (the "Code"), the breach or violation of which would have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole; the
present value of all the assets of each of its Employee Benefit Plans that it is
subject to Title IV of ERISA equals or exceeds to the knowledge of the Company
the present value of all of the benefits accrued under each such Employee
Benefit Plan as of the end of most recent plan year with respect to such plan
ending prior to the date hereof, calculated on the basis of the actuarial
assumptions used in the last actuarial evaluation for each such plan; none of
the employees of the Company or any of its Subsidiaries is covered by a
collective bargaining agreement; neither the Company nor any of its Subsidiaries
has ever contributed to a "multiemployer plan" as defined in Section 3(37) of
ERISA; neither the Employee Benefit Plans nor any fiduciary or administrator
thereof has engaged in a "prohibited transaction" as defined in Section 406 of
ERISA or, where applicable, Section 4975 of the Code for which no exemption is
applicable, that may have any Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole, nor to the knowledge of the Company have there
been any "reportable events" as defined in Section 4043 of ERISA for which the
thirty-day notice has not been waived.
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SECTION 3.10 Taxes, Tax Returns.
(a) The Company has or within two business days from the date hereof
will deliver to Parent copies of the federal income tax returns of the Company
for each of the last three fiscal years and all schedules and exhibits thereto.
Except as set forth on the Disclosure Schedule, each of the Company and its
Subsidiaries for which it files returns has duly and timely filed in correct
form all federal, state and local information returns and tax returns required
to be filed by it and such Subsidiaries on or prior to the date hereof (all such
returns to the knowledge of the Company being accurate and complete in all
material respects) and, to the knowledge of the Company, has duly paid or made
provision for the payment of all taxes and other governmental charges which have
been incurred or are due or claimed to be due from them by any Governmental
Authority (including, without limitation, those due in respect of their
properties, income, business, capital stock, franchises, licenses, sales and
payrolls) other than taxes or other charges (i) which are not yet delinquent or
are being contested in good faith and set forth in the Disclosure Schedule, (ii)
have not been finally determined or (iii) that would not have a Material Adverse
Effect on the Company. The liabilities and reserves for taxes in the Company
Financial Statements are sufficient to the best of the Company's knowledge in
the aggregate for the payment of all unpaid federal, state and local taxes
(including any interest or penalties thereon), whether or not disputed or
accrued, for the period ended September 30, 1996 or for any year or period prior
thereto, and for which the Company or any of its Subsidiaries may be liable in
its own right or as transferee of the assets of, or successor to, any
corporation, person, association, partnership, joint venture or other entity.
(b) To the knowledge of the Company, (i) proper and accurate amounts
have been withheld by the Company and its Subsidiaries from their employees and
others for all prior periods in compliance in all material respects with the tax
withholding provisions of applicable federal, state and local laws and
regulations, and proper due diligence steps have been taken in connection with
back-up withholding, (ii) federal, state and local returns which are accurate
and complete in all material respects have been filed by the Company and each of
its Subsidiaries for all periods for which returns were due with respect to
income tax withholding, Social Security and unemployment taxes and (iii) the
amounts shown on such returns to be due and payable have been paid in full, or
adequate provision therefore has been included by the Company in the most recent
Company Financial Statements.
SECTION 3.11 Tax Audits. Except as disclosed in the Disclosure Schedule,
(i) no audit of any material federal, state or local U.S. return of the Company
or any Subsidiary is currently in progress, nor has the Company or any
Subsidiary been notified that such an audit is contemplated by any taxing
authority, (ii) neither the Company nor any Subsidiary has extended any statute
of limitations with respect to the period for assessment of any federal, state
or local U.S. tax, (iii) neither the Company nor any Subsidiary contemplates the
filing of an amendment to any return, which amendment would have a Material
Adverse Effect on the Company, and (iv) neither the
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Company nor any Subsidiary has any actual or potential material liability for
any tax obligation of any taxpayer other than the Company or its Subsidiaries.
Except as disclosed in the Disclosure Schedule, there are no material tax claims
pending against the Company or any Subsidiary and there are no material tax
claims to the knowledge of the Company threatened to be asserted against the
Company or any Subsidiary. For purposes of this Section 3.11, "tax" and "taxes"
shall include all income, gross receipt, franchise, excise, real and personal
property, sales, ad valorem, employment, withholding and other taxes imposed by
any foreign, federal, state, municipal, local, or other Governmental Authority
including assessments in the nature of taxes.
SECTION 3.12 Undisclosed Liabilities. The Company is not liable for or
subject to any material Liabilities (as hereinafter defined), except (a)
Liabilities adequately disclosed or reserved for in the most recent Company
Financial Statements and not heretofore paid or discharged, (b) Liabilities
under any contract, commitment or agreement specifically disclosed on the
Disclosure Schedule, or (c) Liabilities incurred, consistent with past practice,
in or as a result of the ordinary course of business of the Company since the
date of the most recent Company Financial Statements. As used in this Agreement,
the term "Liability" or "Liabilities" includes any material direct or indirect
liability, indebtedness, obligation, guarantee or endorsement (other than
endorsements of notes, bills, and checks presented to banks for collection or
deposit in the ordinary course of business), whether known or unknown, accrued,
absolute, contingent or otherwise.
SECTION 3.13 No Default; Compliance.
(a) Except as set forth in the Disclosure Schedule, to the knowledge of
the Company, neither the Company nor any of its Subsidiaries is in material
default under, and no condition exists that with notice or lapse of time or both
would constitute a material default under, (i) any mortgage, loan agreement,
indenture, evidence of indebtedness or other instrument evidencing borrowed
money to which either the Company or any of its Subsidiaries is a party or by
which either the Company or any of its Subsidiaries or its properties is bound,
(ii) any judgment, order or injunction of any court, arbitrator or governmental
agency or (iii) any other agreement, contract, lease, license or other
instrument, which default or potential default might reasonably be expected to
have a Material Adverse Effect.
(b) Except as set forth in the Disclosure Schedule, the Company and each
of its Subsidiaries have complied in all material respects with all laws,
regulations, orders, judgments or decrees of any federal or state court or
Governmental Authority applicable to their respective businesses and operations,
non-compliance with which might reasonably be expected to have a Material
Adverse Effect.
SECTION 3.14 Representations and Warranties Continuing. The
representations and warranties set forth herein shall be true and correct on the
date hereof and subject to an update of the
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Disclosure Schedule from time to time, at all times prior to the Effective Time
as if made from time to time, including, without limitation, at the Effective
Time and the Closing.
SECTION 3.15 Contracts and Commitments. Except as listed and described
in the Disclosure Schedule or the Company Financial Statements, neither the
Company nor any of its Subsidiaries is a party to, nor are they or their assets
bound by any written or oral covenant, contract, agreement or understanding (a
"Contract"), including the following:
(a) Contract with any present or former stockholder, director, officer,
employee or consultants;
(b) Contract with any labor union or other representative of employees;
(c) Contract for the future purchase of, or payment for, supplies or
products, or for the performance of services by a third party, involving
payment or potential payment by the Company of $10,000 or more under any
one Contract or series of related Contracts;
(d) any Contract, including, without limitation, any outstanding
quotations, bids or proposals, to sell goods or to perform services in an
aggregate amount in excess of $10,000;
(e) distributorship, representative or sales agency agreement, contract
or commitment;
(f) conditional sale agreement or lease under which the Company is
either the seller or purchaser, lessor or lessee, involving annualized
payments or potential payments by or to the Company that is in excess of
$10,000;
(g) Contract (including, without limitation, any note, debenture, bond,
conditional sale or equipment trust agreement, letter of credit agreement
or loan agreement) for the borrowing or lending of money more than $10,000
(including, without limitation, those to or from officers, directors or
shareholders of the Company, or any affiliates or members of their
immediate families, for a line of credit, or for a guarantee, security,
indemnitee, pledge or undertaking of the indebtedness or obligations of any
other person);
(h) Contract for any charitable or political contribution;
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(i) Contract for any capital expenditure involving future payments,
which, together with future payments under all other existing Contracts for
the same capital project, are in excess of $10,000;
(j) Contract limiting or restraining the Company from engaging or
competing in any lines of business with any person, nor is any officer or
employee of the Company subject to any such agreement, contract or
commitment;
(k) license, franchise, distributorship or other Contract relating in
whole or in part to any ideas, technical assistance or other know-how of or
used by the Company;
(l) Contract greater than $10,000 which is expected to continue for
more than six months from the date hereof;
(m) Contract not made in the ordinary course of business;
(n) any guaranty, direct or indirect, of any person of any contract,
lease or agreement in an amount greater than $10,000 entered into by the
Company or any of its Subsidiaries;
Except as may be disclosed on the Disclosure Schedule: each of the
Contracts listed on the Disclosure Schedule is valid and enforceable in
accordance with its terms; to the best of the Company's knowledge, the
Company and the other parties thereto are in substantial compliance with
the provisions thereof; except as may be disclosed on the Disclosure
Schedule, neither the Company nor any other party is (or by reason of the
consummation of the transactions contemplated by this Agreement, will be)
in default in the performance, observance or fulfillment of any obligation,
covenant or condition contained therein and no event has occurred or is
anticipated to occur (including the consummation of the transactions
contemplated by this Agreement) which with or without the giving of notice
or lapse of time, or both, would constitute a default or give the right of
termination thereunder.
SECTION 3.16 Compliance with Law and Permits. To its knowledge, the
Company has owned and operated its properties and assets in substantial
compliance with the provisions and requirements of all laws, orders,
regulations, rules and ordinances issued or promulgated by all Governmental
Authorities having jurisdiction with respect thereto, except where the failure
to own and operate such properties and assets in compliance with such provisions
and requirements would not reasonably be expected to have a Material Adverse
Effect. All material governmental certificates, consents, permits, licenses or
other authorizations with regard to the ownership or operation by the Company or
its Subsidiaries of their respective properties and assets have been
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obtained, and to the knowledge of the Company no violation exists in respect of
such licenses, permits or authorizations, except where the failure to obtain and
hold such permits, or any violation thereof by the Company or its Subsidiaries,
would not reasonably be expected to have a Material Adverse Effect. To the
knowledge of the Company, none of the documents and materials filed with or
furnished to any Governmental Authority with respect to the properties, assets
or businesses of the Company or its Subsidiaries contains any untrue statement
of a material fact or fails to state a material fact necessary to make the
statements therein not misleading.
SECTION 3.17 Title to Property. Except as disclosed on the Disclosure
Schedule, the Company and each of its Subsidiaries has good and marketable
title, insured with respect to properties and assets which currently are of a
type for which insurance is generally available, free and clear (except as
indicated in the Disclosure Statement or in the most recent Company Financial
Statements and liens for current taxes not yet due and payable), of all security
interests, liens, encumbrances and encroachments of a material nature, to its
real property and other property and assets that are material to the Company's
business on a consolidated basis.
SECTION 3.18 Insurance and Bank Accounts. (a) The Disclosure Schedule
sets forth a complete and accurate list and description of all insurance
policies in force naming the Company, any of its Subsidiaries or any employees
of any of them as an insured or beneficiary or as a loss payable payee or for
which the Company or any of its Subsidiaries has paid or is obligated to pay all
or part of the premiums. Neither the Company nor its Subsidiaries have received
notice of any pending or threatened termination or retroactive premium increase
with respect thereto, and the Company and its Subsidiaries are in compliance in
all material respects with all conditions contained therein. There are no
pending material claims against such insurance by the Company or any of its
Subsidiaries as to which insurers have denied liability, no defenses provided by
insurers under reservations of rights, and no material claim under such
insurance that has not been properly filed by the Company or its Subsidiaries.
(b) The Disclosure Schedule contains a list of all bank and investment
accounts maintained by the Company, including the account numbers, recent
balance, institution, and persons having signing authority.
SECTION 3.19 Employees. The Disclosure Statement sets forth a list of the
employees of the Company and the Subsidiaries, stating with respect to each the
name, date of hire and rate of compensation. Except as described in the
Disclosure Statement, there are no claims or disputes pending with any employee
regarding workers' compensation, unemployment benefits, discrimination
(including discrimination based on any disability), or compensation, and no
employment or collective bargaining agreements are in effect covering any such
person.
SECTION 3.20 Investment Representations.
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(a) The Shareholders are acquiring the Merger Consideration for their
own accounts, not as nominee or agent, for investment and not with a view
to, or for resale in connection with, any distribution in violation of the
Securities Act of 1933 (the "Securities Act"), or any state securities
laws, and they have no present intention of, or agreement relating to,
selling, granting participation in or otherwise distributing such Merger
Consideration in violation of such laws.
(b) The Shareholders understand that (i) the Parent's Common Stock
comprising the Merger Consideration has not been registered under the
Securities Act or any state securities laws by reason of specific
exemptions therefrom, that the Merger Consideration may be sold,
transferred or otherwise disposed of only if such disposition is registered
under the Securities Act and applicable state securities laws or is exempt
from such registration, and that they must therefore bear the economic risk
of such investment indefinitely, unless a subsequent disposition thereof is
registered under the Securities Act and applicable state securities laws or
is exempt from such registration; and (ii) each certificate representing
the Merger Consideration will be endorsed with a legend substantially in
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS
AND UNTIL EITHER (A) SUCH SHARES ARE REGISTERED UNDER THE APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) Each Shareholder is a knowledgeable and experienced investor and has
had an opportunity to ask questions and review information about the
business and financial condition of the Parent. Each Shareholder
acknowledges receipt of an Annual Report of the Parent, all Quarterly
Reports since the date of the Annual Report, the latest draft of the
Parent's Form S-1 Registration Statement, and such other information as has
been requested.
(d) Each Shareholder acknowledges that he will be required to execute an
agreement in connection with the Parent's pending public offering to the
effect that he or she will not sell any shares of the Parent's Common Stock
for a period of 180 days after the effective date of the public offering.
(e) Each shareholder who is an "affiliate" of the Company acknowledges
that he or she will also be required to execute an agreement with Parent in
the form of Exhibit C further restricting sales of Parent Common Stock in
violation of accounting rules applicable to "Pooling of Interests"
transactions.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF PARENT AND PURCHASER
Parent and Purchaser jointly and severally represent and warrant to the
Company and the Shareholders as follows:
SECTION 4.1 Organization and Qualification. Each of Parent and Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada. All Subsidiaries of the Parent are legal entities
that are duly organized, validly existing and in good standing under the laws of
their respective jurisdictions of incorporation. Each of the Parent and its
Subsidiaries has all requisite power and authority to own or operate its
properties and conduct its business as it is now being conducted. The Parent
and each of its Subsidiaries is duly qualified and in good standing as a foreign
corporation or entity authorized to do business in each of the jurisdictions in
which the character of the properties owned or held under lease by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not have
a Material Adverse Effect on the Parent.
SECTION 4.2 Capitalization; Subsidiaries. (a) The authorized capital
stock of the Parent consists of 100,000,000 shares of Parent's Common Stock, and
10,000,000 shares of preferred stock, par value $0.10 per share. As of October
1, 1996, 5,172,242 shares of Parent's Common Stock, and 1,727 shares of Series B
Preferred Stock, 10,000 shares of Series C Preferred Stock and 675,000 shares of
Series D Preferred Stock (together the "Preferred Shares") were issued and
outstanding. The Preferred Shares are convertible into 452,091 shares of Parent
Common Stock. Except as described in the Disclosure Schedule, since October 1,
1996, the Parent has not issued any shares of capital stock, and has not
repurchased or redeemed any shares of its capital stock. Neither the Parent nor
any Subsidiary has any shares of its capital stock reserved for issuance, except
for 385,500 shares of Common Stock issuable pursuant to stock options, none of
which is outstanding, and 452,090 shares reserved for issuance upon conversion
of the Preferred Shares. No other options, warrants or other securities
convertible into Common Stock are outstanding. All issued and outstanding
shares of capital stock of Parent are validly issued, fully paid, non-assessable
and free of preemptive rights.
(b) Except as set forth in the Disclosure Schedule, all of the
outstanding shares of capital stock of each of the Parent's Subsidiaries are
owned, directly or indirectly, by the Parent, beneficially and of record. All
of such shares of capital stock of the Subsidiaries are owned free and clear of
all liens, charges, encumbrances, rights of others, mortgages, pledges or
security interests, and are not subject to any agreements or understandings
among any persons with respect to the voting or transfer of such shares. Except
as described in the Disclosure Schedule or the Parent SEC
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Reports (defined below), there are no outstanding subscriptions, options,
convertible securities, warrants or claims of any kind issued or granted by or
binding on the Parent and Purchaser to purchase or otherwise acquire any
security of or equity interest in any of such Subsidiaries. All of the
outstanding shares of capital stock of each such Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable, and none
has been issued in violation of the pre-emptive rights of any stockholder.
SECTION 4.3 Authority Relative to this Agreement. The Parent and
Purchaser have all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
sole shareholder of the Purchaser and the Boards of Directors of the Parent and
Purchaser, and no other corporate proceedings on the part of the Parent and
Purchaser are necessary to authorize this Agreement or to consummate the
transactions so contemplated, other than the possible requirement to obtain a
vote of the stockholders of Parent as described in Section 1.7(b). This
Agreement has been duly and validly executed and delivered by the Parent and
Purchaser and, assuming this Agreement constitutes a valid and binding
obligation of the Company, this Agreement constitutes a valid and binding
agreement of the Parent and Purchaser, enforceable against the Parent and
Purchaser in accordance with and subject to its terms and conditions.
SECTION 4.4 SEC Reports. Since January 1, 1993, to the best of its
knowledge the Parent has filed all required forms, reports and documents
("Parent SEC Reports") with the Securities and Exchange Commission (the "SEC")
required to be filed by it pursuant to the federal securities laws and the SEC
rules and regulations thereunder, all of which have complied in all material
respects with all applicable requirements of the Securities Act and the
Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and
interpretive releases promulgated thereunder. None of such Parent SEC Reports,
including without limitation any financial statements, notes, or schedules
included therein, at the time filed, contained, or, if to be filed in the future
will contain, any untrue statement of a material fact, or omitted, omit or will
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
Each of the consolidated balance sheets in or incorporated by reference
into the Parent SEC Reports fairly presents or will fairly present the financial
position of the entity or entities to which it relates as of its date, and each
of the related consolidated statements of operations and retained earnings and
cash flows or equivalent statements in the Parent SEC Reports (including any
related notes and schedules) fairly presents or will fairly present the results
of operations, retained earnings and cash flows, as the case may be, of the
entity or entities to which it relates for the period set forth therein (subject
in the case of unaudited interim statements, to normal year-end audit
adjustments) in each case in accordance with generally-accepted accounting
principles applicable to the particular
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entity consistently applied throughout the periods involved, except as may be
noted therein. The consolidated financial statements included or to be included
in the Parent SEC Reports are hereinafter sometimes collectively referred to as
the "Parent Financial Statements."
SECTION 4.5 Consents and Approvals; No Violation. Except as described in
the Disclosure Schedule, neither the execution and delivery of this Agreement by
the Parent and Purchaser nor the consummation of the transactions contemplated
hereby nor compliance by the Parent and Purchaser with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of the
Articles of Incorporation or By-laws of the Parent or any Subsidiary, (ii)
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, except (A) pursuant to the
Securities Act and the Exchange Act, (B) the filing of Articles of Merger
pursuant to the Acts, (C) such filings and approvals as may be required under
the "blue sky", takeover or securities laws of various states, or (D) where the
failure to obtain such consent, approval, authorization or permit, or to make
such filing or notification, would not in the aggregate have a Material Adverse
Effect, (iii) result in a material default (with or without due notice or lapse
of time or both) (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, Contract, license, agreement or other instrument or
obligation to which the Parent or any of its Subsidiaries is a party or by which
the Parent, any of its Subsidiaries or any of their respective assets may be
bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been requested or
which, in the aggregate, would not have a Material Adverse Effect, (iv) result
in the creation or imposition of any lien, charge or other encumbrance on the
assets of the Parent or any of its Subsidiaries, or (v) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Parent, any of
its Subsidiaries or any of their respective assets, except for violations which
would not in the aggregate have a Material Adverse Effect.
SECTION 4.6 Litigation, etc. Except as described in the Disclosure
Schedule or the Parent SEC Reports, there is no action, claim, or proceeding
pending or, to the knowledge of the Parent and Purchaser, threatened, to which
the Parent or any of its Subsidiaries is or would be a party before any court or
Governmental Authority acting in an adjudicative capacity or any arbitrator or
arbitration tribunal with respect to which there is a reasonable likelihood of a
determination having, or which, insofar as reasonably can be foreseen, in the
future would have a Material Adverse Effect on the Parent and Purchaser and
since December 31, 1995, there have been no claims made or actions or
proceedings brought against any officer or director of the Parent and Purchaser
arising out of or pertaining to any action or omission within the scope of his
employment or position with the Parent and Purchaser, which claim, action or
proceeding would involve a Material Adverse Effect on the Parent and Purchaser
taken as a whole. All litigation and other administrative, judicial or quasi-
judicial proceedings to which the Parent and Purchaser is a party or to which it
has been threatened to the Parent's knowledge to be made a party, are described
in the Disclosure Schedule.
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SECTION 4.7 Compliance with Law and Permits. To its knowledge, the
Parent and its Subsidiaries have owned and operated their properties and assets
in substantial compliance with the provisions and requirements of all laws,
orders, regulations, rules and ordinances issued or promulgated by all
Governmental Authorities having jurisdiction with respect thereto, except where
the failure to own and operate such properties and assets in compliance with
such provisions and requirements would not reasonably be expected to have a
Material Adverse Effect. All material governmental certificates, consents,
permits, licenses or other authorizations with regard to the ownership or
operation by the Parent or its Subsidiaries of their respective properties and
assets have been obtained and to its knowledge no violation exists in respect of
such licenses, permits or authorizations, except where the failure to obtain and
hold such permits, or any violation thereby by the Company or its Subsidiaries,
would not reasonably be expected to have a Material Adverse Effect. To its
knowledge, none of the documents and materials filed with or furnished to any
Governmental Authority with respect to the properties, assets or businesses of
the Parent or its Subsidiaries contains any untrue statement of a material fact
or fails to state a material fact necessary to make the statements therein not
misleading.
SECTION 4.8 Changes. Except as expressly contemplated by this Agreement
or as reflected in the Disclosure Schedule or in the Parent Financial Statements
or Parent SEC Reports, since December 31, 1995, the Parent and its Subsidiaries
have conducted their business only in the ordinary and usual course, and, except
as set forth in the Disclosure Schedule or in the Parent Financial Statements or
Parent SEC Reports, none of the following has occurred, except as shall have
occurred in the ordinary course of its business:
(a) any material adverse change in the condition (financial or other),
results of operations, business, assets, customer, supplier and employee
relations of the Parent and its Subsidiaries, taken as a whole;
(b) any change in accounting methods, principles or practices by the
Parent materially affecting its assets, liabilities or business, except insofar
as may have been required by a change in generally accepted accounting
principles;
(c) any damage, destruction or loss, whether or not covered by
insurance, resulting in a Material Adverse Change of the Parent and its
Subsidiaries;
(d) any declaration, setting aside or payment of dividends or
distributions in respect of the Shares, or any redemption, purchase or other
acquisition of any of the securities of the Parent or its Subsidiaries;
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(e) any issuance by the Parent of, or commitment of the Parent to
issue, any Shares or other capital stock or securities convertible into or
exchangeable or exercisable for Shares or other capital stock;
(f) any entry by the Parent or any of its Subsidiaries into any
commitment or transaction material to the condition (financial or other),
business or operations of the Parent and its Subsidiaries, taken as a whole,
which is not in the ordinary course of business and consistent with past
practice;
(g) any revaluation by the Parent or any of its Subsidiaries of any of
their respective assets, including without limitation, writing down the value of
assets or writing off notes or accounts receivable other than in the ordinary
course of business and consistent with past practice;
(h) any agreement by the Parent to do any of the things described in
the preceding clauses (a) through (g) other than as expressly contemplated or
provided for herein; or
(i) any waiver by the Parent or any of its Subsidiaries of any rights
that, singularly or in the aggregate, are material to the business, assets,
financial condition, or results of operation of the Parent and its Subsidiaries,
taken as a whole.
SECTION 4.9 Definitions, Representations, and Warranties Concerning
Environmental Matters.
(a) Definitions:
(i) "Environmental Claim" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any person alleging potential liability
(including, without limitation, potential liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, removal
costs, remedial costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on or resulting from:
(A) the presence or release into the environment of any Environmental
Hazardous Materials at any location, whether or not owned by the Company or
a Subsidiary; or (B) circumstances forming the basis of any violation or
alleged violation of any Environmental Law; or (C) any and all claims by
any person seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence or
Environmental Release of any Environmental Hazardous Materials.
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(ii) "Environmental Laws" shall mean all federal, state, local
statute, law, rule, ordinance, code, policy, rule of common law and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without
limitation, laws and regulations relating to Environmental Releases or
threatened Environmental Releases of Environmental Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Environmental
Hazardous Materials.
(iii) "Environmental Hazardous Materials" shall mean: (A) any
petroleum or petroleum products, radioactive materials, asbestos in any
form that is or could become friable, urea formaldehyde foam insulation,
transformers or other equipment that contain dissolved fluid containing
polychlorinated biphenyls (PCBs), and radon gas; and (B) any chemicals,
materials or substances which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," or words of similar import, under
any Environmental Law; and (C) any other chemical, material, substance or
waste, exposure to which is prohibited, limited or regulated by any
Governmental Authority.
(iv) "Environmental Release" shall mean any release, spill,
emission, leaking, injection, deposit, disposal, discharge, dispersed,
leaching or migration into the atmosphere, soil, surface water, groundwater
or property.
(b) Except as set forth in the Disclosure Schedule, the Parent and all
of its Subsidiaries: (i) are currently and at all times in the past has been in
compliance in all material respects with all applicable Environmental Laws; and
(ii) have not received any communication (written or oral) from a governmental
authority that alleges that the Parent or a Subsidiary is or was not in
compliance with applicable Environmental Laws.
(c) Except as set forth in the Disclosure Schedule, the Parent and the
Subsidiaries have to their knowledge obtained all environmental health and
safety permits, registrations, approvals, licenses and governmental
authorizations (collectively, the "Environmental Permits") necessary for its
operations, and to their knowledge all such permits are in good standing and to
their knowledge the Parent and the Subsidiaries are in material compliance with
all terms and conditions of the Environmental Permits. A list of all
Environmental Permits is included in the Disclosure Schedule.
(d) Except as set forth in the Disclosure Schedule, there is no
Environmental Claim pending or, to the knowledge of the Parent or any
Subsidiary, threatened against the Parent
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or any Subsidiary; or pending against any person whose liability for any
Environmental Claim the Parent or a Subsidiary has or may have retained or
assumed either contractually or by operation of law; or pending against any real
or personal property or operations which the Parent or a Subsidiary owns,
leases, operates, uses or manages.
(e) Except as set forth in the Disclosure Schedule, to the knowledge
of the Parent and the Subsidiaries there have been no Environmental Releases of
any Environmental Hazardous Material on real property owned, used, leased,
managed or operated by the Parent or any Subsidiary that require reporting or
other response under Environmental Laws.
(f) Except as set forth in the Disclosure Schedule, to the knowledge
of the Parent, Environmental Hazardous Materials have not at any time been
generated, used, treated, recycled or stored on, or transported to or from, or
disposed of on the Property.
(g) Except as set forth in the Disclosure Schedule, to the knowledge
of the Parent: there are not now and never have been any underground storage
tanks or pipelines located at, on or under the Property; there is no asbestos
contained in, forming part of, or contaminating any part of the Property; no
polychlorinated biphenyls (PCBs) are used, stored, located at or contaminate any
part of the Property; and, no wetland areas as defined by federal, state or
local law are located on the Property.
(h) Except as set forth in the Disclosure Schedule, to the knowledge
of the Parent, no real property at any time owned, operated, leased, used or
controlled by the Company or a Subsidiary is currently listed on the National
Priorities List or the Comprehensive Environmental Response, Compensation and
Liability Information System, both promulgated under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or to the knowledge of the Parent on any comparable state or local
list and neither the Parent or any Subsidiary has received any written notice
from any person under or relating to a violation of CERCLA or any comparable
state or local law.
(i) To the knowledge of the Parent, no off-site location at which the
Parent or any Subsidiary has disposed or arranged for the disposal of any waste
is listed on the National Priorities List or on any comparable state or local
list and neither the Parent nor any Subsidiary has received any written notice
from any person with respect to any off-site location, of potential or actual
liability or a written request for information from any government or person
under or relating to CERCLA or any comparable state or local law.
(j) The Disclosure Schedule includes a list of all environmental
studies, audits, or investigations that have been conducted by the Parent
regarding the Property. All books, records, environmental studies or audits
listed in the Disclosure Schedule to the knowledge of the Parent are
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accurate and true. The Parent has given Company access to all records and files
in its possession at both its corporate headquarters and its facilities
currently owned, operated, leased, managed, used or controlled by the Parent and
the Subsidiaries, including, without limitation, all reports, studies, analyses,
tests or monitoring results pertaining to the existence of Environmental
Hazardous Materials or any other environmental concerns relating to facilities
or properties owned, operated, leased, managed, used or controlled by the
Parent or a Subsidiary or concerning compliance with or liability under any
Environmental Laws and the Occupational Safety and Health Act or the equivalent
such Act under state law.
(k) Except as set forth in the Disclosure Schedule, to the knowledge
of the Parent the Property is not subject to any United States or state
environmental liens.
(l) Except as set forth in the Disclosure Schedule and except for
construction contracts, financing transactions, purchase agreements and related
documents entered into in the ordinary course of business, the Parent and the
Subsidiaries are not a party, whether as a direct signatory or as successor,
assign or third-party beneficiary, or otherwise bound, to any contract
(excluding insurance policies disclosed on the Disclosure Schedule) under which
the Parent or any Subsidiary is obligated by, or entitled to the benefits of,
directly or indirectly, any representation, warranty, indemnification, covenant,
restriction or other undertaking concerning Environmental Laws or the
environmental conditions of the Property.
(m) Except as set forth in the Disclosure Schedule and except for
construction contracts, financing transactions, purchase agreements and related
documents entered into in the ordinary course of business, neither the Parent
nor any Subsidiary has released any other person from any claim under any
Environmental Law or waived any rights concerning the environmental condition
of the Property, which release or waiver would have a Material Adverse Effect on
the Parent.
(n) The Disclosure Schedule contains a list of all current and past
insurance policies covering the Property or operation of the Parent and the
Subsidiaries.
(o) The properties of the Parent are in good repair and working order,
reasonable wear and tear and ordinary maintenance excepted, and are not in
immediate need of any major repair or material capital expenditure except as
noted on the Disclosure Schedule.
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SECTION 4.10 ERISA Matters. The Parent, each of its Subsidiaries and all
"Employee Benefit Plans" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), that cover any of its or
their employees (which Employee Benefit Plans are listed on the Disclosure
Schedule), comply in all material respects with all laws, requirements and
orders under ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"), the breach or violation of which would have a Material Adverse Effect
on the Parent and its Subsidiaries, taken as a whole; the present value of all
the assets of each of its Employee Benefit Plans that it is subject to Title IV
of ERISA equals or exceeds to the knowledge of the Parent the present value of
all of the benefits accrued under each such Employee Benefit Plan as of the end
of most recent plan year with respect to such plan ending prior to the date
hereof, calculated on the basis of the actuarial assumptions used in the last
actuarial evaluation for each such plan; none of the employees of the Parent or
any of its Subsidiaries is covered by a collective bargaining agreement; neither
the Parent nor any of its Subsidiaries has ever contributed to a "multiemployer
plan" as defined in Section 3(37) of ERISA; neither the Employee Benefit Plans
nor any fiduciary or administrator thereof has engaged in a "prohibited
transaction" as defined in Section 406 of ERISA or, where applicable, Section
4975 of the Code for which no exemption is applicable, that may have any
Material Adverse Effect on the Parent and its Subsidiaries, taken as a whole,
nor to the knowledge of the Parent have there been any "reportable events" as
defined in Section 4043 of ERISA for which the thirty-day notice has not been
waived.
SECTION 4.11 Taxes, Tax Returns.
(a) The Company has or within two business days from the date hereof
will deliver to Parent copies of the federal income tax returns of the Company
for each of the last three fiscal years and all schedules and exhibits thereto.
Except as set forth on the Disclosure Schedule, each of the Parent and its
Subsidiaries for which it files returns has duly and timely filed in correct
form all federal, state and local information returns and tax returns required
to be filed by it and such Subsidiaries on or prior to the date hereof (all such
returns to the knowledge of the Parent being accurate and complete in all
material respects) and, to the knowledge of the Parent, has duly paid or made
provision for the payment of all taxes and other governmental charges which have
been incurred or are due or claimed to be due from them by any Governmental
Authority (including, without limitation, those due in respect of their
properties, income, business, capital stock, franchises, licenses, sales and
payrolls) other than taxes or other charges (i) which are not yet delinquent or
are being contested in good faith and set forth in the Disclosure Schedule,
(ii) have not been finally determined or (iii) that would have a Material
Adverse Effect on the Parent. The liabilities and reserves for taxes in the
Parent Financial Statements are sufficient in the aggregate for the payment of
all unpaid federal, state and local taxes (including any interest or penalties
thereon), whether or not disputed or accrued, for the period ended September 30,
1996 or for any year or period prior thereto, and for which the Parent or any of
its Subsidiaries may be liable in its own right
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or as transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity.
(b) To the knowledge of the Parent, (i) proper and accurate amounts
have been withheld by the Parent and its Subsidiaries from their employees and
others for all prior periods in compliance in all material respects with the
tax withholding provisions of applicable federal, state and local laws and
regulations, and proper due diligence steps have been taken in connection with
back-up withholding, (ii) federal, state and local returns which are accurate
and complete in all material respects have been filed by the Parent and each of
its Subsidiaries for all periods for which returns were due with respect to
income tax withholding, Social Security and unemployment taxes and (iii) the
amounts shown on such returns to be due and payable have been paid in full, or
adequate provision therefore has been included by the Parent in the most recent
Parent Financial Statements.
SECTION 4.12 Tax Audits. Except as disclosed in the Disclosure Schedule,
(i) no audit of any material federal, state or local U.S. return of the Parent
or any Subsidiary is currently in progress, nor has the Parent or any Subsidiary
been notified that such an audit is contemplated by any taxing authority, (ii)
neither the Parent nor any Subsidiary has extended any statute of limitations
with respect to the period for assessment of any federal, state or local U.S.
tax, (iii) neither the Parent nor any Subsidiary contemplates the filing of an
amendment to any return, which amendment would have a Material Adverse Effect on
the Parent, and (iv) neither the Parent nor any Subsidiary has any actual or
potential material liability for any tax obligation of any taxpayer (including,
without limitation, any affiliated group of corporations or other entities which
included the Parent or any Subsidiary during a prior period) other than the
Parent or its Subsidiaries. Except as disclosed in the Disclosure Schedule,
there are no material tax claims pending against the Parent or any Subsidiary
and there are no material tax claims to the knowledge of the Parent threatened
to be asserted against the Parent or any Subsidiary. For purposes of this
Section 4.12, "tax" and "taxes" shall include all income, gross receipt,
franchise, excise, real and personal property, sales, ad valorem, employment,
withholding and other taxes imposed by any foreign, federal, state, municipal,
local, or other Governmental Authority including assessments in the nature of
taxes.
SECTION 4.13 Undisclosed Liabilities. The Parent is not liable for or
subject to any material Liabilities, except (a) Liabilities adequately disclosed
or reserved for in the most recent Parent Financial Statements or Parent SEC
Reports and not heretofore paid or discharged, (b) Liabilities under any
contract, commitment or agreement specifically disclosed on the Disclosure
Schedule, or (c) Liabilities incurred, consistent with past practice, in or as a
result of the ordinary course of business of the Parent since the date of the
most recent Parent Financial Statements.
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SECTION 4.14 No Default; Compliance.
(a) Except as set forth in the Disclosure Schedule, neither the Parent
nor any of its Subsidiaries is in material default under, and no condition
exists that with notice or lapse of time or both would constitute a material
default under, (i) any mortgage, loan agreement, indenture, evidence of
indebtedness or other instrument evidencing borrowed money to which either the
Parent or any of its Subsidiaries is a party or by which either the Parent or
any of its Subsidiaries or its properties is bound, (ii) any judgment, order or
injunction of any court, arbitrator or governmental agency or (iii) any other
agreement, contract, lease, license or other instrument, which default or
potential default might reasonably be expected to have a Material Adverse
Effect.
(b) Except as set forth in the Disclosure Schedule, the Parent and
each of its Subsidiaries have complied in all material respects with all laws,
regulations, orders, judgments or decrees of any federal or state court or
Governmental Authority applicable to their respective businesses and operations,
non-compliance with which might reasonably be expected to have a Material
Adverse Effect.
SECTION 4.15 Representations and Warranties Continuing. The
representations and warranties set forth herein shall be true and correct on the
date hereof and subject to an update to the Disclosure Schedule from time to
time, at all times prior to the Effective Time as if made from time to time,
including, without limitation, at the Effective Time and the Closing.
SECTION 4.16 Contracts and Commitments. Except as listed and described
in the Disclosure Schedule, the Parent Financial Statements or the Parent SEC
Reports, neither the Parent nor any of its Subsidiaries is a party to, nor are
they or their assets bound by any written or oral covenant, Contract, agreement
or understanding, including the following:
(a) Contract with any present or former stockholder, director, officer,
employee or consultants;
(b) Contract with any labor union or other representative of employees;
(c) Contract for the future purchase of, or payment for, supplies or
products, or for the performance of services by a third party, involving
payment or potential payment by the Parent of $10,000 or more under any one
Contract or series of related Contracts;
(d) any Contract, including, without limitation, any outstanding
quotations, bids or proposals, to sell goods or to perform services in an
aggregate amount in excess of $10,000;
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(e) distributorship, representative or sales agency agreement,
contract or commitment;
(f) conditional sale agreement or lease under which the Parent is
either the seller or purchaser, lessor or lessee, involving annualized
payments or potential payments by or to the Parent that is in excess of
$10,000;
(g) Contract (including, without limitation, any note, debenture,
bond, conditional sale or equipment trust agreement, letter of credit
agreement or loan agreement) for the borrowing or lending of money more
than $10,000 (including, without limitation, those to or from officers,
directors or shareholders of the Parent, or any affiliates or members of
their immediate families, for a line of credit, or for a guarantee,
security, indemnitee, pledge or undertaking of the indebtedness or
obligations of any other person);
(h) Contract for any charitable or political contribution;
(i) Contract for any capital expenditure involving future payments,
which, together with future payments under all other existing Contracts for
the same capital project, are in excess of $10,000;
(j) Contract limiting or restraining the Parent from engaging or
competing in any lines of business with any person, nor is any officer or
employee of the Parent subject to any such agreement, contract or
commitment;
(k) license, franchise, distributorship or other Contract relating in
whole or in part to any ideas, technical assistance or other know-how of or
used by the Parent;
(l) Contract greater than $10,000 which is expected to continue for
more than six months from the date hereof;
(m) Contract not made in the ordinary course of business;
(n) any guaranty, direct or indirect, of any person of any contract,
lease or agreement in an amount greater than $10,000 entered into by the
Parent or any of its Subsidiaries.
Except as may be disclosed on the Disclosure Schedule, each of the
Contracts listed on the Disclosure Schedule is valid and enforceable in
accordance with its terms; the Parent and,
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to the best of the Parent's knowledge, the Parent and the other parties
thereto are in substantial compliance with the provisions thereof; except
as may be disclosed on the Disclosure Schedule, neither the Parent nor any
other party is (or by reason of the consummation of the transactions
contemplated by this Agreement, will be) in default in the performance,
observance or fulfillment of any obligation, covenant or condition
contained therein and no event has occurred or is anticipated to occur
(including the consummation of the transactions contemplated by this
Agreement) which with or without the giving of notice or lapse of time, or
both, would constitute a default or give the right of termination
thereunder.
SECTION 4.17 Title to Property. Except as disclosed on the Disclosure
Schedule, the Parent and each of its Subsidiaries has good and marketable title,
insured with respect to properties and assets which currently are of a type for
which insurance is generally available, free and clear (except as indicated in
the Disclosure Schedule or in the most recent Parent Financial Statements and
liens for current taxes not yet due and payable), of all security interests,
liens, encumbrances and encroachments of a material nature, to its real property
and other property and assets that are material to the Parent's business on a
consolidated basis.
SECTION 4.18 Insurance and Bank Accounts. (a) The Disclosure Schedule
sets forth a complete and accurate list and description of all insurance
policies in force naming the Parent, any of its Subsidiaries or any employees of
any of them as an insured or beneficiary or as a loss payable payee or for which
the Parent or any of its Subsidiaries has paid or is obligated to pay all or
part of the premiums. Neither the Parent nor its Subsidiaries have received
notice of any pending or threatened termination or retroactive premium increase
with respect thereto, and the Parent and its Subsidiaries are in compliance in
all material respects with all conditions contained therein. There are no
pending material claims against such insurance by the Parent or any of its
Subsidiaries as to which insurers have denied liability, no defenses provided by
insurers under reservations of rights, and no material claim under such
insurance that has not been properly filed by the Parent or its Subsidiaries.
(b) The Disclosure Schedule contains a list of all bank and investment
accounts maintained by the Parent, including the account numbers, recent
balance, institution, and persons having signing authority.
SECTION 4.19 Employees. The Disclosure Statement sets forth a list of the
employees of the Parent and the Subsidiaries, stating with respect to each the
name, date of hire and rate of compensation. Except as described in the
Disclosure Statement, there are no claims or disputes pending with any employee
regarding workers' compensation, unemployment benefits, discrimination
(including discrimination based on any disability), or compensation, and no
employment or collective bargaining agreements are in effect covering any such
person.
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SECTION 4.20 Parent Common Stock. The shares comprising the Merger
Consideration will have been duly authorized and, when issued in accordance with
the terms of the Articles of Merger and this Agreement, will be validly
authorized and issued and fully paid and nonassessable, and no shareholder of
Parent will have any preemptive rights or dissenter's right with respect
thereto.
ARTICLE V.
COVENANTS
SECTION 5.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or disclosed in the Disclosure Schedule, during the period from
the date of this Agreement to the Effective Time, the Company and its
Subsidiaries will each conduct their operations according to their ordinary and
usual course of business and consistent with past practice. Without limiting the
generality of the foregoing, and except as otherwise expressly provided in this
Agreement or disclosed in the Disclosure Schedule, neither the Company nor any
of its Subsidiaries will, prior to the Effective Time, without the prior written
consent of Parent (a) issue, sell or pledge, or authorize or propose the
issuance, sale or pledge of (i) additional shares of capital stock of any class,
or securities convertible into any such shares, or any rights, warrants or
options to acquire any such shares or other convertible securities, other than
pursuant to commitments outstanding at the date hereof and referred to in
Section 3.2, or (ii) any other securities in respect of, in lieu of or in
substitution for, capital stock outstanding on the date hereof; (b) purchase or
otherwise acquire, or propose to purchase or otherwise acquire, any outstanding
securities; (c) declare or pay any dividend or distribution on any shares of its
capital stock; (d) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into an agreement in principle or an
agreement with respect to, any merger, consolidation or business combination
(other than the Merger), any acquisition of a material amount of assets or
securities, any disposition of a material amount of assets or securities or any
material change in its capitalization, or any entry into a material contract or
any release or relinquishment of any material contract rights, not in the
ordinary course of business; (e) propose or adopt any amendments to its charter
or by-laws; (f) enter into, assign or terminate, or amend in any material
respect, any Contract other than in the ordinary course of business; (g)
acquire, dispose of, encumber or relinquish any material asset (other than sale
of real properties at prices equal to or greater than their carrying values);
(h) waive, compromise or settle any right or claim that would adversely affect
the ownership, operation or value of any asset; (i) make any capital
expenditures other than pursuant to existing capital expenditure programs that
are disclosed in the Disclosure Schedule; (j) allow or permit the expiration,
termination or cancellation at any time prior to the Effective Time of any of
the insurance policies or coverages or surety bonds currently maintained by or
on behalf of the Company unless replaced with a policy, coverage or bond having
substantially the same coverage and similar terms and conditions; (k) increase,
directly or indirectly, the salary or other compensation of any officer or
member of management, enter into any employment agreement with any person or pay
or enter into any
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agreement to pay any bonuses or other extraordinary compensation to any officer
of the Company or its Subsidiaries or to any member of management or other
employees, or institute any general increase in rates of compensation for its
employees, or increase, directly or indirectly, any provisions or other benefits
of any of such persons; or (l) waive, settle or compromise any material
litigation or other claim on a basis materially adverse to the Company.
SECTION 5.2 No Solicitations. Neither the Parent nor any of its
Subsidiaries shall, and they shall use their best efforts to ensure that none of
their respective affiliates, officers, directors, representatives or agents
shall, directly or indirectly, solicit, initiate or encourage (including by way
of furnishing information) any corporation, partnership, person, entity or group
concerning any merger, sale of substantial assets (except as permitted by
Section 5.1(g)) outside the ordinary course of business, sale of shares of
capital stock or similar transaction involving the Company or any of its
Subsidiaries or divisions (other than the transactions contemplated by this
Agreement). The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. The parties will promptly
communicate to the other the terms of any proposal or inquiry, oral or written,
which may be received in respect of any such transaction, and will inform the
other prior to the time that it furnishes any information to, or engages in
negotiations or discussions with, any third party with respect to the
acquisition of either party.
SECTION 5.3 Access to Information.
(a) Between the date of this Agreement and the Effective Time, the
parties will afford to one another and their authorized representatives
reasonable access (subject to tenants' rights) to the assisted living
facilities, offices, and other real property and to the books and records of
such party and its Subsidiaries, will permit the parties and their
representatives to make such reasonable inspections as they may require and will
cause their officers and those of their Subsidiaries to furnish the parties and
their representatives with such financial and operating data, environmental
assessments and other information with respect to the business and Real Property
of the parties and their Subsidiaries as they and their representatives may from
time to time reasonably request. No inspection or examination by either party
will constitute a waiver of any claim against the other party for
misrepresentation or breach of this Agreement.
(b) The parties will hold and will cause their representatives to hold
in strict confidence, unless compelled to disclose by judicial or administrative
process, or, in the opinion of counsel, by other requirements of law, all
documents and information concerning the parties furnished to them and their
representatives in connection with the transactions contemplated by this
Agreement (except to the extent that such information can be shown to have been
(i) in the public domain through no fault of the parties or their
representatives, or (ii) later lawfully acquired by the parties or their
representatives from other sources unless they or their representatives know
that such
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other sources are not entitled to disclose such information) and will not
release or disclose such information to any other person, except their auditors,
attorneys, financial advisors and other consultants and advisors in connection
with this Agreement, provided that such person shall have first been advised of
the confidentiality provision of this Section 5.3. If the transactions
contemplated by this Agreement are not consummated, such confidence shall be
maintained except to the extent such information can be shown to have been (i)
in the public domain through no fault of Parent, Purchaser or their
representatives, or (ii) later lawfully acquired by the parties or
representatives from other sources, and, if requested by the other party will,
and will cause its agents, auditors, consultants, representatives and advisors
to, return to the other or destroy all copies of written information furnished.
(c) Parent agrees to furnish the Shareholders, upon their request, at
the time of filing, with copies of all reports and filing (including exhibits
and schedules) filed by Parent with the SEC between the date hereof and the
Closing and issuance of the Merger Consideration.
SECTION 5.4 Best Efforts. Subject to the terms and conditions herein
provided, and to the fiduciary duties of the Boards of Directors of the parties
under applicable law, each of the parties hereto agrees to use its best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
SECTION 5.5 Consents. Parent and the Company each will use its best
efforts to obtain such consents of third parties to agreements which would
otherwise be violated by any provisions hereof, to take all actions necessary to
effect the transactions contemplated hereby, and to make such filings with
Governmental Authorities necessary to consummate the transactions contemplated
by this Agreement including, without limitation, (a) the vigorous defense of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transaction contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or Governmental Authority vacated or reviewed, and (b) the
execution and delivery of any additional instruments (including any required
supplemental indentures) necessary to consummate the transactions contemplated
by this Agreement.
SECTION 5.6 Public Announcements. Parent and the Company will consult with
each other before issuing any press release or otherwise making any public
statements with respect to the existence of this Agreement or the Merger and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange.
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SECTION 5.7 Noncompete Agreements.
(a) For a period of three years following the date of Closing or the
termination of employment with the Parent or Purchaser that extends past the
date of Closing, neither Rhoades nor Smith shall directly or indirectly (i) act
or serve as an employee (except in a capacity which does not involve management,
executive, policy-making, sales, marketing, product development, finance, or
accounting activities or advice to management, sales, marketing, development or
accounting personnel), officer, director, manager, trustee, agent, operator,
advisor, or consultant for any Competing Business (as defined below) operating
within the Area; (ii) have any beneficial ownership or equity interest (except
for an ownership interest of less than one percent in any company subject to the
reporting requirements of the Exchange Act) in any Competing Business operating
within the Area, whether such interest is derived as a sole proprietor, partner,
shareholder, beneficiary, or otherwise, or have any right, option, agreement,
understanding, or arrangement to acquire any such interest; (iii) solicit,
divert, or appropriate, or attempt to solicit, divert, or appropriate to or for
a Competing Business the business of any person or entity located within the
Area which was a customer of the Company on or within one year prior to the
Closing Date (or later termination of employment) or the business of which the
Company had solicited within one year prior to the Closing Date (or later
termination of employment).
(b) For the purposes of this Section 5.7, "Competing Business" means any
business which is engaged in the ownership or management of assisted living
residences and facilities. "Area" shall mean any state of the United States in
which the Parent or its Subsidiaries owned or managed one or more assisted
living facilities at the date of this Agreement or at any time thereafter that
the Shareholder is employed by the Parent or a Subsidiary.
(c) If any Shareholder commits a breach, or threatens to commit a breach
of the provisions of subsection (a) above, Purchaser shall have the right and
remedy to have the provisions of subsection (a) specifically enforced by any
court having jurisdiction, it being acknowledged and agreed that any such breach
or threatened breach will cause irreparable injury to Purchaser and that money
damages will not provide an adequate remedy to Purchaser.
(d) If any of the covenants contained in subsection (a) above, or any
part thereof, are hereafter construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
(e) If any of the covenants contained in subsection (a) above, or any
part thereof, are held to be unenforceable because of the scope or duration of
such provision or the geographic area covered thereby, the parties agree that
the court making such determination shall have the power to reduce the scope,
duration, or area of such provision and, in its reduced form, said provision
shall then be enforceable.
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SECTION 5.8 Pooling. From and after the date hereof and until the
expiration of the Restricted Period (as defined below), Parent and the Company
shall use commercially reasonable efforts to prevent any of its or their
Subsidiaries or affiliates of parties from taking any action, or failing to take
any reasonable action, that would jeopardize the treatment of the Merger as a
"pooling of interest." For purposes hereof, the Restricted Period shall mean the
period commencing on the date hereof and terminating on the date on which thirty
days of combined operations are publicly announced by Parent.
SECTION 5.9 Collateral. Parent and Purchaser shall use their reasonable
best efforts to cause Company's lenders at the Effective Time to release
Rhoades' collateral securing obligations of the Company and to release Rhoades
and any other shareholder of the Company from personal liability for any Company
loan or obligation.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1 Conditions to Soliciting a Vote of Stockholders. Promptly
following execution of this Agreement, the parties will undertake to take the
following actions as conditions to Parent's solicitation of proxies from its
stockholders to approve the issuance of the Parent Common Stock or Merger
Consideration:
(a) This Agreement and the transactions contemplated hereby shall have
been adopted by the affirmative vote of all shareholders of the Company by the
requisite vote, and no shareholder of the Company shall have exercised any
dissenter's right.
(b) The Boards of Directors of the Parent and the Company and the Board
of Directors and Shareholder of the Purchaser shall have approved this
Agreement.
(c) No statute, rule, regulation, executive order, decree, or injunction
shall have been enacted, entered, promulgated or enforced by any court of
competent jurisdiction in the United States or domestic Governmental Authority
which prohibits or restricts the consummation of the Merger.
(d) There shall have been no material adverse change in the business,
properties, or financial condition of any party to this Agreement.
(e) All parties shall have delivered all documents and taken all other
actions required by this Agreement.
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(f) All representations and warranties of any party shall be true and
effective as of the date of mailing the proxies.
(g) Floyd B. Rhoades shall have executed and delivered the Employment
Agreement in the form attached hereto as Exhibit D.
(h) Parent and the Company shall have reached a satisfactory agreement
with CRM Assisted Living Company, LLC to convert the Company's indebtedness to
such firm into shares of Parent Common Stock.
SECTION 6.2 Conditions to the Closing. Immediately prior to the Effective
Time, the Company and the Parent shall cause to be delivered to each other or to
have received the following:
(a) A certificate, dated the date of the Effective Time of the chief
executive and chief financial officer certifying that all representations and
warranties made herein are true and correct as of the date made and as of the
Effective Time and that all agreements or other actions required to be performed
prior to the Effective Time as a condition to consummating the Merger have been
performed or taken and such conditions satisfied in accordance with the terms of
this Agreement.
(b) An opinion of counsel to the Company dated the date of the Effective
Time in form and substance satisfactory to the Parent and its counsel as to the
matters set forth in Sections 3.1, 3.2, 3.3 and 3.6 and such other matters as
the Parent shall request, which opinion may contain customary exceptions and
qualifications.
(c) An opinion of counsel to the Parent and the Purchaser dated as of
the Effective Time as to each of the matters set forth in Sections 4.1, 4.2, 4.3
and 4.6, and such other matters as the Company may request, which opinion may
contain customary exceptions and qualifications.
(d) An opinion of tax counsel to the Company to the effect that the
Merger will constitute a reorganization that qualifies under Section
368(a)(i)(A) of the Internal Revenue Code of 1986.
(e) No statute, rule, regulation, executive order, decree, or injunction
shall have been enacted, entered, promulgated or enforced by any court of
competent jurisdiction in the United States or domestic Governmental Authority
which prohibits or restricts the consummation of the Merger.
(f) There shall have been no material adverse change in the business,
properties, or financial condition of any party to this Agreement.
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(g) All parties shall have delivered all documents, exhibits and
schedules and taken all other actions required by this Agreement.
(h) All representations and warranties of any party shall be true and
effective as of the Effective Time.
(i) At the Closing, each Shareholder shall deliver a release of all
claims he may have against the Company or any Subsidiary.
(j) Stockholders of the Parent constituting a majority of shares
outstanding at a duly called stockholders' meeting, following the filing and
clearance of a proxy statement meeting the requirements of Exchange Act shall
have voted to approve the issuance of the Parent Common Stock comprising the
Merger Consideration and the Merger Consideration shall be issued.
(k) The Parent shall have received approval of the listing of the shares
of Parent's Common Stock on the American Stock Exchange.
(l) The parties to the Merger shall have executed and delivered
agreements in the form of Exhibits A, B and C.
(m) All shareholders of the Company other than Messrs. Rhoades and Smith
shall have executed and delivered a letter joining in the representations
contained in Section 3.20 hereof and a release of all claims he or she may have
against the Company or any Subsidiary.
ARTICLE VII.
TERMINATION, AMENDMENTS; WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the Parent and Company, but prior to the Effective Time:
(a) by mutual written consent duly authorized by the Boards of Directors
of Company, Parent and Purchaser;
(b) by Parent or the Company if the Effective Time shall not have
occurred on or before December 31, 1996, unless such failure is caused by
the party seeking termination;
(c) by Parent or the Company if any court of competent jurisdiction or
other Governmental Authority shall have issued an order, decree or ruling
or taken any other action
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restraining, enjoining or otherwise prohibiting the Merger or if litigation
or proceedings shall be pending that are reasonably likely to result in any
of the foregoing;
(d) by the Company, if Parent or Purchaser shall not have performed all
obligations required to be performed by them under this Agreement, except
where any failures to perform would, in the aggregate, not materially
impair or delay the ability of Parent, Purchaser and the Company to effect
the Merger;
(e) by the Company or Parent, if there shall have been a breach of any
of the covenants contained herein or if any representation or warranty made
by any other party is untrue in any material respect;
SECTION 7.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party or its directors, officers, or shareholders, other than the provisions
of Sections 5.3(b) and 9.9.
SECTION 7.3 Amendment. This Agreement may be amended only by means of an
instrument in writing signed on behalf of all the parties.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken by or on behalf of the respective Boards of
Directors of the Company, Parent and Purchaser, may (a) extend the time for the
performance of any of the obligations or other acts of any other applicable
party hereto, (b) waive any inaccuracies in the representations and warranties
contained herein by any other applicable party or in any document, certificate
or writing delivered pursuant hereto by an other applicable party, or (c) waive
compliance with any of the agreements of any other applicable party or with any
conditions to its own obligations. Any agreement on the part of any other
applicable party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.1 Purchaser's Right to Indemnification. Company and the
Shareholders, jointly and severally (on a proportional basis as to the
Shareholders in regard to the number of shares held by each), shall and do
hereby indemnify and hold harmless, Parent, Purchaser, and their shareholders,
directors, officers, employees, agents and representatives from any and all
liabilities, obligations, claims, contingencies, damages, costs and expenses
(including all court costs and reasonable attorneys' fees) that Purchaser or any
such other indemnified party may suffer or incur as a result of or relating to
the material breach or inaccuracy of any of the representations, warranties,
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covenants or agreements made by Company and/or the Shareholders herein or
pursuant hereto. Each Shareholder's liability under this Section shall be
limited to the value of the Merger Consideration received by such Shareholder.
The Shareholders may satisfy any such obligation under this Section by
transferring shares of Parent Common Stock to the Parent on the basis of the
market price of the Parent Common Stock averaged over five (5) trading days
commencing after the later of (i) the date notice was given of the claim, or
(ii) the date Parent issued a press release describing any loss incurred due to
such claim.
SECTION 8.2 Company's or Shareholders' Right to Indemnification. Purchaser
and Parent shall and do hereby indemnify and hold Company and the Shareholders,
and their directors, officers, employees, agents and representatives harmless
from any and all liabilities, obligations, claims, contingencies, damages, costs
and expenses (including all court costs and reasonable attorneys' fees) that
Company or any such indemnified party may suffer or incur as a result of or
relating to: (a) the breach or inaccuracy, or any alleged breach or inaccuracy,
of any of the representations, warranties, covenants or agreements made by
Purchaser and Parent herein or pursuant hereto; (b) any personal guaranty or
personal obligations of a shareholder in connection with a Company obligation;
and (c) those liabilities, obligations, claims, contingencies and encumbrances
accruing or arising after the Closing in connection with the business of the
Purchaser, except to the extent that such liabilities, obligations, claims,
contingencies or encumbrances are attributable to a breach of warranty,
representation or covenant by Company and/or the Shareholders prior to the
Closing.
SECTION 8.3 Notice. The party seeking indemnification hereunder
("Indemnitee") shall promptly, and within 30 days after notice to it (notice to
------------
Indemnitee being the filing of any action, receipt of any claim in writing or
similar form of actual notice) of any claim as to which it asserts a right to
indemnification, notify the party from whom indemnification is sought
("Indemnitor") of such claim. Indemnitee shall bill Indemnitor for any such
------------
claims no more frequently than on a monthly basis, and Indemnitor shall promptly
pay (or cause to be paid) Indemnitee upon receipt of any such bill. The failure
of Indemnitee to give the notification to Indemnitor contemplated above in this
Section shall not relieve Indemnitor from any liability or obligation that it
may have pursuant to this Agreement unless the failure to give such notice
within such time shall have been materially prejudicial to it, and in no event
shall the failure to give such notification relieve Indemnitor from any
liability it may have other than pursuant to this Agreement.
SECTION 8.4 Third-Party Claims. If any claim for indemnification by
Indemnitee arises out of an action or claim by a person other than Indemnitee,
Indemnitor may, by written notice to Indemnitee, undertake to conduct the
defense thereof and to take all other steps or proceedings to defeat or
compromise any such action or claim, including the employment of counsel;
provided that Indemnitor shall reasonably consider the advice of Indemnitee as
to the defense or compromise of such actions and claims, and Indemnitee shall
have the right to participate, at its own expense, in such proceedings, but
control of such proceedings shall remain exclusively with Indemnitor.
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Indemnitee shall provide all reasonable cooperation to Indemnitor in connection
with such proceedings. Counsel and auditor costs and expenses and court costs
and fees of all proceedings with respect to any such action or claim shall be
borne by Indemnitor. If any such claim is made hereunder and Indemnitor does
not elect to undertake the defense thereof by written notice to Indemnitee,
Indemnitee shall be entitled to control such proceedings and shall be entitled
to indemnity with respect thereto pursuant to the terms of this Article VIII.
To the extent that Indemnitor undertakes the defense of such claim by written
notice to Indemnitee and diligently pursues such defense at its expense,
Indemnitee shall be entitled to indemnification hereunder only to the extent
that such defense is unsuccessful as determined by a final judgment of a court
of competent jurisdiction, or by written acknowledgment of the parties.
SECTION 8.5 Time to Assert Claims. Any claim asserted pursuant to Section
8.1 or Section 8.2 above must be asserted by written notice given by one party
to the other on or before the date of the release of the first audit report of
the Parent containing combined financial statements of the Parent and the
Company, not to exceed one (1) year from the date of Closing.
SECTION 8.6 Access to Records. Shareholders, or their agents, shall be
afforded reasonable access to the Parent's and Purchaser's books and records
during normal business hours upon reasonable notice for the purpose of verifying
any claim against Shareholders hereunder. Shareholders or their agents may be
required to sign an appropriate confidentiality agreement prior to any
inspection of books and records hereunder.
SECTION 8.7 Arbitration. All disputes under this Article VIII shall be
settled by arbitration in Dallas, Texas, before three arbitrators pursuant to
the rules of the American Arbitration Association. Each party shall select one
arbitrator and the two arbitrators shall select a third. Arbitration may be
commenced at any time by any party hereto giving written notice to each other
party to a dispute that such dispute has been referred to arbitration under this
Section 8.7. Any award rendered by the arbitrators shall be conclusive and
binding upon the parties hereto; provided, however, that any such award shall be
accompanied by a written opinion giving the reasons for the award. This
provision for arbitration shall be specifically enforceable by the parties and
the decision of the arbitrators shall be final and binding and there shall be no
right of appeal therefrom. Each party shall pay its own expenses of arbitration
and the expenses of the arbitrators shall be equally shared; provided, however,
that if in the opinion of the arbitrators any claim for indemnification or any
defense or objection thereto was unreasonable, the arbitrators may assess, as
part of their award, all or any part of the arbitration expenses of the other
party (including reasonable attorney's fees) and of the arbitrators against the
party raising such unreasonable claim, defense or objection.
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ARTICLE IX.
MISCELLANEOUS
SECTION 9.1 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person or
persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.2 Brokerage Fees and Commissions. The Shareholders shall be
responsible for payment with funds that are not the Company's any brokerage
commissions resulting from the Merger, specifically including the commission due
to The Robinson-Humphrey Company, Inc. Parent and Purchaser represent that they
have incurred no obligation for brokerage commissions. The Company agrees that
45,500 shares of common stock out of the Merger Consideration shall be held by
the Parent as collateral security for the agreement of the Company in this
Section 9.2. To the extent that the Company or the Parent becomes obligated to
pay any commissions, and such obligation is not paid by the Shareholders, the
Parent shall recoup the amount of its payment by cancelling all or a portion of
the shares held as collateral in satisfaction of the Shareholders' obligation,
and, as its sole remedy, offsetting such cancelled shares against the amount
paid by it at the rate of $16.00 per share cancelled.
SECTION 9.3 Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them with respect to the subject matter hereof
and (b) shall not be assigned by operation of law or otherwise.
SECTION 9.4 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
SECTION 9.5 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person, by facsimile telegram or telex, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
If to the Company:
American Care Communities, Inc.
107 Edinburgh South, Suite 213
Cary, North Carolina 27511
Attention: Floyd B. Rhoades
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with a copy (which shall not affect
the validity of notice hereunder) to:
Wyrick Robbins Yates & Ponton L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Attention: Larry E. Robbins
If to Parent or Purchaser:
Greenbriar Corporation
4265 Kellway Circle
Addison, Texas 75244
Attention: Gene S. Bertcher
with a copy (which shall not affect
the validity of notice hereunder) to:
Glast, Phillips & Murray, P.C.
2200 One Galleria Tower
13355 Noel Road, L.B. 48
Dallas, Texas 75240-6657
Attention: Ronald L. Brown
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 9.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, REGARDLESS OF THE
LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.
SECTION 9.7 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same agreement.
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SECTION 9.9 Expenses. Except as otherwise provided herein, the
Parent, Purchaser and Company shall bear and pay all costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial or other
consultants, investment bankers, accountants and counsel.
SECTION 9.10 Certain Definitions.
(a) "Material Adverse Effect" shall mean any adverse change in the
financial condition, assets, business or operations of any party and its
Subsidiaries which is material to such party taken as a whole.
(b) "Subsidiary" shall mean, when used with reference to an entity,
any corporation, a majority of the outstanding voting securities of which are
owned directly or indirectly by such entity, including, without limitation, the
entities listed on attached Exhibit E. Such term shall also refer to any other
partnership, limited partnership, joint venture, trust, or other business entity
in which a party hereto owns a material interest.
SECTION 9.11 Performance by Purchaser. Parent agrees to cause
Purchaser to comply with its obligations hereunder and to cause Purchaser to
consummate the Merger as contemplated herein.
SECTION 9.12 Disclosure Schedule. Within ten business days after the
execution hereof, the Company and the Parent shall deliver the Disclosure
Schedule to each other. The Disclosure Schedule shall be updated from time to
time and prior to the Closing to report any changes in the information contained
therein. The Disclosure Schedule shall contain all information required to
disclose fully any exception or qualification to this Agreement and shall cross
reference the section of this Agreement so qualified.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the day and year set forth above.
GREENBRIAR CORPORATION,
a Nevada corporation
By: /s/ James R. Gilley
------------------------------------------
James R. Gilley, President
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AMERICAN CARE COMMUNITIES, INC.,
a Nevada corporation
By: /s/ James R. Gilley
--------------------------------------------
James R. Gilley, President
AMERICAN CARE COMMUNITIES, INC.,
a North Carolina corporation
By: /s/ Floyd B. Rhoades
--------------------------------------------
Floyd B. Rhoades, President
SHAREHOLDERS:
/s/ Floyd B. Rhoades
-----------------------------------------------
Floyd B. Rhoades
/s/ Gary S. Smith
-----------------------------------------------
Gary S. Smith
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[EXHIBITS OMITTED]
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is entered into as of this
30th day of December, 1996, by and between GREENBRIAR CORPORATION, a Nevada
corporation (the "Company"), and Floyd B. Rhoades (the "Shareholder") and
evidences that for good and valuable consideration, the receipt and sufficiency
of which is acknowledged, the parties hereto agree as follows:
ARTICLE I.
INTRODUCTION
Section 1.1. Recitals. The Company and Shareholder (among others) have
entered into an Agreement and Plan of Merger dated November 21, 1996 (the
"Merger Agreement"), pursuant to which the Company will issue 870,520 shares of
the Company's common stock, par value $0.01 per share, to Shareholder, in
connection with the acquisition of American Care Communities, Inc. This
Agreement shall become effective upon the issuance of such securities to
Shareholder. Certain capitalized terms used in this Agreement are defined in
Article VI hereof; references to sections shall be to sections of this
Agreement.
ARTICLE II.
DEMAND REGISTRATION
Section 2.1. Request. At any time after two years from the closing of the
Merger Agreement, upon the written request of a Shareholder, requesting that the
Company effect the registration under the Securities Act of all or part of such
Shareholders' Registrable Securities and specifying the intended method of
disposition thereof, the Company will use its best efforts to effect the
registration under the Securities Act of the Registrable Securities which the
Company has been so requested to be registered by such Shareholder for
disposition in accordance with the intended method of disposition stated in such
request; provided, that, the provisions of this Article II shall not require the
Company to effect more than two registrations of Registrable Securities.
Section 2.2. Registration Statement Form. Registrations under this Article
II shall be on an appropriate registration form of the Commission (i) as shall
be selected by the Company and shall be reasonably acceptable to the Shareholder
and (ii) as shall permit the disposition of such Registrable Securities in
accordance with the intended method or methods of disposition specified in their
request for such registration. The Company agrees to include in any such
registration statement all information which holders of Registrable Securities
being registered shall reasonably request.
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Section 2.3. Expenses. The Company will pay all Registration Expenses in
connection with any registrations requested pursuant to this Article II.
Section 2.4. Selection of Underwriters. If a requested registration
pursuant to this Article II involves an underwritten offering, the underwriter
or underwriters thereof shall be selected by the Company and shall be reasonably
acceptable to a majority of the shareholders included in the offering.
Section 2.5. Priority in Requested Registrations. If a requested
registration pursuant to this Article II involves an underwritten offering, and
the managing underwriter shall advise the Company in writing (with a copy to
each holder of Registrable Securities requesting registration) that, in its
opinion, the number of securities requested to be included in such registration
(including securities of the Company which are not Registrable Securities)
exceeds the number which can be sold in such offering within a price range
reasonably acceptable to the Company and to the holders of a majority (by number
of shares) of the Registrable Securities requested to be included in such
registration, the Company will include in such registration, to the extent of
the number which the Company is so advised can be sold in such offering, the
Registrable Securities, and other securities of the Company to be included in
such registration in proportion to the amounts of each originally proposed to be
included.
Section 2.6. Not a Requested Registration if Company Participates. If the
Company registers any of its securities on its own behalf in a Registration
initiated as a requested registration pursuant to this Article II, such
requested registration shall not count for the purposes of determining the
number of requested registrations which holders of Registrable Securities are
entitled to under this Article II; provided, however, that the registration
shall continue to be a requested registration for all other purposes.
ARTICLE III.
"PIGGY BACK" REGISTRATION
Section 3.1. Right to Include Registrable Securities. If the Company at any
time proposes to file a registration statement under the Securities Act covering
any of its securities (other than a registration on Form S-8 or S-4, or any
successor or similar forms, other than pursuant to Article II, and other than in
the currently planned Company registration statement on Form S-1), whether or
not for sale on its own account, it will each such time give prompt written
notice to all holders of Registrable Securities of its intention to do so and of
such holders' rights under this Article III. Upon the written request of any
such holder made within 30 days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such holder and the intended method of disposition thereof), the Company will
use its best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the holders thereof, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable
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Securities so to be registered, by inclusion of such Registrable Securities in
the registration statement which covers the securities which the Company
proposes to register; provided, that if, at any time after giving written notice
of its intention to register any securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason either not to register or to delay
registration of such securities, the Company may, at its election, give written
notice of such determination to each holder of Registrable Securities and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of any holder
or holders of Registrable Securities entitled to do so to request that such
registration be effected as a registration under Article II and (ii) in the case
of a determination to delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering such
other securities. No registration effected under this Article III shall relieve
the Company of its obligation to effect any registration upon request under
Article II. The Company will pay all Registration Expenses incurred by holders
by Registrable Securities in connection with each registration of Registrable
Securities requested pursuant to this Article III.
Section 3.2. Priority in Piggy-Back Registrations. If (i) a registration
pursuant to this Article III involves an underwritten offering of the securities
being registered, whether or not for sale for the account of the Company, to be
distributed (on a firm commitment basis) by or through one or more underwriters
of recognized standing under underwriting terms appropriate for such a
transaction, and (ii) the managing underwriter of such underwritten offering
shall inform the Company and holders of the Registrable Securities requesting
such registration by letter of its belief that the distribution of all or a
specified number of such Registrable Securities concurrently with the securities
being distributed by such underwriters would interfere with the successful
marketing of the securities being distributed by such underwriters (such writing
to state the basis of such belief and the approximate number of such Registrable
Securities which may be distributed without such effect), then the Company may,
upon written notice to all holders of such Registrable Securities, reduce pro
rata (if and to the extent stated by such managing underwriter to be necessary
to eliminate such effect) the number of such Registrable Securities and
securities proposed to be sold by any person other than the Company the
registration of which shall have been requested by each holder of Registrable
Securities and each person other than the Company so that the resultant
aggregate number of such Registrable Securities so included in such registration
shall be equal to the number of shares stated in such managing underwriter's
letter.
ARTICLE IV.
REGISTRATION PROCEDURES
Section 4.1. Preparation of Filings. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Articles II or III, the
following shall apply:
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(a) Registration Statement. The Company shall promptly prepare and file
(in the case of a registration pursuant to Article II, such filing to be
made within 90 days after the initial request of the holder of Registrable
Securities or in any event as soon after such request as possible) with the
Commission the requisite registration statement to effect such registration
(including such audited financial statements as may be required by the
Securities Act or the rules and regulations promulgated thereunder) and
thereafter use its best efforts to cause such registration statement to
become and remain effective.
(b) Amendments. The Company shall prepare and file with the Commission
such amendments, post effective amendments and supplements to such
registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement for nine months or
such shorter period as all Registerable Securities have been sold in
accordance with the intended methods of disposition specified by the holders
thereof; and in the case of a registration under Article III, such period of
time as the Company determines.
(c) Copies of Documents. The Company shall furnish to each seller of
Registrable Securities covered by such registration statement and each
underwriter, if any, of the securities being sold by such seller such number
of conformed copies of such registration statement and of each amendment and
supplement thereto (in each case including all exhibits to such Registration
Statement), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed pursuant to Rule 424
under the Securities Act and such other documents, as such seller and
underwriter, if any, may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities owned by such
Seller (it being understood that the Company consents to the use of the
prospectus and any amendments or supplement thereto by each holder of
Registrable Securities covered by the Registration Statement and the
underwriter or underwriters, if any, in connection with the offering and
sale of Registrable Securities covered by the prospectus or any amendment or
supplement thereto).
(d) Blue-Sky. The Company will use its best efforts to register or
qualify all Registrable Securities under the securities laws or blue sky
laws of the jurisdictions as any seller thereof and any underwriter of the
securities being sold by such seller and any Requesting Holder shall
reasonably request, to keep such registrations or qualifications in effect
for so long as such registration statement remains in effect, and take any
other action which may be reasonably necessary or advisable to enable such
seller and underwriter to consummate the disposition in such jurisdictions
of the securities owned by such seller, except that the Company shall not
for any such purpose be required to qualify generally to do business as a
foreign corporation in
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any jurisdiction wherein it would not but for the requirements of this
subsection (d) be obligated to be so qualified, or to consent to general
service of process in any such jurisdiction.
(e) Other Approvals. The Company will use its best efforts to cause all
Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the intended disposition of such Registrable Securities.
(f) Opinions; Comfort Letters. The Company shall furnish to each seller
of Registrable Securities a signed counterpart, addressed to such seller,
(and the underwriters, if any) of
(i) an opinion of counsel for the Company, dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing
under the underwriting agreement), reasonably satisfactory in form and
substance to such seller, and
(ii) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing
under the underwriting agreement), signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case of the
accountants' letter, such other financial matters, and, in the case of the
legal opinion, such other legal matters, as such seller or such Requesting
Holder (or the underwriters, if any) may reasonably request.
(g) Notice of Events. The Company will notify each seller of Registrable
Securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, upon the Company's discovery that, or upon the happening of
any event as a result of which, the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, and at the request
of any such
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seller promptly prepare and furnish to such seller and each underwriter, if
any, a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
(h) Earnings Statement. The Company will otherwise use its best efforts
to comply with all applicable rules and regulations of the Commission, and
make available to its security holders, as soon as reasonably practicable,
an earnings statement covering the period of at least twelve months, but
not more than eighteen months, beginning with the first full calendar month
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act, and will furnish to each such seller and each Requesting Holder at
least five business days prior to the filing thereof a copy of any
amendment or supplement to such registration statement or prospectus and
shall not file any thereof to which any such seller or any Requesting
Holder shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the requirements
of the Securities Act or of the rules or regulations thereunder.
(i) Listing. The Company will cause all Registrable Securities covered
by the registration statement to be listed on each securities exchange or
traded or quoted on each market on which the same class of securities
issued by the Company are then listed, traded or quoted.
(j) Transfer Agent. The Company will provide a transfer agent, registrar
and a CUSIP number for all Registrable Securities no later than the
effective date of such Registration Statement.
(k) Access. The Company will make available for inspection by any holder
of Registrable Securities included in such registration statement, any
underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
seller or underwriter (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such
registration statement; provided that records which the Company determines,
in good faith, to be confidential and which it notifies the Inspectors are
confidential shall not be disclosed to the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in the registration statement or (ii) the
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release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction; provided, further, that any
decision not to disclose information pursuant to clause (i) shall be made
after consultation with counsel for the Company and counsel for such
holders; and each holder of Registrable Securities agrees that it will,
upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company at
its expense, to undertake appropriate action and to prevent disclosure of
the Records deemed confidential.
Section 4.2. Data from Holders of Registerable Securities. The Company may
require each seller of Registrable Securities as to which any registration is
being effected to furnish the Company such information regarding such seller and
the distribution of such securities as the Company may from time to time
reasonably request in writing.
Section 4.3. Discontinuance of Use of Prospectus. Each holder of
Registrable Securities agrees by acquisition of such Registrable Securities
that, upon receipt of any written notice from the Company of the occurrence of
any event of the kind described in Section 4.1(g), such holder will forthwith
discontinue such holder's offer of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 4.1(g) and, if so directed by the Company, will deliver
to the Company (at the Company's expense) all copies, other than permanent file
copies, then in such holder's possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the period mentioned in Section
4.1(b) shall be extended by the length of the period from and including the date
when each seller of any Registrable Securities covered by such registration
statement shall have received such notice to the date on which each such seller
has received the copies of the supplemented or amended prospectus contemplated
by Section 4.1(g).
Section 4.4. References to Holders in Registration Statements. If any
registration or comparable statement refers to any holder of Registrable
Securities by name or otherwise as the holder of any securities of the Company
then such holder shall have the right to require (i) the insertion therein of
language, in form and substance satisfactory to such holder, to the effect that
the holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force, the
deletion of the reference to such holder.
Section 4.5. Underwritten Offerings. If requested by the underwriters for
any underwritten offering by holders of Registerable Securities pursuant to a
registration requested under Article II, the Company will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in form and
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substance to the Company, each such holder and the underwriters, and to contain
such representations and warranties by the Company and such other terms as are
generally prevailing in agreements of this type, including, without limitation,
indemnities to the effect and to the extent provided in Section 5.1. The holders
of the Registrable Securities will cooperate with the Company in the negotiation
of the underwriting agreement and will give consideration to the reasonable
suggestions of the Company regarding the form thereof; provided, that nothing
herein contained shall diminish the foregoing obligations of the Company. The
holders of Registrable Securities to be distributed by such underwriters shall
be parties to such underwriting agreement and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. Any such holder of
Registrable Securities shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such holder's
Registrable Securities and such holder's intended method of distribution and any
other representation required by law.
Section 4.6. Holdback Agreements. The Company agrees (i) if so required by
a managing underwriter of an offering of Registerable Securities not to effect
any public sale or distribution of its equity securities or securities
convertible into or exchangeable or exercisable for any of such securities
during the seven days prior to and the 90 days after any underwritten
registration pursuant to Articles II or III has become effective, except as part
of such underwritten registration and except pursuant to registrations on Form
S-8, or any successor or similar forms thereto, and (ii) to cause each holder of
its securities or any securities convertible into or exchangeable or exercisable
for any of such securities, in each case purchased directly from the Company at
any time after the date of this Agreement (other than in a public offering) to
agree not to effect any such public sale or distribution of such securities
during such period except as part of such underwritten registration.
Section 4.7. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such holders' and such
underwriters' respective counsel, to conduct a reasonable investigation within
the meaning of the Securities Act.
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Section 4.8. Rights of Requesting Holders. The Company will not file any
registration statement under the Securities Act (other than by a registration on
Form S-8), unless it shall first have given to each holder of Registrable
Securities at the time outstanding at least thirty days prior written notice
thereof. The Company shall provide any Person who requests, within thirty days
after such notice (a "Requesting Holder"), the following: (i) all information,
documents and other materials such Requesting Holder would be entitled to if
such Requesting Holder were a seller of Registerable Securities; and (ii) the
rights to participate and access provided to sellers of Registerable Securities.
In addition, if any such registration statement refers to any Requesting Holder
by name or otherwise then such holder shall have the right to require (i) the
insertion therein of language, in form and substance satisfactory to such
holder, to the effect that the holding by such holder of such securities does
not necessarily make such holder a "controlling person" of the Company within
the meaning of the Securities Act and is not to be construed as a recommendation
by such holder of the investment quality of the Company's debt or equity
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any rules and regulations promulgated
thereunder, the deletion of the reference to such holder.
ARTICLE V.
INDEMNIFICATION
The Company and the Shareholder agree to enter into typical and customary
indemnification and contribution agreements with the underwriters, if any, and
each other, regarding the actions of and information supplied by each in
connection with a registration of securities pursuant to this Agreement.
ARTICLE VI.
DEFINITIONS
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Commission: The Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act.
Common Stock: The common stock, par value $.01, of the Company.
Company: As defined in the introductory paragraph of this Agreement.
Exchange Act: The Securities Exchange Act of 1934, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
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Reference to a particular section of the
Exchange Act shall include a reference to the comparable section, if any, of any
such similar federal statute.
Merger Agreement: As defined in Section 1 of this Agreement.
Person: A corporation, association, partnership, organization, business,
individual, governmental agency or political subdivision thereof.
Registrable Securities: (a) any shares of Common Stock issued pursuant to
the Merger Agreement, (b) any securities issued or issuable pursuant to the
Merger Agreement or any Common Stock referred to in the foregoing subdivision by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) they shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (c) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then in force, or (d) they shall have ceased to be
outstanding.
Registration Expenses: All costs, fees and expenses of attorneys,
accountants, experts, printers and all filing fees with the Commission, the
American Stock Exchange or such other stock exchange on which the Company's
common stock is traded, or other applicable governmental authority, but not
including the discounts and commissions payable to underwriters, brokers or
dealers.
Requesting Holder: As defined in Section 4.8 of this Agreement.
Securities Act: The Securities Act of 1933, or any similar Federal statute,
and the rules and regulations of the Commission thereunder, all as of the same
shall be in effect at the time. References to a particular section of the
Securities Act of 1933 shall include a reference to the comparable section, if
any, of any such similar Federal statute.
Shareholder. As defined in Section 1 of this Agreement.
ARTICLE VII.
RULE 144
Section 7.1. Rule 144. The Company shall timely file the reports required
to be filed by it under the Securities Act and the Exchange Act (including but
not limited to the reports under
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Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of
Rule 144 adopted by the Commission under the Securities Act) and the rules and
regulations adopted by the Commission thereunder (or, if the Company is not
required to file such reports, will, upon the request of any holder of
Registrable Securities, make publicly available other information) and will take
such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by (a) Rule 144 under the Securities
Act, as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any holder
of Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. Remedies. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach of any
representation or covenant in this Agreement and hereby agrees to waive the
defense in any action for specific performance of such an obligation that a
remedy at law would be adequate.
Section 8.2. Adjustments Affecting Registrable Securities. The Company
will not take any action, or permit any change to occur, with respect to the
Registrable Securities which would adversely affect the ability of the holders
of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement.
Section 8.3. Assignment. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent holder of any Registrable Securities.
Section 8.4. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
Section 8.5. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS
OF THE STATE OF TEXAS WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
Section 8.6. Entire Agreement. This Agreement embodies the entire agreement
and understanding between the Company and each other party hereto and supersedes
all prior agreements and understandings relating to the subject matter hereof.
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Section 8.7. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
Section 8.8. Notices. Except as otherwise provided in this Agreement, all
communications provided for hereunder shall be in writing and sent by first-
class mail, postage prepaid, and (a) if addressed to a party to the Merger
Agreement other than the Company, addressed to such party in the manner set
forth in the Merger Agreement or at such other address as such party shall have
furnished to the Company in writing, or (b) if addressed to any other holder of
Registrable Securities, at the address that such holder shall have furnished to
the Company in writing, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company, or (c) if
addressed to the Company, to the attention of its President, or at such other
address, or to the attention of such other officer, as the Company shall have
furnished to each holder of Registrable Securities at the time outstanding.
Section 8.9. No Implied Waiver. No course of dealing between the Company
and the Shareholder or any other holder of Registrable Securities and no delay
in exercising any right, power or remedy conferred hereby or now or hereafter
existing at law or in equity, by statute or otherwise, shall operate as a waiver
of, or otherwise prejudice, any such right, power or remedy.
Section 8.10. No Inconsistent Agreements. Without the written consent of
the holders of a majority of the then outstanding Registrable Securities, the
Company will not on or after the date of this Agreement enter into any agreement
with respect to its securities which is inconsistent with the rights granted to
the holders of Registrable Securities in this Agreement or otherwise conflicts
with the provisions hereof. The Company has not previously entered into any
agreement with respect to its securities granting any registration rights to any
Person. The rights granted to the holders of Registrable Securities hereunder
do not in any way conflict with and are not inconsistent with the rights granted
to the holders of the Company's securities under any agreements previously
entered into by the Company.
Section 8.11. Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
Section 8.12. Amendments and Waivers. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of 51% or more of the shares of Registrable Securities. Each holder of
any Registrable Securities at the time or thereafter outstanding shall be bound
by any consent authorized by this section 5, whether or not such Registrable
Securities shall have been marked to indicate such consent.
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Section 8.13. Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election, be treated as the holder of
such Registrable Securities for purposes of any request or other action by any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
GREENBRIAR CORPORATION
By: /s/ Oscar Smith
________________________________
Oscar Smith, Vice President
/s/ Floyd B. Rhoades
___________________________________
Floyd B. Rhoades
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December 30, 1996
Greenbriar Corporation
4265 Kellway Circle
Addison, TX 75244-2033
Re: Affiliate Status
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of American Care Communities, Inc., a North Carolina corporation
("ACC"), as the term "affiliate" is (i) defined for purposes of paragraphs (c)
and (d) of Rule 145 of the Rules and Regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Merger Agreement, dated as of November
21, 1996 (the "Agreement"), by and among Greenbriar Corporation, a Nevada
corporation ("Greenbriar"), American Care Communities, Inc., a Nevada
corporation ("American"), and ACC, ACC will be merged with and into American
(the "Merger").
As a result of the Merger, I will receive shares of Common Stock of
Greenbriar, $.01 par value per share (the "Greenbriar Common Stock"). I will
receive approximately 1,192 shares of Greenbriar Common Stock in exchange for
each share of common stock, no par value per share, of ACC ("ACC Common Stock")
owned by me at the time of the Merger.
I represent and warrant to, and covenant with, Greenbriar that in the event
I receive any Greenbriar Common Stock or options to purchase Greenbriar Common
Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of any
Greenbriar Common Stock issued to me in the Merger in violation of the
Act or the Rules and Regulations.
B. I shall not make any sale, transfer or other disposition of any
Greenbriar Common Stock issued to me in the Merger until the provisions
for a "pooling of interests" as specified in Section 5.8 of the Merger
Agreement have been satisfied.
C. I have carefully read this letter and the Agreement and discussed their
requirements and other applicable limitations upon my ability to sell,
transfer or otherwise dispose of any Greenbriar Common Stock issued to
me in the Merger, to the extent I felt necessary, with my counsel or
counsel for ACC.
D. I have been advised that the issuance of Greenbriar Common Stock to me
in the Merger will not be registered with the Commission under the Act.
I have also been advised that I may not sell, transfer or otherwise
dispose of any Greenbriar
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Common Stock issued to me in the Merger unless (i) such sale, transfer
or other disposition has been registered under the Act, (ii) such sale,
transfer or other disposition is made in conformity with the volume and
other limitations of Rule 145 promulgated by the Commission under the
Act, or (iii) in the opinion of counsel reasonably acceptable to
Greenbriar, which opinion shall be submitted in writing to Greenbriar
in form and substance reasonably satisfactory to Greenbriar, such sale,
transfer or other disposition is otherwise exempt from registration
under the Act.
E. I understand that Greenbriar is under no obligation to register under
the Act the sale, transfer or other disposition by me or on my behalf
of any Greenbriar Common Stock issued to me in the Merger or to take
any other action necessary in order to make compliance with an
exemption from such registration available, except as provided for
under the terms of the Registration Rights Agreement dated the date
hereof between the undersigned and Greeenbriar.
F. I have no present intention to sell or dispose of any shares of ACC
Common Stock now owned or of any shares of Greenbriar Common Stock to
be received by me in or as a result of the Merger.
G. I also understand that stop transfer instructions will be given to
Greenbriar's transfer agent with respect to the Greenbriar Common Stock
issued to me in the Merger and that there may be placed on the
certificates representing the Greenbriar Common Stock issued to me in
the Merger, or any substitution therefor, a legend stating in
substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities
Act of 1933, as amended, applies. The shares represented by this
certificate may only be transferred in accordance with the terms
of a letter dated December 30, 1996 from the registered holder
hereof to Greenbriar Corporation, a copy of which letter is on
file at the principal office of Greenbriar Corporation.
H. I also understand that unless the transfer by me of any Greenbriar
Common Stock issued to me in the Merger has been registered under the
Act or is a sale made in conformity with the provisions of Rule 145,
Greenbriar reserves the right to put the following legend on the
certificates issued to my transferee:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and were
acquired from a person who received such shares in a transaction
to which Rule 145 promulgated under the Securities Act of 1933,
as amended, applies. The shares have been acquired
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<PAGE>
by the holder not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the
Securities Act of 1933, as amended, and may not be sold, pledged
or otherwise transferred except in accordance with an exemption
from the registration requirements of the Securities Act of 1933,
as amended."
It is understood and agreed that the legends set forth in Paragraphs G and
H above shall be removed by delivery of substitute certificates without such
legend if the undersigned shall have delivered to Greenbriar an opinion of
counsel in form and substance reasonably satisfactory to Greenbriar, to the
effect that such legend is not required for purposes of the Act. Prior to any
transfer of any of the Greenbriar Common Stock, I will give notice to Greenbriar
of my intention to effect such offer, sale or transfer, describing the proposed
transaction in sufficient detail to enable Greenbriar and its counsel to
determine that the proposed transaction will not violate the Act.
Sincerely,
/S/ FLOYD B. RHOADES
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FLOYD B. RHOADES
AGREED AND ACKNOWLEDGED:
GREENBRIAR CORPORATION
By: /s/ Oscar Smith
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Name: Oscar Smith
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Title: Vice President
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